Mortgage arrears and repossessions still surprisingly low

Brendan Burgess

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The Central Bank issued its [broken link removed] figures yesterday, so it’s a good time to review what happened in 2010. Let’s look at repossessions first.

Repossessions
Repossessions on foot of a court order during 2010|102
Voluntarily surrendered or abandoned|262
Total|364
It is estimated that around 40% of these are from the sub-prime lenders who account for around 2% of the mortgages. So for mainstream lenders, I estimate the figures as follows:

Repossessions by mainstream lenders during 2010|60
Total number of mainstream mortgages|730,000
Chance of being repossessed by a mainstream lender in 2010| <1:10,000
This presumably will rise over the coming years.

Arrears and restructured

Arrears 91 – 180 days|13,170|1.7% of mortgages
arrears >180 days|31,338|4% of mortgages
Restructured and not in arrears|35205|4.5% of mortgages
Total |79,713|10.2%
Total mortgage accounts|786,000
What does restructured mean?
Paying less than interest only| 7,912
payment moratorium|2,569
Total|10,481
The rest are paying at least the interest, if I understand the figures correctly:
Reduced payment but more than interest|8,887
Term extension|7,226
Arrears capitalization|7,032
Interest only| 22,701
Capitalization and interest only|2,876
Other |26
Total| 48,748
Only around 20% of the restructured mortgages are paying less than the interest on their mortgages.
 
% of loan accounts in arrears over three months:

Dec 2006|1.21%
June 2008|1.44%
September 2009|3.3%
December 2009|3.6%
March 2010|4.1%
June 2010|4.6%
September 2010|5.1%
December 2010|5.7%
 
It is extraordinary that "only" 5.7% of mortgages are in arrears.

I think it would be correct to add a further 1% to this figure for those who are paying less than the interest on their mortgage and those who have a payment moratorium.

I would exclude those who are able to pay their interest and those who have extended the term of their mortgage.

So those who are really struggling are around 7% of mortgages.

Given the 13% unemployment and the very high prices paid for houses, this seems very low.

The possible reasons:
A large number of very cheap trackers
Low ECB rates anyway
Generous Mortgage Interest Supplement (c. 18,500 recipients)
 
The main factor driving arrears internationally is the level of unemployment. Arrears levels tend to peak around 6 months after the unemployment level peaks. I think that unemployment peaked around the end of March 2010 and has been fairly level since then. So arrears levels should be peaking around now, if all else was equal.

However, the situation in Ireland is probably unusual in that those who are in employment have seen a big cut in their take home pay over the past 12 months. They have seen another cut in January this year, so it's likely that we will see the arrears levels continuing to rise, although slowly.

The interest rate hikes expected in a few months will also push up the arrears levels.

They won't fall until the level of unemployment drops.
 

Another possible reason:

Not everybody mortgagee impacted by unemployment or reduced income has a large mortgage.
 
Do the figures break down into mainstream lending and sub-prime lending.? Any time I read the Irish Times reports on repossesions, it nearly always seems to be sub prime lenders that are in court, rather then the high street banks.
 
Bronte said:
Why extraordinary. Doesn't it depend on who compiles the figures, and what the banks are telling the central bank?
Click to expand...

Hi Bronte

The figures are extraordinary because of the general view that the economy is entirely in ruins. This shows that despite the problems of reckless lending, reckless borrowing, house prices falling by 50%, very high unemployment, cuts in salaries, around 90% of people are paying their mortgage on schedule.

The Master of the High Court, Honohan, warned of a tsunami of repossessions which has not turned out to be correct yet.

Morgan Kelly has forecast [broken link removed] which would dwarf the bank bailout and this has not happened yet.

Brendan
 

But how much of the tsunami is being held back by political interference in the moratoriums on repossessions etc... Once the ECB start raising rates a lot more people will find it hard to pay their mortgages. Cheap trackers have helped a lot of people up to now.
 
fobs said:
But how much of the tsunami is being held back by political interference in the moratoriums on repossessions etc... .
Click to expand...

I would say very little. The banks were not repossessing much before the moratorium anyway. It had very little practical effect.

Interest rates will cause an increase but the biggest factor is unemployment. If you lose your job you usually can't pay your mortgage, even if it's very low. If rates go up, you can still pay something. You may fall into arrears, but you can still pay most of your mortgage.

Brendan
 
banks don't want to repossess mortgages because it will result in a loss which means they need more capital which means they need more money from the govt....well the EU/IMF...and makes everyone and everything look worse

the banks will kick the can down the road for as long as possible as its not in their interest to repossess houses (at the moment)

the number of people paying interest only will rise steadily as interest rates go up but they won't / will try not to fall into arrears but that's not to say that arrears won't increase over the next couple of years but I don't see massive arrears levels as people will come to some arrangement with their bank
 
Arrears and repossession rates may be relatively low also because:

- Many people are still paying mortgages taken out 10 years ago and longer, when house prices and mortgages were much smaller. If those people didn't trade up or remortgage up to the hilt later, they should be OK now.

- Those who bought at the top of the market and have huge mortgages may be getting help from their parents if they run into difficulties.

- Banks are holding off repossessions until house prices recover (whenever that may be), so that they can THEN repossess and get all their money back (with arrears, penalties, surcharges, interest etc).

I remember around 10 years ago or more there was an article in an Irish newspaper that British banks did just that during the property crash of the late 80s-early 90s in Britain. That is, the banks waited for several years, piling up arrears, but allowing homeowners to stay in their houses. Then house prices started recovering - and the banks pushed people out, repossessing the houses and pushing some into bankruptcy.

That article claimed (quite irresponsibly, I now think) that it wouldn't happen in Ireland, that Irish people would just send in the keys and walk out, rather than struggling for years.

Of course, that completely ignored the harsh bankruptcy laws in Ireland. If somebody in Ireland does that, they are not going to get back on their feet financially for a very long time, unless they manage to go bankrupt in the UK.

Anyway, it seems that Irish people are now struggling to keep their houses rather than walk out, just as British did in the 90s. I wish they will not someday be screwed by the banks for not walking out on their debts.
 
is restructuring a mortgage good or bad for the borrower?

in my opinion you can not use apply a universal solution too so many different problems of so many different borrowers....over the long run the banks gain more than the borrower
 
I too believe that repossessions are low because banks are waiting. The minute property is in 'profit' they will force the sales. There is no point them flooding the market, further depressing it, so they will just wait.
 
Latest [broken link removed] out today


So the peak was 13,6% in the second half of last year but they have not fallen since. So the level of arrears will remain high until the unemployment figures start dropping.

Brendan
 
How many people are not on the live register because they can no longer claim on their stamps and are not entitled to any welfare as their spouse has an income. Are these counted in the unemployment figures? Better would be to see if the numbers in work are increasing by any significant numbers.
 
Latest unemployed stats are 299,000 unemployed, not seasonally adjusted.

There are 400,000+ on the Live Register, but that is not a measure of unemployment, it is simple a count of how many people are on the list of claimants.
 
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