herald

Monday 20 August 2018

Gimmicks won't change the reality of arrears crisis

At the end of June some 126,000 mortgages on principal dwellings were in arrears.

This was down by 6,000 on the mortgage arrears figure at the end of March and by almost 17,000 on the number of home loans in arrears at the end of June 2013.

This means that the number of mortgages on principal dwellings in arrears has fallen by 12pc over the past year.

So is it time to finally declare an end to the mortgage arrears crisis?

Almost certainly not.

Look more closely at the numbers and altogether less positive picture emerges.

Firstly, while the number of principal private dwelling mortgages in arrears has been falling, arrears on but-to-let mortgages have obstinately refused to budge.

These stood at just under 39,700 at the end of June 2014, virtually unchanged from the 39,900 loans in arrears at the end of June 2013 and actually up slightly on the 39,400 cases of arrears recorded at the end of March 2014.

However, it could be argued that the failure of buy-to-let mortgage arrears to fall in tandem with those on principal dwellings should hardly come as any surprise.

investors

Most of these buy-to-let loans were taken out by novice property investors in the hope that values and rents would keep on rising forever.

Now, with house prices and rents rising once again, maybe buy-to-let arrears will start to fall as well.

While that may well turn out to be the case, there is a second - much more serious - problem with mortgage arrears.

This is that, while the overall level of mortgage arrears is finally beginning to fall, long-term arrears are still rising.

According to the latest set of mortgage arrears statistics, which were published this week by the Central Bank, the number of long-term principal dwelling mortgages in arrears (more than 12 months) stood at just over 61,000 at the end of June.

This was up by almost 500 on the number of such cases at the end of March and by almost 4,000 over the past 12 months.

A similar picture emerges when one analyses long-term buy-to-let arrears.

The number of these loans more than 12 months in arrears at the end of June was 22,500, up 1,400 on the June 2013 figure.

These long-term arrears form the core of the mortgage crisis.

I have long argued that there is a huge qualitative difference between arrears cases where most of the mortgage is being paid most months and those where not a cent has been paid for a year or more.

hopeless

While every effort should be made to help those who are trying hard to keep up with their mortgage repayments, it is difficult to resist the conclusion that most of the mortgages in arrears for more than a year are hopeless cases.

And such hopeless cases ultimately leave the lender with no choice but to repossess the property.

Gimmicks, such as this week's announcement from KBC Bank that it will repay mortgage borrowers formerly in arrears up to €2,000 of the interest which they owe on their loan next December, won't change this grim reality.

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