New Central Bank study: Long-Term Mortgage Arrears in Ireland

[Brendan Burgess]

Long-Term Mortgage Arrears in Ireland, by Terry O’Malley, examines the characteristics of Irish residential mortgages in long-term arrears, meaning those mortgages that have accumulated at least two years’ worth of missed monthly payments. The mortgages examined in the research were taken out on the primary home of the borrower with one of the five main banks in Ireland. The loan sample dates from July 2015 to December 2017.



The key findings of the Financial Stability Note are:

• While the number of mortgages in long-term arrears continues to fall, the pace of reduction each quarter has begun to slow. For the first time, as many loans are exiting the portfolio of the main banks as are curing to lower arrears states.

• As at December 2017, the average amount of missed payments on these mortgages is €66,409. 10% of the loans have accumulated over €129,148 worth of missed payments and half have arrears of more than €52,544. The average loan has arrears outstanding of around 23% of what the property is estimated to be worth.
• Long-term arrears cases tend to have received a smaller number of modifications and are less likely to be currently modified. Loans that go through the Mortgage Arrears Resolution Process are twice as likely to end up in a lower arrears state six months later, compared to exit. This demonstrates the importance of borrower engagement with the arrears resolution process.

Note: The ratio of unique borrowers to mortgage accounts in this research by Terry O’Malley is roughly 80%, because a borrower may have multiple loans. As such, for every five loans in the data, there are four associated households.

 

[Brendan Burgess]

A very interesting table from this paper



The median LTV is 91% and a quarter exceed 120%.

Interest rates are distributed roughly evenly between the market tracker and standard variable rates, the median rate being 3.7%.

The sample includes the 5 main banks which I assume are AIB/EBS, BoI, PTSB, KBC and Ulster.

Brendan

 

[Brendan Burgess]

This shows that over 80% of those in Long Term Mortgage Arrears at 31 December 2017 have never had a modification.

This is hardly surprising as 40% of them had not submitted an SFS.

Brendan

 

[Brendan Burgess]

So how do the banks propose to deal with these Long Term Arrears.



11% of the 67% will be voluntary.

Brendan

 

[Delboy]

So 56% will be repossessions through the courts. Is that the 'tsunami' Hall/McVerry have been talking about, assuming the courts actually deal with the applications in some sort of ordered manner

 

[Brendan Burgess]

Hi Delboy

Let's see if there is a potential tsunami.



So there were 28, 237 accounts in arrears over 2 years.
That means about 22,600 family homes. (Each home has on average 1.2 accounts.)
The lenders only solution for 56% is court action, so that would be about 13,000.

That would be a lot, but hardly a tsunami.

And given that the number of legal proceedings initiated has been falling, I don't think we will see a tsunami any time soon.

In practice, most of these begin to engage when legal proceedings are issued.

My best guess is that about 25% of them might lead to an order for possession, so about 3,000.

Brendan