720-day mortgage arrears buck falling trend in Ireland

The number of mortgages in arrears fell for the sixth consecutive quarter at the end of last year but those in long-term arrears of more than two years continued to rise.

More than 110,300 homeowners were in arrears at the end of 2014 representing a decrease of 6.4% on the previous quarter.

Similarly, primary dwelling mortgages (PDH) in arrears of more than 90 days continued to fall as a 7.4% decline saw 78,700 borrowers in this cohort at the end of the year.

On a negative note, and despite the fall in arrears over 90 days, however, the number of primary homes in arrears more than 720 days — or two years — continued to rise.

The addition of another 294 mortgage accounts to this group of loan arrears helped the total outstanding balance on over-720 day loans to swell to €8.2bn.

However, the increase of 294 accounts in Q4 2014 was the lowest increase recorded in that category to date.

While the figures paint a generally improving picture across the mortgage arrears landscape, question marks over the sustainability of this trend persist, say analysts at Goodbody Stockbrokers.

“Similar to recent quarters, and in line with the economic recovery, arrears continued to fall in Q4 2014,” said Goodbody chief economist Dermot O’Leary. “In volume terms, there was 12.0% of mortgages in arrears for more than 90 days, down from 12.9% in Q3 2014.

“However, this is largely as a result of progress by the banks in moving distressed mortgages into some form of restructuring.”

The key issue is whether the 33% year-on-year increase in restructures represent permanent solutions — something Mr O’Leary suspects may not be the case.

Arrears capitalisation accounts for 25% of mortgage restructures, for example, but has one of the highest default rates for both owner-occupiers (29%) and investors (56%).

More than 114,600 PDH mortgage accounts were classified as restructured at the end of last year across a range of forbearance techniques including: Switching to interest-only mortgages; A reduction in payment amount; A temporary deferral of payment; Extending the term of the mortgage; and capitalising arrears.

Split mortgages — another restructuring option whereby the loan is divided into two portions with one warehoused until the first is paid in order to reduce monthly payments — saw the biggest quarterly rise and now account for more than 17% of restructures.

In the last three months of 2014, legal proceedings were issued on 2,543 PDH loans.

In the quarter, 429 properties were repossessed, leaving more than 1,580 PDH properties in the possession of lenders at the end of the year.

The number of buy-to-let (BTL) mortgages in arrears fell 7% quarter-on-quarter — representing the second fall in a row, with the latter happening at a faster pace.

While all categories of BTL mortgages fell, the 91-180 day segment saw the biggest fall of 21% compared to the previous three months.

The total number of BTL mortgages in arrears over 90 days now stands at 29.4%.

Mr O’Leary indicated that while stressed cases will persist for some time, ongoing rental growth in the market should help alleviate some situations.

The total number of restructured mortgages now amounts to 140,000, up 40% since its introduction in summer 2013.