Marc Coleman: Cyprus deal offers hope to our struggling homeowners
The impending bailout of another island's banks will set a precedent that will benefit us.
Few economists can write about mortgage arrears from personal experience. But I can. In September 1985 as a young teenager in a household with no one at work, I recall how a rather brutal dilemma presented itself: Do we pay the mortgage? Or keep the lights on. There not being much point in paying electricity for a house you'll be evicted from, the choice was clear. We spent the next 10 months in darkness and cold with no electricity.
According to the Irish League of Credit Unions 'What's Left' index, many of us are approaching those kinds of choices: some 1.8 million have €100 left after "essential bills" are met. The figure overstates the problem. But as accurate forensic data from the Central Bank shows, the problem hardly needs overstating: as of December, 143,851 residential mortgages and 37,955 buy-to-let mortgages were in arrears. In each category, roughly two-thirds were in arrears for more than 90 days.
But are these people who can't pay or who just won't? While there are clear-cut cases – not being able to pay the electricity bill is clearly a 'can't pay' situation – there are many grey areas. What about not being able to pay health insurance if you have a sick child? Or keeping the car you need to commute to work? Even in less clear cases banks have a responsibility to engage with Matthew Elderfield's call this week to restructure mortgages. Spiritual support for this approach has come from International Monetary Fund boss Christine Lagarde. While in Dublin last week, she pointed out how if Irish banks borrowed too much, it is because other banks lent too much to them. The same principle of symmetry applies to Irish mortgage borrowers and Irish banks.