Key Post How many people in arrears are also in negative equity?

[Brendan Burgess]

This is a recently published paper by the Central Bank.

[broken link removed] by Anne McGuinness

I haven't studied it yet, but I was struck by this statistic in particular.

To examine borrowers’ mortgage distress it is necessary to aggregate the loan-level data to a total property level. This is because default on the property would affect all loans secured on it not
just the loans in arrears. As a result the loan-level balances of outstanding debt, mortgage re-payments and arrears are all aggregated to the
property-level total. Within the cleaned sample the ratio of loans to properties is 1.28 for PDH mortgages and 1.14 for residential BTL mortgages.

This really surprises me. When we say that there are 63,000 mortgage accounts in arrears over 90 days, it actually means that there are 49,000 account holders in arrears.

 

[Brendan Burgess]

I have studied this paper again and it is well worth reading for anyone who is concerned about the mortgage arrears problem. It has a wealth of useful data and it has very little useless data.

Half of all those in arrears over 90 days have some equity in their home.

As of September 2011, there were 9,515 borrowers in arrears and negative equity in the covered banks.

The covered banks account for 68% of mortgage accounts but only 48% of mortgage arrears.

The author calculates that there are between 25,000 and 40,000 in both arrears and negative equity for all banks.

I would estimate it at around 30,000.

This is a very important figure. I have guessed that there are around 10,000 people with unsustainable mortgages. This seems to be about right, in retrospect.

Brendan

 

[44brendan]

Thanks for the update Brendan. I didn't see the original post and was unaware of this report.
It does appear interesting, from a quick scan. However, the definition of "arrears" may well conceal a deeper problem.
The report mentions that 70,000 loans had been restructured by Sept 11. restructure could indicate either an interest only payment or even a payment structure that doesn't cover full interest. If the reduced repayments are on line, I take it that that is categorised as a performing loan.
Acknowledging that I have not read the report in full, I feel that a considerable portion of the 70,000 loans while classed as "conforming" could also be classed as high risk!

 

[Velazquez]

Brendan - This might have been posted somewhere else already but a speech given by Matthew Elderfiled to Harvard Alumni last week contained some interesting information on the overlap between arrears and negative equity. He was quite strong on he point that affordability and not negative equity is the main driver of arrears. Apparently while 40% of owner occupiers are in negative equity, 93% of these are not in arrears.