Analysis: The latest mortgage arrears figures should worry us a lot

Mortgage arrears may no longer be as closely attended as they once were, but the problem is clearly far from being resolved and the long-standing struggle for survival endures for many households, writes Paul Joyce.

Many familiar patterns remain: The overall number of accounts in arrears has again decreased, but the number that has been in arrears for over two years remains stubbornly high at over 34,500 accounts.

With only a very marginal decline in this category of people with arrears of over 720 days, it is by definition increasing as a proportion of the total number of people in arrears. 

Significantly, one in every four of these accounts is held either by ‘a retail credit firm’ (which means a sub-prime lender) or ‘an unregulated loan owner’ (which roughly translates as a vulture fund).

The growing amount of arrears in these long-term cases — an average of close to €64,000 per account — is alarming. 

This indicates there is no way back for many of these accounts unless measures such as writedown of the principal debt and a proper mortgage-to rent scheme are put in place.

Otherwise, an increase in repossessions in the middle of the housing crisis seems the likely outcome. 

Some 421 family homes were repossessed in the latest quarter, either by the execution of a possession order or through voluntary surrender.

Another mounting area of concern that often passes without detailed comment is the position of accounts already restructured.

The running total of such accounts is now 121,140 with a further table in the statistical release setting out the percentage of these restructures ‘meeting the terms of the arrangement’.

Of particular interest here is the progress of the now most common and growing forms of restructure: Capitalisation of arrears and split mortgages which now account for over half of the restructures between them.

Capitalisation of arrears is now the largest category, at close to one in every three restructured accounts.

In brief, a capitalisation of arrears arrangement involves the borrowers paying an increased monthly instalment over the remaining term of the existing mortgage to make up for already missed or partially missed payments.

This means borrowers will have to pay more each month over the rest of the mortgage than was due to be paid when the arrears problem developed. 

By definition, the borrower’s financial position would need to have significantly improved to justify this.

It is of great concern, then, that just over 78% of these borrowers are currently meeting the terms of the arrangement, meaning that well over 8,000 accounts are not, and are accumulating fresh arrears.

Split mortgages now account for more than a fifth of restructures, having dramatically increased over the last three years, not least because they have been promoted by the Central Bank itself. 

A split mortgage involves the borrower paying capital and interest on a portion of the mortgage with payment on the remaining capital being suspended (generally, though not always, with no interest being charged).

Although many households signed up to such offers with relief, they are only too aware in most cases a substantial capital sum will fall due when the period of the split mortgage comes to an end and there is no guarantee as to how this will be treated by the lender. 

Worse, given a split mortgage will involve a lower monthly payment than the borrower undertook, one in 20 (close to 1,400) split mortgages are already failing to meet the terms of the new arrangement.

The number of restructured accounts not currently meeting the terms of the arrangement is over 15,000, or one in eight. 

Given that the Central Bank is responsible for monitoring the sustainability of mortgage arrears solutions, we should expect it to carry out a proper investigation into the failure rate.

Otherwise, we will continue to see some mortgage lenders force square pegs into round holes in some cases, especially since it involves no or very little writedown of debt on their part.

Paul Joyce is senior policy analyst at FLAC, the Free Legal Advice Centre.


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