Business Irish

Monday 15 July 2019

Mortgage arrears continue to grow as homeowners battle with debts

Joe Brennan

Irish mortgage arrears tracked higher and the rate of loans being paid off ahead of schedule halved in the first quarter, as homeowners continued to struggle in a deep recession, according to Moody's.

A report by the ratings agency into almost half the €114bn worth of prime Irish mortgages found 1.7pc of homeloans were at least 90 days in arrears, up from 1pc in the same period last year. Moody's looked at the €52.8bn worth of Irish mortgages that are securitised -- or pooled and repackaged into bonds to be sold to investors as a way of raising funds.

More recently, however, banks have securitised mortgages as a way of providing collateral to tap the European Central Bank (ECB) for short-term funds, as access to wholesale markets remains difficult.

Moody's estimates almost 50pc of Irish mortgages are securitised, compared with less than 10pc in 2007 -- making the Residential Mortgage-Backed Security (RMBS) market much more representative of the entire mortgage sector.

Some 0.3pc of the country's 262,000 RMBS-related mortgages were over 360 days in arrears, which Moody's uses as a proxy for default, given that there isn't a culture of foreclosure in Ireland. This marks a three-fold increase in 12 months.

"This means that approximately 1,000 loans are heavily delinquent," the agency said.

At the same time, the rate of mortgages being redeemed plummeted from 13.4pc in the first quarter of 2008 to at least a decade-low pace of 5.8pc.

"House price depreciation, rising unemployment and the slowdown of the financial sector have all contributed to a rapid fall in prepayment rates," Moody's said.


Moody' expects that Irish house prices, which have fallen 18.5pc from their peak in early 2007, will not stop tumbling until they are 40pc from their highs.

"Average mortgage interest rates have fallen from their peak of 5.86pc in September 2008 to 3.85pc in February 2009," Moody's noted, as a result of ECB rates falling to 1pc from 4.25pc. "However, income taxes in Ireland have had to increase, due to the rising level of government budget deficits."

It added that fiscal tightening may also send companies operating in Ireland to decamp to cheaper areas. The agency does not expect a fast recovery in household finances.

"Although prior strong house price growth has left plenty of equity cushions for mortgages originated a few years ago, the pace and the impact of the slowdown have been exceeding analysts' forecasts," Moody's said.

The agency believes that only four of 18 outstanding RMBS transactions will have average loan-to-value ratios below 90pc when the property market bottoms out. A further six would average above 100pc -- in other words, be in negative equity territory.

"The decline in the total redemption rate is indicative of the tight credit conditions and weak economic expectations," said Georgij Ludmirskij, a senior Moody's analyst.

"Further deterioration (in the Irish RMBS market) should be expected as a result of rising unemployment and house price depreciation."

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