Friday 20 October 2017

Third of mortgage holders in arrears 'choosing not to pay'

Charlie Weston Personal Finance Editor

MORE than one-third of mortgage holders who are in arrears are deliberately not paying – even though they can afford to do so – a leading academic has claimed.

Gregory Connor, professor of Finance at NUI Maynooth, said that 35pc – or close to 40,000 – of residential and buy-to-let mortgage holders who are three months or more behind on their payments could meet their payments but were choosing not to.

This is known as strategic defaulting, where funds to pay a mortgage are spent on other debts or goods and services.

Prof Connor, who has previously held leading academic positions at the London School of Economics and the University of California, based his calculations on the Central Bank's arrears figures and US research.

He said there had been dramatic growth in the level of mortgage arrears since the so-called Dunne ruling.

This was a judgment by Ms Justice Elizabeth Dunne which exposed a legal loophole and blocked banks from repossessing homes in cases where the mortgages were issued before 2009.

Most boom-time loans were issued before 2009. The Dunne ruling was made in July 2011.

The academic, above, said restrictions on repossessions were leading to a higher proportion of strategic arrears than in other countries.

Strategic

"It seems likely that the proportion of strategic arrears in Ireland is greater than 35pc," Prof Connor wrote in a post on the Irisheconomy.ie website.

Central Bank figures indicate that there were 86,146 residential mortgage accounts in arrears for three months or more in September last year.

Another 26,770 buy-to-let mortgages were three months or more in arrears.

This totals 112,916 and if 35pc are strategically defaulting, it would mean that close to 40,000 mortgages are not seeing any payments made even though the money is available.

Prof Connor has calculated that the value of mortgages in arrears amounts to almost €25bn, with €8.6bn made up of strategic arrears.

The academic claimed that the high level of people who can pay their mortgage, but won't, means many people would get a deal under new personal-insolvency rules who should not.

This is in line with poll findings that show large numbers of people believe new laws to allow people have their debts reduced are set to be abused.

The Red C poll, commissioned by 'Stubbs Gazette', has shown that four out of 10 people believe that the new law will encourage people who are able to meet their repayments to seek a debt-reduction deal.

The Government is set to pass new laws to allow banks to repossess both homes and buy-to-let properties, after coming under pressure from the troika.

Irish Independent

Also in Business