THE mortgage crisis will hit its worst level over the next three months but is finally set to stabilise, according to rating agency Fitch.
Cases of long-term mortgage arrears will peak at a new high of more than 18pc between now and the end of March, but the stock of arrears will then start to fall, the agency predicts.
The number of long-term arrears cases will come down thanks to fewer people falling behind on repayments for the first time and because the year ahead will see banks work through their backlogs of older arrears -- including repossessions involving those who have not been making repayments, Fitch said.
But the agency warns lenders that repossessions will not necessarily become more financially attractive for them, even as house prices start to recover.
"An increase in headline house prices may not fully translate into higher recoveries from distressed borrowers, because steep discounts will still be required to achieve sales on less attractive properties," Fitch said in its latest quarterly "Mortgage Market Index" which is published today.
The agency does expect to see a higher number of repossession actions this year. It also expects more debt restructurings and mortgage writedowns -- due to the tougher legal regime for borrowers introduced last year by the Government.
"Recent legislative changes provide lenders with more certainty that they have effective tools to handle the most uncooperative borrowers.
"The combination of fewer new arrears cases and our expectation of a slow pick-up in loan workouts means the peak in late-stage arrears is now close," said Andrew Currie, Managing Director at Fitch's Structured Finance team.
House prices are down 45pc from the peak of the boom, Fitch said, but the number of new home loans is down by more than double that level -- having recorded a 92pc decline.
The property market will pick up this year, with a modest rise in overall house prices expected, and a 10pc increase in the number of homes being sold.
Price rises in Dublin are making property in the capital less affordable, even as houses become more affordable elsewhere, the agency notes.
"The recent rate of growth in house prices in Dublin, although unlikely to persist in the long run, is putting pressure on affordability.
"This trend is expected to be short term and is unlikely to reach levels seen at the peak of the market," Fitch said.