Thursday 17 October 2019

Professor's mortgage war a little far-fetched

Charlie Weston

IF you are to believe the apocalyptic predictions of UCD economics professor Morgan Kelly we are on the cusp of a mortgage war, similar to the land war of the latter part of the 1800s.

Back then tenant farmers demanded the redistribution of land to them from absentee landlords.

Roll forward to today and the hostilities on the home-loan front will see 200,000 people default on their mortgages and these people will take to the streets to teach our errant bankers a lesson.

Society will be pulled apart in the looming mortgage war, with defaulters pitted against those who didn't take risks during the housing bubble and are just about managing to meet their monthly repayments, Prof Kelly predicted in the 'Irish Times' this week.

The starting point for the gloomy professor's prediction was an assumption that 100,000 homeowners, representing one in eight mortgage holders, are already in trouble with their home loans.

The problem with the professor's predictions of mortgage mayhem spilling on to the streets is that his starting position of 100,000 mortgages now in trouble appears to be wrong.

It is a given that all of Prof Kelly's predictions have proven to be accurate up to now, but it is hard to escape the conclusion that he may be wrong about the mortgage situation.

Yes, we report today that arrears figures due out next month are set to show a surge to 40,000, or 5pc of all residential mortgages.

And austerity measures in December 7's Budget are likely to put more homeowners under pressure.

Then there is likely to be a rise in eurozone interest rates at the end of next year.

But there are indications aplenty from a broad range of lenders spoken to by this newspaper that mortgage arrears levels are starting to stabilise.

There is a strong link between the unemployment rate and arrears. The unemployment rate is showing some signs of stabilising, albeit at a high level.

Lenders have known about this link for a while, but what has caught them out is how long it takes for someone who has lost a job to then start getting into arrears. This is because people will use up redundancy money and savings to pay the mortgage.

It is only when this money runs out that they end up getting behind on their payments.

Once someone gets into trouble with their mortgage, lenders are being hugely accommodating, and not just because they are being forced into forbearance by regulatory rules.

Forbearance is where the borrower agrees to a repayment plan and in return the lender agrees not to seek repossession if the lowered payments continue to be made.

And there is evidence that forbearance works.

A study by Britain's Building Societies Association shows that after two years of forbearance most people have either paid off their arrears or are in the process of doing so.

This is why the government-appointed expert group on mortgage arrears is set to recommend more forbearance, rather than any debt forgiveness plan, when its final report is published next week.

The idea that there will be mass defaults on mortgages, with riots in the streets, seems far fetched.

For all our faults, we Irish pay our bills, and we like our homes too much for thousands of us to risk losing them by giving up paying the mortgage.

Irish Independent

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