More households to fall into arrears
Published 03/12/2010 | 05:00
MORE people will face trouble meeting their mortgage payments, particularly those whose loan is greater than the value of their house, an international ratings agency said yesterday.
High mortgage amounts relative to the values of houses have so far not been a significant factor in defaults.
But the report from ratings agency Moody's said the severity of the recession and sluggishness of the housing market means options have been restricted for those in arrears.
When interest rates start to rise, financially distressed borrowers will be less able and less willing to meet their repayments, particularly if they are in significant negative equity.
At the moment, the typical homeowner who ends up getting behind on their mortgage repayments is self-employed, living outside Dublin and took out their mortgage during the peak of the housing bubble between 2006 and 2007.
But from now on negative equity is set to become a big factor in driving people to default on their mortgages, new research from Moody's shows.
Expected rises in interest rates and high levels of unemployment are also due to push more mortgage holders to get into arrears in the next year, the report says. It also expects arrears level to stay high.
Figures issued last month by the Central Bank show more than 40,000 homeowners are in arrears as they have not paid their mortgage for three months or more, while another 30,000 have got their lender to lower their repayments.
Matthew Elderfield, head of financial regulation in the Central Bank, warned last month that more people were likely to get into arrears this year.
The report shows arrears in Ireland continued to climb this year, unlike the situation in Britain, Spain and Italy, and the problem is due to get worse.
"The housing price drop, combined with the overall severity of the recession, will leave a lasting legacy on the performance of Irish residential mortgage loans," it said.
It estimates that half of the 800,000 mortgages in the State will be negative equity, where the value of the mortgage is higher than the value of the house. Those borrowers in severe negative equity are most at risk of getting into arrears.
The highest levels of arrears are to be found in Roscommon, followed by Cavan, Longford, Laois and Leitrim and Carlow.