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Latest Central Bank data shows growth in long term mortgage arrears numbers
The Central Bank issued its quarterly Residential Mortgage Arrears & Repossession Statistics report for Q3 2020. An analysis of this data indicates that, without tailored interventions, there are difficult times ahead for many households.
At the end of September 2020, there were 55,448 home mortgages in arrears (not including buy to lets) which represents a 10 per cent decrease for the same period in 2019. Of those mortgages in arrears, 9,268 accounts (17 per cent) have been in arrears for between 2 and 5 years, 11,489 accounts (21 per cent) have been in arrears for between two and five years and 5,104 accounts (9 per cent) have been arrears for longer than ten years. These long term mortgages (in arrears for two years or more years) account for almost half the total number of mortgages in arrears. Notably the only category to have grown in number from 2019 were the mortgages in arrears for 10 or more years. This figure increased by 1,564 accounts, possibly indicating that for this cohort of borrowers, viable solutions are proving difficult to find.
Of those mortgages in arrears, 7,938 (14 per cent) of them have legal proceedings initiated against them. This means that the lender has brought the case to the court to request possession of the mortgaged property as the account has fallen into default. Some 5,466 of these cases have been in the court system for over two years and 2,304 have been in the court system for more than five years. This could be for a myriad of reasons, however the Central Bank Report acknowledges that “engagement between borrowers in mortgage arrears and the holder of their loans has proven to be an important step in the successful resolution of mortgage arrears” and that this does take time.
Since the financial crash of 2008, despite the levels and volumes of mortgage arrears, repossession is still viewed as the last resort. Indeed, between 2011 and 2020 there have been a total of 9,983 cases where ownership transferred back to the bank, either on foot of a court order or voluntarily by the borrower. 1
Insolvency Solutions and Abhaile
An option available to over-indebted borrowers is personal insolvency. Legislation enacted in 2012 allows for the creation of a Personal Insolvency Arrangement (PIA) which would contain mortgage debt and seek to return that over indebted client to solvency whilst ensuring that where and when possible that they retain home ownership. Since launch, there have been a mere 4,624 PIAs approved. Even taking into consideration that this figure is only up until the end of June 2020, it is still providing a solution to a small proportion of those with mortgage arrears.
The Abhaile scheme is a project under the remit of the Citizens Information Board and delivered increased funding to MABS (the State’s Money Advice and Budgeting Service) to the existing mortgage supports in place since September 2015; continued to fund the Accountants’ service, put in place in October 2017; and funded a new voucher system for borrowers in late stage mortgage arrears to access a Personal Insolvency Practitioner or a Consultation Solicitor for one meeting to determine eligibility for an insolvency arrangement. According to the Abhaile Second Annual Report2, 95 per cent of borrowers who accessed a Personal Insolvency Arrangement and 86 per cent of those who accessed a voluntary arrangement through MABS stayed in their home. However, even in this context the numbers can be misleading. Data relating to Personal Insolvency Practitioners related to individual borrowers, while data relating to MABS services relate to borrower households. 1,150 borrowers were supported by MABS to access sustainable voluntary arrangements, a further 1,111 borrowers were in progress to an informal solution having accessed the services of a Personal Insolvency Practitioner, compared to just 122 Personal Insolvency Arrangements. Informal arrangements are proving more accessible and successful than the formal processes for borrowers and far more cost effective for the Exchequer. MABS, established in 1992, provided this service before the introduction of the Abhaile scheme.
Mortgage to Rent
The Mortgage to Rent scheme a Government initiative set up in 2012 to help people who are finding it extremely difficult to meet mortgage repayments and suited to those whose financial situation most likely will not improve for foreseeable future. Under the Mortgage to Rent Scheme, the home is voluntarily surrendered to the lender, and a third party, such as an approved housing body or the local authority) will buy back the home from the lender. The householder will no longer own their home but will continue to live in it as a tenant and instead of an unaffordable mortgage , they will income related rent as set by their local authority. To the end of 2020, a total of 5,644 cases were submitted to the Housing Agency for mortgage to rent. Of those, 1,004 cases have been completed. A further 1,212 cases are in progress and the remaining 3,428 were either ineligible or terminated.3 Again, the numbers are low compared to the overall number of distressed mortgage loans.
The next Financial Crash?
The Covid 19 pandemic has impacted household incomes across the country which obviously impacts households’ ability to pay bills, including mortgages. A complementary report from the Central Bank release in September 2020 Resolving Mortgage Distress after Covid-19 : Some lessons from the last crisis notes that short term or temporary restructures on their own were not sufficient to ensure that the mortgage was sustainable and in some cases, this consistent use of short term measures, for examples periods of interest only payments in fact resulted in longer term arrears accumulation.
In March of 2020, many mortgage lenders agreed to blanket payment breaks of three or six months. Just over ten per cent of home mortgages were in the payment break as of June of 2020. This figure reduced to six per cent by September of 2020. 4 Short term modifications make sense if the change in household circumstances is also short term.
However, if we are to avoid the same levels of personal debt and distress as was experienced by households after the 2008 financial crisis, the Report recommends “where short-term arrangements are arrived at, it is crucial that firms have capacity and plans to assess longer-term prospects and to move to putting in place sustainable and longer-term arrangements where they are appropriate to the depth of financial distress being experienced” 5 so that households impacted by the pandemic are not lingering in mortgage arrears in ten years’ time.