Country battered by e66bn perfect storm
Shocking report reveals mortgage debt outstrips total income of this country by tens of billions, writes Daniel McConnell
Ireland is in the midst of a €66bn mortgage crisis, with 30,000 people now defaulting on their loans and that number set to escalate dramatically during 2010.
A shocking new Central Bank report obtained by the Sunday Independent reveals that the total cost of mortgages in Ireland is now €66bn higher than the total net income in the country.
Caught in the perfect storm of wage cuts and spiralling unemployment, the number of people that have fallen into arrears has more than doubled in the last 15 months, the latest figures reveal.
Given the huge spike in unemployment during 2009, thousands more people, and particularly young couples, will default on their mortgages during 2010, the report warned.
As a result, there has been a huge surge in people transferring over to interest-only mortgages for at least 12 months, in the hope things will improve during that time.
"From 2002, the scale of mortgage indebtedness grew considerably, relative to net wealth levels, with total mortgage levels in both 2007 and 2008 exceeding total household wealth," the report said. The difference between the two is now €66bn.
The report states that, given the huge number of over-inflated mortgages given out during the boom period of 2004 to 2006, and the devastating impact of the downturn in the Irish economy, "many Irish households are now or will soon be experiencing difficulties in paying their mortgages".
"The Irish mortgage market is in a particularly precarious position. At the height of a pronounced property boom, a substantial volume of mortgages [was issued] at price levels now proven to be over-valued," it said.
"As a result, a large number of Irish households are now very highly leveraged, while property prices are falling by over 15 per cent per annum."
In a stark analysis of how damaging the property boom was, it said Ireland became too reliant on the housing sector and that the building of 90,000 houses between 2005 and 2007 -- which was just half of what was being built in all of the UK -- was unsustainable, and that on average house prices here were 20-30 per cent overvalued.
Contrary to the Government's claims that the downturn was caused by international factors, Irish income levels clearly started to decline in mid-2007, a full year before those of the other OECD countries, the report said.
It said that the impact of the global downturn only compounded the recession which was already under way here.
Those people most likely to default on their mortgages this year are young people who took out mortgages on over-priced properties during the boom times and who have since had their income slashed or eliminated by job cuts and have little prospect of getting back to work in the short term.
Last month, figures from rating agency Moody's showed that the percentage of Irish home mortgages in arrears increased again in November.
In its latest report, Moody's said that the rate of mortgages more than 90 days in arrears hit 3.3 per cent -- the first time the rate has exceeded 3 per cent since it began monitoring the area in 2004.
It also says the 360-plus days figure more than tripled in November compared with the same time the previous year to stand at 0.8 per cent. Moody's said its outlook for the residential mortgage-backed securities sector is negative. It said that weak demand and an oversupply of property in many areas suggest house prices will continue to fall this year.
At present, 26,271 mortgage accounts, or 3.3 per cent of the total, were in arrears for more than three months.
This means that the percentage of households falling into arrears has more than doubled in the last 15 months. Of these 17,767, or 2.2 per cent, were more than six months in arrears.
Latest figures from the Financial Regulator in December showed that mortgage lenders held a total of 331 repossessed homes by the end of last September. Some 110 properties were repossessed in the three months from June to September.
Figures show €4.8bn was owed on all accounts more than three months in arrears and €3.2bn was owed in respect of accounts more than six months in arrears.
One such couple are Ann and Mark O'Reilly, from Dublin, who both have taken pay cuts and fell behind on their mortgage twice in the last six months.
"We both have had a really bad year, workwise, with two rounds of pay cuts. We bought in 2006 and our house is worth way less than what we paid for it," the couple said.
"We failed to make the mortgage twice and the bank was beginning to get heavy. So we organised a solicitor and we went in and did a deal.
"We are on interest-only for a year and we're hoping we'll be okay."
Meanwhile, the moratorium on house repossessions was last week extended to 12 months for all lenders.
The change, ordered by the Financial Regulator, means that all lenders must wait at least a year from the time arrears first arise before applying to the courts for a repossession order.
It applies to mainstream institutions as well as sub-prime lenders, which account for more than 40 per cent of repossession orders coming before the courts. The 12-month requirement does not apply where a borrower is deliberately not engaging with the lender.
AIB said this weekend that it encourages any of its clients who are experiencing difficulties to come in and talk with them to rearrange their repayments and not to let the situation to get out of hand.
Focus Ireland criticised the Financial Regulator for not effectively protecting borrowers who fall into mortgage arrears due to the recession.
The housing and homeless charity welcomed the recent voluntary announcement of a 12-month moratorium on home repossessions by AIB and Bank of Ireland as a "good first step" to offer more protection to homeowners who may be affected by rising unemployment.
However, Focus Ireland said it was concerned that the Government did not take action to ensure the moratorium on home repossessions announced by the Financial Regulator was for a period of at least two years -- as this code must be followed by all banks.