Agency warns of likely rise in house repossessions

Instances of house repossessions are likely to rise here as lenders increasingly look to solve the mortgage crisis, credit ratings agency Fitch has forecast.

However, the agency said it expects other tools — such as split-mortgages, trade-down products for borrowers in negative equity, and personal insolvency arrangements — to be used first, adding that the repossession or voluntary surrender of homes will be “a last resort”.

“Repossession will be the final resort. The number of borrowers in negative equity means that lenders may not want to repossess a distressed property and crystallise a larger loss,” Fitch said in a study on the Irish mortgage market.

“Nevertheless, all three options are likely to involve losses for mortgage pools, if not through recovery shortfall then through debt write-off.”

Fitch claims long-term restructuring of mortgages will become more prevalent, given a “cohesive and credible framework” for dealing with arrears “has taken shape”, with the passing into law of the Land and Conveyancing Law Reform Act and the coming into effect of the updated Code of Conduct on Mortgage Arrears and the Personal Insolvency Act.

“It is still early to estimate how many mortgages will be subject to the three main options of restructuring, PIA, and repossession, but we can make an initial assessment of how they will interact,” Fitch said.

“The Land and Conveyancing Law Reform Act reopens the repossession route, and we expect the number of repossessions to rise. But we also think it will create incentives for lenders and borrowers to agree longer-term alternative repayment arrangements.

“Lenders have started deploying longer-term strategies as the short-term arrangements — common in Ireland — such as principal payment holidays, have often failed to restore borrowers to performing status. Furthermore, the Central Bank has set targets for lenders to achieve sustainable solutions for mortgages in arrears.”

Fitch also opined that by allowing more borrower contact and widening the definition of non-co-operation, the new code of conduct on mortgage arrears “should accelerate discussion of arrears problems between borrowers and lenders, and limit the risk that the prospect of debt relief reduces willingness to pay”.