Arrears-hit homeowners dodge the banks in hope of 'holding out for better deal'
Large numbers of homeowners who are in arrears on their mortgages are failing to engage with their banks with many believing they can "hold out for a better deal".
A new report by a Central Bank economist found that some of those not co-operating with their lenders may be engaged in a "wait-and-see" situation where they think by holding out they may get more from the bank. But the banks are also using wait-and-see strategies, the study found, meaning there is little progress in solving the impasse.
Non-engaging homeowners may be playing on the fact that it takes a long time to repossess a house in this country.
"Agreeing the terms of renegotiation or voluntary sale today comes at the cost of a potentially more favourable outcome tomorrow," according to the paper 'Long-Term Mortgage Arrears in Ireland' by economist Terry O'Malley.
Some 40pc of those in long-term arrears are failing to engage with their bank. This implies 11,600 borrowers are failing to respond to letters and phone calls.
Property price rises may make this strategy worthwhile, but there is also a risk of losing ownership of the home, the study states.
Banks are also engaged in delaying tactics in dealing with problem loans.
The paper states: "Wait-and-see behaviour may be desirable to some borrowers and their banks because of the uncertainty of house prices and the length of time it takes to repossess a property."
If house prices rise next year, then both the bank and the borrower benefit because some debt can be potentially paid off through the sale of the more valuable property.
But a wait-and-see approach also comes with costs.
Borrowers continue to accumulate debt through missed interest payments and face continued uncertainty about repossession. By keeping capital tied up in non-performing loans, banks lose the opportunity to do profitable new lending. However, borrowers who engage with their lender are more likely to end up out of arrears.
The study also found that large numbers of people who are in long-term mortgage arrears live in the midlands and border areas.
Although the greatest number of those more than two years behind on their payments are in Dublin, there is a disproportionate number from border and midlands counties.
Leitrim and Cavan also figure prominently dispute lower populations in these counties.
Those in trouble with their home loan are more likely to have an expensive variable rate mortgage rather than a good-value tracker. Some 29,000 residential mortgages are more than two years in arrears. The average amount of missed payments is €66,000.