Mortgage Arrears – New Financial Crisis But Existing Arrears Legacy Still Problematic

Commenting on today’s Residential Mortgage Arrears & Repossessions from the Central Bank for Q2 2020, Brokers Ireland said it is staggering that 21pc or 11,936 households are in arrears for between five and ten years and 8pc are in arrears for over ten years.

Rachel McGovern, Director of Financial Services at the organisation which represents 1,225 Broker firms said: “That level of elongation of a mortgage arrears problem is not good at any level, be it for the householder or the lender,” she said. She also noted that of the 26,228 households in arrears over two years 44pc were co-operating with their lenders but were not restructured. “Given the difficult economic climate many of these loans may well need to be restructured.”

She said 25pc of the total number of arrears cases, 56,792, are classified as restructured. “But the largest portion of these, 30pc, involve arrears capitalisation whereby outstanding arrears are added to the remaining balance.  To a large extent this is not a proper solution, it is more of an extend and pretend approach.  We are in a new financial crisis but there is a big existing legacy hanging over individuals and the banking sector from the last crisis.  It needs to be speeded up and dealt with in a more realistic way,” she said.  “Lenders need to face up to the fact that many, even those classified as restructured, will not be able to meet the terms of their loans. In today’s figures one in five classified under ‘arrears capitalisation’ is failing to meet the terms of the so-called restructure along with 33pc of those on deferred interest.”

She said the one positive in today’s figures was the reduction of cases in arrears for less than 90 days but this is due to the introduction of Covid-19 payment breaks.

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