Central Bank says inadequate support for borrowers contributes to mortgage arrears

Banking watchdog says lenders contributed to the rise in short-term arrears by failing to provide adequate customer support

The Central Bank's new report says lenders 'may not be operationally ready to respond to any material increase in the volume of arrears cases'. Stock picture

Lenders have contributed to rising short-term mortgage arrears levels as they failed to provide adequate customer support services amid the cost-of-living crisis, the Central Bank has said.

The banking watchdog published the outcomes of its review into early mortgage arrears and found that while “significant” increases have not been observed by the regulator, “stress is evident” as the number of customers falling behind on their repayments continues to creep upwards.

“We found instances of late and incomplete information provided by lenders, unclear website information, inadequate follow-up with the borrower, lack of assistance in completing paperwork, and failures to recognise where borrowers were experiencing financial difficulties,” said Central Bank director of consumer protection Colm Kincaid.

Mr Kincaid added that the review found that firms have “made improvements to their processes and supports” under the Code of Conduct on Mortgage Arrears as borrowers grapple with inflationary pressures and high interest rates affecting their mortgage repayments.

Central Bank consumer protection director Colm Kincaid enumerated issues it found with lenders — from late and incomplete information, to inadequate follow-up with borrowers. 

However, the regulator said that lenders “may not be operationally ready to respond to any material increase in the volume of arrears cases”.

The remaining three banks that operate in the Republic absorbed an influx of customers after Ulster Bank and KBC decided to exit the retail market, putting pressure on the lenders in an environment with a lack of competition.

Early mortgage arrears of up to 90 days have increased by an accumulative 6% in the last six months of 2023, other figures from the Central Bank show.

Interest rate increases implemented by the European Central Bank (ECB) to drive down stubborn inflation immediately hit tracker mortgage holders.

However, customers coming off fixed-rate mortgage contracts this year will see the effect of these rate increases in their mortgage repayments.

This may further fuel early-stage mortgage arrears levels.

Meanwhile, Brokers Ireland director of financial services Rachel McGovern said there is “a particular issue with non-bank lenders where interest rates can be close to double those of the pillar banks”.

Pepper Finance, one of these non-bank lenders more commonly known as vulture funds, introduced an interest rate of 8% on some of its loans following the ECB rate increases.

Ms McGovern said while the Central Bank, as regulator, is making efforts to get lenders to treat borrowers fairly, “the reality is that lenders’ first priority will always be to serve their shareholders”.

She added that there is still a substantial level of undealt with long-term arrears outstanding since the last financial crisis.

“These mortgages have mostly been sold on from the pillar banks to non-banks and credit servicing firms,” she said.

Finance Minister Michael McGrath’s mortgage arrears group, comprising several Government departments including justice, housing, and social protection, is due to report before the end of June.