Mortgage arrears as a measure of distress

Séamus Coffey has written an excellent piece on mortgage arrears as a measure of distress.

He makes a point which I have made before, but he makes it far more clearly.

A truer level of distress, would not be payment arrears relative to somewhat arbitrary contract obligations, but a measures of accounts where the monthly interest charge is not being covered by the monthly repayment. People should not be classed as in mortgage distress because of the length of their term. Borrowers are in mortgage distress if they cannot service their mortgage(interest) .

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That is indeed a very interesting point to make. Are there any statistics available about the level of non-payment?

I know you have mentioned elsewhere that arrears amount to €1.6 bn for those 11% of home mortgages that are in arrears, but I wonder whether there is a way to guesstimate how many mortgage payments are for less than the interest. Since for many people that bought at the peak interest is the largest amount of their repayments, it is still quite possible that many people are not covering interest.

HI Chris

We don't get that data for the arrears, but we do get it for the restructured mortgages.

I have no doubt that there are many borrowers who are not able to pay the interest on their loan - the problem is that we have no doubt how many.

For a person who has ten years left on a cheap tracker, 85% of the repayment is capital. If they paid the interest only for 4 months, they would be classified as being 3 months in arrears. Of course, they are going to find it easier to get a rescheduling arrangement than someone with 30 years left on SVR, where rescheduling won't make much difference to the payment.


Brendan

I would fully concur with this type of analysis.

The mortgage arrears data currently churned out on a quarterly basis is completely masking the can of worms that really exists in the banking sector. I think everyone knows that there is a set of rules to determine which loans are in arrears.
The banks are masters at working around the rules so that "not all" troubled loans actually make it to the arrears list.

We will never get perfect information from the banks and whilst I don't like it, I actually do understand it.
If the information is very bad for example it can have a very real and material affect on how receivers of that information react to it. If the headline is that 60% of buy to let mortgage holders are in arrears with their mortgage, it may induce other borrowers to fall into arrears also.

Bad loan arrears news is simply not good for banks