IMF says mortgage debt must be tackled
Published 13/03/2011 | 05:00
THE IMF has warned that mortgages and other household debt will need to be restructured by banks and governments across Europe to speed up the process of economic recovery.
In a discussion document released last Thursday -- Early Lessons From The Financial Crisis -- the Washington-based body said: "Efforts by banks to reduce the burden of household loans have not been enough."
It added that government programmes to restructure home mortgage loans had been "small in scope" and "largely ineffective, as indicated by the recurrent defaults" on the loans that had been restructured.
Those conclusions are borne out here, according to the findings of two recent reports from the ESRI and Central Bank.
According to the ESRI's report Financial Exclusion and Over-indebtedness in Irish Households, published last Tuesday, Ireland currently has the second-highest level of mortgage arrears in Europe.
The most recent figures published by the Central Bank meanwhile showed that 44,508 mortgage holders, or 5.7 per cent of the total, were in arrears by at least 90 days.
In comments that could be readily applied to the Irish situation, the IMF says: "For many households these (mortgage) debts have become too onerous to service."
It adds: "While low interest rates currently ease the debt-servicing burden and reduce the pressure on lenders to adjust borrowers' debt levels, risks will increase as interest rates return to normal levels."
While it remains to be seen what course of action the new Government will take to deal with the issue of distressed mortgages, the Programme for Government contains a number of options which it says will be considered.
These include: increasing mortgage interest relief to 30 per cent for first-time buyers who bought between 2004 and 2008; introducing a two-year moratorium on repossessions of "modest" family homes, where an honest effort is made to pay the mortgage; and making greater use of mortgage-interest supplement to support borrowers in danger of losing their homes.