MORTGAGE lenders were accused of piling misery on struggling homeowners yesterday after it emerged that they are imposing stiff penalties on people late with their repayments.

As many as 30,000 people could already be in arrears on their mortgages as the downturn sends people deeper into a spiral of debt.

Lenders are imposing penalty interest of up to 1pc a month, or 12pc a year, on the monthly repayments that are missed, a special investigation by the Irish Independent has found.

This means that each monthly payment of €1,500 that is missed will have €15 added to the outstanding amount. With every subsequent missed repayment, the 1pc penalty is charged on the overall arrears balance.

Repayments

Mortgage experts said that imposing penalty interest on arrears as soon as repayments are missed means that the amount owed to the lender quickly starts to mushroom.

AIB admitted it imposes surcharge interest of 6pc APR (annual equivalent amount) on arrears.

Bank of Ireland said it charges a penalty of 0.5pc a month, or 6pc a year, on the arrears amount only.

Halifax along with its sister operation Bank of Scotland (Ireland) said it imposes a charge of €12 if a direct debit being used to make mortgage repayments is unpaid.

Subprime lender Start Mortgages imposes the highest surcharge at 1pc a month on the arrears balance. This works out at 12pc in annual terms.

Another subprime lender, Springboard, has a fixed charge of €15 a month. "This charge applies for each month the account is in arrears," a spokesman said.

Other lenders contacted said they do not impose penalty surcharges for late mortgage payments.

Free Legal Aid Centres (FLAC) chief executive Noeline Blackwell accused lenders who impose surcharges on arrears of making people's financial problems worse.

"Imposing penalty charges is adding enormously to the overall debt that people who are in arrears have to pay."

She said people who get into arrears were also being charged up to €45 when lenders send them solicitors' letters warning about the arrears.

Ms Blackwell called on the Financial Regulator to publish a comprehensive list of the arrears charges and arrears policies of the banks.

Costs

"It should not be up to journalists to find out this information about penalty charges and costs," she said.

Consumers' Association chairman James Doorley called on banks to work more closely with State-supported MABS (the Money Advice and Budgeting Service) rather than penalising people who are behind on their payments.

Mortgage experts said as many as 30,000 people may now be in arrears on their mortgages. Arrears are classified as failing to repay the mortgage for three months.

The 30,000 figure is based on a recent admission from Permanent TSB that 6,000 of its customers are in arrears of over three months or more.

As Permanent TSB has 20pc of the mortgage market, it has been calculated that the entire market has 30,000 mortgage holders who are in arrears.

A spokesman for the Irish Banking Federation said it was not able to confirm or deny if this figure is accurate as there are no up-to-date statistics on arrears.

More than 14,000 people are being helped to pay their mortgages by the Department of Social and Family Affairs.

THE IRISH INDEPENDENT, Charlie Weston - Personal Finance Editor