The Central Bank has said more action is needed from mortgage lenders to deal with long term mortgage arrears.
Deputy Governor Ed Sibley said there are wider issues associated with the legacy of mortgage arrears including the cost of credit for all borrowers and the attractiveness of the Irish mortgage market for new entrants.
Mr Sibley called for “a meaningful engagement” between lenders and those in long-term mortgage arrears to try and find a right solution to overcome the debts.
He told RTÉ News at One that more action is needed within the financial system, not just in banks, to improve the level of engagement with borrowers and to find real solutions that address the underlying issue of affordability for some.
He said that some solutions include working with insolvency and advocacy services groups.
Mr Sibley said that research from the Central Bank shows that there are a large group of borrowers who can pay with a restructuring plan.
He said key to finding any solutions is for these borrowers to engage and co-operate in a meaningful way with their lenders to find the right solutions for them, that are aligned to what they can afford to pay.
For those who do not have the capacity to fully repay, an appropriate solution could involve a partial repayment and then parks the debt that cannot be paid for now, he said.
Taking action can be effective to address even the deepest level of arrears where there is engagement and borrowers strive to solve “what can be solved”, he added.
The Deputy Governor’s remarks coincided with the publication of four separate reports on the mortgage market from the Central Bank today.
One report finds that as of March this year, 95,000 accounts or 13% of all principal dwelling mortgages will have some shortfall in repayments at the end of their term.
The shortfalls arise from some form of restructuring or payment break over the term of the loan, the Central Bank said.
It said this represents €14.5 billion worth of loans. Two thirds of these loans face a shortfall of over 10% of the value of the loan. 54% of these loans are not restructured.
45% of the loans, or 28,350 accounts, are in arrears of over one year.
The Central Bank estimates that 27% or 25,650 of the shortfall accounts will have repaid less than 50% of the value of their loans by the end of their term.
22% or just over 20,000 accounts are described as “uncertain” because there has not been enough engagement between the lender and the borrower to figure out how much can be repaid.
79% of the accounts with shortfalls of over 10% are in positive equity, which means the value of the house is greater than the loan.
26% of the accounts classed as “low” or “uncertain” in terms of ability to repay are in negative equity. In other words, the higher the outstanding loan, the more likely the property is to be in negative equity.
Almost 29,500 mortgages in arrears for over a year
Another report from the Central Bank finds that 29,429 mortgage accounts have been in arrears for over a year.
The bank describes these accounts as a “legacy of the pre-Covid era”. Most of the arrears began during the financial crisis.
This figure is down from a peak of 60,995 accounts in arrears in June 2014 and represent 4% of all principle dwelling home mortgages and just over €6 billion in loans. They represent 54% of all principal dwelling mortgages in arrears.
The Central Bank estimates these mortgages represent about 25,000 households as some people have more than one mortgage.
About half of these mortgages are classed as “non-cooperating”.
The Central Bank carried out an analysis of a sample of over 8,000 of these mortgage accounts. It found the average age of the mortgage holder was 48 and the average amount outstanding was just over €153,000.
Half of long-term mortgage arrears borrowers owe more than 43% of their monthly income on debt repayments, with the average owing 61%. Approximately a third are unemployed.
The Central Bank’s report finds that just over half of those in long-term mortgage arrears have no “adjustment capacity available whatsoever” to pay something on their loans. But it also finds that 37% do have the capacity to make full repayment of their loans.
Based on a sample of borrowers in long-term arrears who have engaged with lenders, the report finds that 57% have sufficient income to clear over 50% of their loans. 25% could clear between 0-50% of their balances and 18% do not have the income to make any repayments.
The majority of long-term arrears borrowers are between 40 and 60. Around 12% are over 60, while couples with children make up 58%.
Economic impact of Covid compared to financial crisis
Another Central Bank report compares the economic impact of Covid-19 compared to the financial crisis.
Under Covid, unemployment rose sharply in the space of a month in April 2020 from 5% to 30% due to public health restrictions.
In contrast, during the financial crisis unemployment rose over the period from 2007 to 2013 from 4% to 15%.
However, today’s report finds that PUP and other supports maintained incomes to a greater extent.
It also found that property prices were flat during 2020 and began to rise at the start of 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 companies availed of the moratorium on debt repayments.
Brokers Ireland said it welcomed the report and said that the Central Bank’s finding that borrowers sometimes find the Standard Financial Statement or SFS challenging to complete is “quite the revelation a decade on from the financial crisis.”
“It is time to face up to something we in Brokers Ireland have long maintained, that is that restructures such as ‘arrears capitalisation’ are effectively a method of kicking the can down the road,” said Rachel McGovern, Director of Financial Services.
“The taboo around debt needs to be addressed and consumers need to be encouraged to engage at an early stage when encountering issues with repayments.”