Permanent TSB is writing to buy-to-let investors who are in arrears, telling them that if they sell their properties the bank will write off any residual debt.
This represents a major shift in the approach by the bank to mortgage holders who are in arrears.
This could eventually lead to the bank making similar offers to residential mortgage holders who are in debt distress.
Financial experts said other banks are likely to follow Permanent TSB’s lead.
It is the first mainstream bank to offer to write off bad debts on a formal basis.
The move is set to be attractive to small investors and so-called accidental landlords, many of whom are struggling to meet repayments.
Selling up is often not an option, as the arrears can be so large that there will still be a shortfall on the mortgage debt after the sale. This means the owners are in negative equity, where the property is worth less than the mortgage taken out on it.
However, the push to sell rental properties is likely to see more tenants left with nowhere to live.
Permanent TSB is under pressure from the Central Bank and the European Central Bank to deal with its bad debts, which represent 28% of its loan book.
The bank, which is 75% owned by the State, still intends to sell a portfolio of soured debt to reduce non-performing loans.