Interest rate rises threaten massive default

HOUSING charities are warning interest hikes could force tens of thousands into default as it was revealed more than 36,000 debt-ridden householders are three months or more behind with mortgage payments.

In a further blow to hopes that the economy is stabilising, figures also show consumer spending has declined once again.

According to the Central Statistics Office (CSO), retail sales fell 0.1% by volume in the 12 months to July and 0.2% from June. It was the first year-on-year drop in sales since January.

Further proof of the economic woes came from the Health Insurance Authority, which announced that 10,000 people, or 800 per week, gave up their private health insurance in the second quarter of this year.

“It now looks like we’re going backwards in terms of the economic performance. I think we’ve hit a wall,” said Bloxham stockbrokers’ chief economist Alan McQuaid.

The number of failing home loans increased by about 4,500 between March and June, making up 4.6% of all mortgage accounts, according to the Financial Regulator. And with 466,923 people unemployed and up to three interest rate rises forecast for next year, campaigners warned the debt crisis and fear of homelessness would dramatically deepen over the next year.

Housing charity Respond said tens of thousands were at risk of default after lenders, including AIB and Bank of Ireland, hiked rates by up to 0.6% during July and August.

“Lenders need to realise that increasing rates is simply going to increase the financial pressure on people and will eventually lead to a considerable increase in arrears, even larger than what we’re seeing currently,” said spokeswoman Aoife Walsh.

Some 387 homes were repossessed in the year to the end of June, but banks applied for 170 court actions against struggling homeowners – an increase of 5%.

Nonetheless Irish Banking Federation chief executive Pat Farrell said the figures showed mainstream lenders were focused on forbearance. “IBF mainstream lenders remain committed to doing everything possible to help people with genuine repayment problems; and early, constructive engagement between the borrower and lender is key to this.”

Mr Farrell said his members were working on setting in train further safeguards and reassurance for distressed homeowners through the Mortgage Arrears Resolution Process.

Mortgages are worth a total of €6.9 billion, the latest quarterly report from the regulator revealed. It showed 36,438 households were 90 days or more in arrears at the end of June, with 24,797 of these 180 days behind with payments.

This compared with 32,321 in arrears for more than 90 days at the end of March.

PIBA, the country’s largest group of independent mortgage and insurance brokers, said it was a very worrying cycle for homeowners in difficulty and for the wider economy. Rachel Doyle, PIBA director, said rules on how to deal with debt-hit homeowners should take into account the still rising jobless figures.


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