Interesting paper last night by Yvonne McCarthy of the Central Bank. You can find it here:
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The results confirm the importance of unemployment and negative equity in driving Irish mortgage
arrears, as shown by previous research. However, the results also provide new insights on the factors
associated with mortgage arrears in Ireland. Firstly, we find that many borrowers experiencing arrears are
currently employed. The data show that many of these borrowers have experienced a significant drop in
their income or a change in employment conditions. Furthermore, some of these borrowers are in fragile
employment, i.e. they are on a temporary contract, have been with their employer for a short time or have
a history of unemployment. In a multivariate setting, fragile employment and income changes show up as
having a significant relationship with mortgage arrears. We also find tentative evidence that the duration of
unemployment has an important link with mortgage distress.
She compared the profile of a group which was not in arrears with a group which was in arrears. (See next post for details of sample)
The problem in trying to determine the causes of arrears is that all the different factors are entangled.
For example, 35% of those who were not in arrears had an SVR mortgage, compared to 48% of those who were in arrears. So in simplistic terms, those with SVR mortgages are significantly more likely to go into arrears. But those with SVR mortgages are also likely to have much older mortgages and much smaller mortgages. So Yvonne managed to isolate the impact of the SVR alone, by controlling for the other factors.
Main characteristics
Explanation: 3.6% of those who were not in arrears were unemployed, compared to 14.6% of those who were in arrears.
Marginal effect of different factors in the Probit Model
According to the probit model, the Marginal Effect of having an SVR mortgage is .07 This means that if you control for all the other factors, e.g. size of mortgage, Mortgage Payments to Income etc, those with SVR are 7% more likely to be in arrears than those who have tracker mortgages.
Factors which increase the likelihood of arrears:
Factors which reduce the likelihood of arrears:
MRTI: Mortgage Repayments to Gross Income