Previous mortgage arrears predictor of Covid-19 payment breaks

The 67,000 mortgage breaks accounted for one-in-nine of all residential home loans or around €10bn in value
Previous mortgage arrears predictor of Covid-19 payment breaks

Households needing mortgage payment breaks during the Covid-19 crisis are more than likely to have been in arrears in the wake of the last financial crisis, according to new Central Bank research.

Researchers Edward Gaffney and Darren Greaney found that households who are currently struggling to meet payments or have a history of arrears accounted for a significant share of the 67,000 Covid-19 mortgage payment breaks advanced by five lenders by the end of May.

“By value, 21% of lending with current forbearance, and 18% of lending with a history of forbearance, had a payment break,” according to the Central Bank research.

“Only 9% of loans with no history of forbearance had a payment break,” it said, with boom-time home loans also accounting for a significant share.

“In total, 53% of all payment breaks were on mortgages originated between 2004 and 2008. Loans issued since 2010 are the least likely to have a payment break, with loans issued since the introduction of the mortgage measures in 2015 less likely than the average mortgage,” the research found.

The Central Bank research showed that, by number, the 67,000 mortgage breaks accounted for one-in-nine of all residential home loans or around €10bn in value, but that around half of the accounts had resumed paying in full by August.

With the fallout of the financial crisis of a decade ago still weighing on households, some experts have warned about a further mortgage arrears crisis when the second round of mortgage payment breaks begins to end in the coming weeks.

For business loans, the researchers also found that firms involved in the worst affected sectors, including accommodation and food, and arts, entertainment and recreation accounted for a significant share of payment breaks.

“Sectors with a high share of employees either on wage subsidies or temporarily laid-off had the highest payment break rates,” the research found. 

"Payment breaks provided a major source of temporary relief to Irish households and firms at a time of extraordinary financial stress," the Central Bank said. 

Labour Party finance spokesperson Ged Nash said the payment breaks need to continue for households "to support workers and their families through the crisis".

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