Mortgage arrears level set to peak

The level of mortgage arrears of over 90 days will peak in 2014, having reached a new high of 18% in the final quarter of last year, according to Fitch Ratings.

However, in a report called ‘Mortgage Market Index — Ireland’, Fitch said the number of borrowers entering early stage arrears has fallen to 2.2% from its peak of almost 3% in 2011. It noted that various schemes have been introduced to tackle cases of long -term arrears, including reinstating foreclosure as a viable option for lenders. As a result, Fitch expects the level of three-months-plus arrears to peak in 2014.

“There has been a slowdown in the number of new borrowers getting into mortgage distress,” says Andrew Currie, managing director at Fitch’s Structured Finance team. “Recent legislative changes provide lenders with more certainty that they have effective tools to handle the most uncooperative borrowers. The combination of fewer new arrears cases and our expectation of a slow pick-up in loan workouts means the peak in late-stage arrears is now close.”

Over the course of last year, the Government made a number of legislative changes in order to tackle the massive mortgage arrears crisis. The new personal insolvency legislation and the bankruptcy legislation were enacted.

There is also the Central Bank’s mortgage arrears resolution process (MARP). The Central Bank has also imposed mortgage arrears resolution targets.

Even though house prices have fallen by 45% from peak to trough and mortgage approvals have plummeted by 92% from pre-crisis levels, there is a tentative stabilisation in the market.

House prices are rising in some urban areas and mortgage lending is also increasing.

“The Irish housing market has a split personality between the major urban centres, where demand now outstrips supply, and some rural areas where the reverse remains the case,” says Mr Currie.

“An increase in headline house prices may not fully translate into higher recoveries from distressed borrowers, because steep discounts will still be required to achieve sales on less attractive properties.”