The central bank has stated that more action is needed from mortgage lenders to deal with long-term mortgage arrears.
Deputy Governor Ed Sibley said there were broader issues surrounding the inheritance of mortgage arrears, including the cost of borrowing for all borrowers and the attractiveness of the Irish mortgage market to new entrants.
The deputy governor’s remarks coincided with today’s release of four separate central bank reports on the mortgage market.
A report finds that as of March this year, 95,000 accounts, or 13% of all major residential mortgages, will have some repayment at the end of their term.
The defaults result from some form of restructuring or payment interruption during the life of the loan, the central bank said.
This corresponds to a loan volume of 14.5 billion euros. Two thirds of these loans have an underfunding of more than 10% of the loan value. 54% of these loans will not be restructured.
45% of the loans or 28,350 accounts are in arrears for over a year.
The central bank estimates that 27%, or 25,650 of the bad accounts will have paid back less than 50% of the value of their loans by the end of their life.
22% or just over 20,000 accounts are labeled “unsafe” because there was insufficient commitment between the lender and the borrower to figure out how much to repay.
79% of accounts with deficit of over 10% are in positive equity, meaning the home is worth more than the loan.
26% of the accounts classified as “low” or “uncertain” in terms of repayability have negative equity. In other words, the higher the outstanding loan, the more likely the property is in negative equity.
Almost 29,500 mortgages in arrears for over a year
Another central bank report finds 29,429 mortgage accounts have been in arrears for over a year.
The bank calls these accounts the “legacy of the pre-Covid era”. Most of the arrears started during the financial crisis.
That number is down from a peak of 60,995 arrears accounts in June 2014 and represents 4% of all major residential mortgages and just over € 6 billion in loans. They account for 54% of all arrears mortgages for main residential buildings.
The central bank estimates that these mortgages represent about 25,000 households as some people have more than one mortgage.
Around half of these mortgages are classified as “non-cooperating”.
The central bank analyzed a sample of over 8,000 of these mortgage accounts. It found that the average age of the mortgage holder was 48 and the average outstanding amount was just over $ 153,000.
Half of borrowers with long-term mortgage arrears owe more than 43% of their monthly income on debt repayments, with an average of 61%. Around a third are unemployed.
The central bank report finds that just over half of those with long-term mortgage arrears do not have the “capacity to adjust” to pay for their loans. But it also notes that 37% have the option to repay their loans in full.
Based on a sample of borrowers with long-term arrears who have been in contact with lenders, the report finds that 57% have sufficient income to repay over 50% of their loans. 25% could balance between 0-50% of their balance and 18% have no income to make repayments.
The majority of borrowers with long-term arrears are between the ages of 40 and 60. Around 12% are over 60 years old, while couples with children make up 58%.
Economic impact of Covid compared to the financial crisis
Another central bank report compares the economic impact of Covid-19 to the financial crisis.
Under Covid, unemployment rose sharply from 5% to 30% in one month in April 2020 due to public health restrictions.
In contrast, during the financial crisis, unemployment rose from 4% to 15% between 2007 and 2013.
However, today’s report notes that PUP and other aids are maintaining income on a larger scale.
It also noted that house prices remained unchanged in 2020 and began to rise earlier this year. This compares to a 55% drop in house prices during the financial crisis.
The report finds that 30% of loans to small and medium-sized businesses have used the moratorium on debt repayment.