Restructuring is generally successful

[Brendan Burgess]

Here are the figures from the December 2013 Quarterly Arrears Statistics. I have separated out permanent restructuring from temporary restructuring.


Permanent restructuring arrangements

|Q4 2013|Q4 2012
Arrears capitalisation|18,516|9,754
Term extension |15,922|13,396
Split mortgages|3,268|52
Trade down mortgages|20|6
Permanent interest rate reduction|14|224
Total|37,740|23,432

Temporary restructuring arrangements

|Q4 2013|Q4 2012
Reduced payment > IO|14,958|6,951
Reduced payment < IO|4,264|17,219
Interest only |13,596|29,724
Temporary interest rate reduction|1,859|n/a
Payment moratorium|1,772|2,306
Deferred Interest Scheme|142|161
Other|9,722|60
Total|46,313|56,421

The 2012 figures include around 3,000 Bank of Scotland mortgages which are not included in the 2013 figures, because these mortgages were sold to an unregulated entity and so are no longer supervised by the Central Bank.


In summary terms, around 10,000 borrowers (13,000 accounts) have moved from temporary solutions to permanent solutions.

Only 3,268 split mortgages had been put in place by the end of December. That seems very few.

 

[Brendan Burgess]

So does restructuring work?

If you read the table, you will see these figures

Total mortgages restructured| 84,053
of which, not in arrears| 45,637

This has been quoted by many commentators to say that restructuring isn't very effective, because half of those who have been restructured fall back into arrears again.

However, I had queried in the past whether these arrears arose before the restructuring or after it. We simply did not know, until now.

In the commentary accompanying this quarter's release, it says

There was a total stock of 84,053 PDH mortgage accounts classified as restructured at endDecember, reflecting a quarter-on-quarter
increase of 4.3 per cent. Of these restructured accounts, 79.3 per cent were deemed to be meeting the terms of their current restructure arrangement.

That's pretty good and certainly much better than the 50% success rate.

 

[Brendan Burgess]

From the Central Bank's commentary

Restructuring Arrangements
A total of 28,364 new restructure arrangements were agreed during the fourth quarter of the year, reflecting a 19 per cent increase on the number of new arrangements agreed during the third quarter. The data on arrears and restructures indicate that of the total stock of 136,564 PDH accounts that were in arrears at end-December, 38,416 (28.1 per cent) were classified as restructured at that time.

Of the total stock of restructured accounts at end-December, 54.3 per cent were not in arrears.

Restructured accounts in arrears include accounts that were in arrears prior to restructuring where the arrears balance has not yet been eliminated, as well as accounts that are in arrears on the current restructuring arrangement. At end-December, 79.3 per cent of restructured PDH accounts were deemed to be meeting the terms of their arrangement. This means that the borrower is, at a minimum, meeting the agreed monthly repayments according to the current restructure arrangement. It is important to note that ‘meeting the terms of the arrangement’ is not a measure of sustainability, as not all restructure types represent longer-term sustainable solutions

For instance, short-term interest only restructures are, in general, not part of longer-term sustainable solutions. However, inability to meet the terms of the arrangement implies that the restructure agreement put in place may not have been suitable. Table 1 shows the percentage of restructured accounts that were deemed to be meeting the terms of their arrangement at end-December 2013, broken down by arrangement type. Lower numbers indicate a higher incidence of ‘re-default’, and these are particularly evident amongst arrears capitalisation cases, as well as cases in which a permanent interest rate reduction has been granted. As the figures in Table 1 only reflect compliance with the terms of the current restructure arrangement, we should expect to see a higher percentage of compliance among the restructure types that are likely to be shorter-term.

Nonetheless, the figures imply that of the total stock of accounts in the arrears capitalisation category, 42.1 per cent of PDH accounts have ‘re-defaulted’, i.e. the arrears balance has increased since the arrangement was put in place.

Extract from Table 1

Percentage of permanent restructures "meeting the terms of the Arrangement" - PDHs

Split mortgages|96.3%

Term extension|85.5%
Arrears capitalisation|57.9%
Permanent interest rate reduction|50%

Extract from Table 1

Percentage of temporary restructures "meeting the terms of the Arrangement" - PDHs

Payment moratorium|94.4%
Interest only > 1 year|90.6%
Interest only <1 year|84.9%
Temporary interest rate reduction|89.7%
Reduced payment > interest only|84%
Deferred Interest Scheme|79.6%
Reduced payment < Interest only|68.6%
Other| 87.5%

 

[demoivre]

How do 5.6% of does with a moratorium on repayments not meet the terms of the arrangement?

 

[Brendan Burgess]

How do 5.6% of does with a moratorium on repayments not meet the term of the arrangement?

Despite the fact that they have a payment moratorium, they continue to make payments or maybe the lender continues to take them by direct debit.