Sunday 22 April 2018

Mortgage arrears problem still real nine years after house prices started to fall

While water charges dominated the headlines, the bigger issue of the housing crisis was often ignored
While water charges dominated the headlines, the bigger issue of the housing crisis was often ignored
Richard Curran

Richard Curran

A lot has been made of how Fine Gael's election slogan of keeping the recovery going, didn't gain much traction with a lot of people. The dominant analysis has been that people just weren't seeing much recovery anyway, and they pointed to public services, healthcare and challenges facing rural Ireland, as problem areas.

This is all true, but bizarrely the debate about Irish Water dominated the headlines in the days following the election as if it was the primary source of electoral anger and the only issue that had to be resolved by a new administration.

Yet you don't even have to delve into these issues to see the giant gap between the Government's self-perception and where many people's reality lay.

The housing crisis remains a huge problem, as insufficient available houses in key areas and tight mortgage lending rules conspire to drive up rents and homelessness.

Whatever about those angry young "middle Irelanders" forking out huge rents, what about the boom generation still languishing in mortgage arrears and negative equity?

Despite strong gains in employment, GDP growth and bank returns to profitability, there were still a staggering 92,000 mortgage accounts in arrears at the end of September. This represented 12pc of all Irish mortgage accounts.

Over 65,000 mortgages on principal dwelling homes or 8pc of the total were over 90 days in arrears.

Undoubtedly the numbers have been falling as banks began to do deals with customers but the process still has a long way to go. There have been several problems. It took too long to get a proper personal insolvency legislative regime in place. The fact that banks find it so difficult to repossess a home meant the ultimate sanction was not available to banks to get some customers to the negotiating table. The banks themselves were very slow to act because there was always the possibility that house prices would recover and perhaps the financial circumstances of the customers might improve over time.

They bagged all this State bailout money but were reluctant to use it either to lend or to realise losses that were a fact of life anyway.

The lift in house prices has taken a lot of people out of negative equity. An improved jobs market has given many in trouble a chance to get back on track.

House repossessions are on the rise but remain relatively low by international standards. At the end of September there were over 37,000 owner-occupier mortgage accounts in arrears of more than two years.

They have built up arrears of around €2bn on mortgages that are of over €8bn.

So, four out of every ten mortgage accounts that are in arrears are two years or more behind with their repayments, with many not paying anything at all.

Repossessions are running at around 600 per quarter. If the UK repossession rate was applied to the Irish market, banks would be taking close to 6,000 properties into possession per quarter, some experts estimate. Mortgage arrears remain a real weak spot in the performance of what are now very profitable Irish banks. Bank of Ireland doesn't do mortgage write-offs. Instead it is increasing the number of active forbearance measures it is applying.

This is where it basically restructures the mortgage in some way. Despite an improving economy, the number of mortgages it has with forbearance measures has been growing.

Negative equity is less of a problem than arrears but Bank of Ireland still has around 17pc of its owner-occupier mortgages in negative equity.

AIB wrote off almost €605m in mortgages in 2015. Its Irish mortgage write-offs have totalled over €1bn in the last two years. Banks have been slow to get on top of the arrears problem but they are a lot more pro-active about it in the last 12 to 18 months.

AIB lent about €1.7bn in new mortgage lending last year. The number of mortgage customers placed on a restructuring arrangement because of loan arrears rose to 37,300. Repossessions increased.

It doesn't mean the problem is getting worse. It actually means the bank finally trying to make the situation better. The vast majority of its new arrangements are sticking.

However, they are not in a hurry. There will be no easy amnesty on long term arrears. There will be no mass debt forgiveness programme. Deals will be reached on a case by case basis. It is a slow, dogged and difficult process for people.

Prima Finance is a debt resolution firm that advises customers with debt problems. For a fee the firm negotiates with the banks, reaches a deal and then helps the customer manage that new deal.

Its website gives some insight into what deals debtors can achieve. Short examples can't tell the full story but they do give some indications.

Prima cites a case of a typical couple who had a mortgage of €268,000 and were paying €1,343 per month in repayments. A new arrangement saw their mortgage reduced to €107,000 with repayments of €579 per month. Around €72,000 was written off while a further €88,000 was parked, interest free, to be dealt with further down the road.

Another example it gives describes how another couple had €186,000 of their €441,000 mortgage written off. They make repayments on €178,000 and have €78,000 parked interest free.

These deals were inconceivable five years ago, even though there were many more people in trouble at that time.

The legacy of the house price crash remains despite the fact there aren't enough houses for younger people to buy in places like Dublin. And some are unhappy that they aren't allowed to borrow more money under Central Bank rules.

It will take many more years before all legacy repossessions are dealt with. It will also take years for those customers on new deals to be able to handle the parked elements of their mortgages. Relatively high arrears levels look set to continue alongside relatively low repossession levels, for years to come.

In two months' time it will be nine years since house prices began to fall. The fact there are still 92,000 mortgage accounts in arrears shows the depth of the crisis and how poorly it was handled.

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