Many home loans set to stay in arrears 'for years'
Published 15/03/2011 | 05:00
MORTGAGE arrears are to stay at a high level for a number of years, ratings agency Moody's has predicted in a research note.
The agency said increasing unemployment, lower incomes and austerity measures would hit homeowners' ability to repay their mortgages.
It said residential mortgage losses could hit 13pc, which would translate into losses of around €13bn on the €100bn book.
The ratings agency expects arrears levels to continue to rise throughout this year "and to remain at elevated levels for several years".
Increasing unemployment and lower incomes will impact on the ability of borrowers to meet repayments, Moody's said.
Borrowers would also be affected negatively by interest rate increases as mortgage loans are predominantly variable rates -- either trackers or standard variables.
Moody's added that negative equity was between 7pc and 60pc, depending on the transaction. This means that some mortgage holders have loans that are up to 60pc greater than the current value of their homes.
The ratings agency said lenders would continue to avoid recognising these losses by offering more loan modifications, such as allowing borrowers to pay the interest only or giving borrowers a payments holiday.
This policy reflects lenders' and the regulator's limited appetite to enforce delinquent loans, or to repossess homes.
Up to three European Central Bank rate rises are expected this year.