‘Fragile’ employment makes mortgage distress 5% more likely, conference told

People in “fragile” employment are more likely to be in distress with mortgage repayments then people in “secure” employment, a conference heard.

Central Bank senior economist Yvonne McCarthy told the 2015 Irish Economic Conference that her findings in respect of mortgage arrears stressed that secure employment was preferable to short-term employment in labour market policy.

Separate Central Bank research published today that showed increasing property prices had not yet lifted a significant proportion of Irish homeowners out of negative equity.

Citing 2012 data, Ms McCarthy said 75 per cent of people whose mortgages were in arrears remained in employment.

“People in fragile employment have a 5 per cent higher probability of being in distress with their mortgage relative to people in secure employment,” she told conference, organised by the Economic and Social Research Institute, along with UCD’s Geary Institute and the universities of Limerick and Stirling.

“In terms of people who are in arrears, we find that there’s a lower proportion of them with permanent contracts. There’s a higher proportion – 16.2 per cent – of them have a very recent job tenure of less than two years,” she said.

“We also find that about a fifth of people in arrears have been previously unemployed, so they have some sort of history of unemployment.

“So what this tells us that between arrears and non-arrears group, the recent labour market profile is different. In particular, the people who are in arrears tend to be more often in fragile employment so that means that they either have a temporary contract, they have a recent job tenure or they have recent history of unemployment.”

In respect of the cohort of unemployed people in arrears, what really mattered was the duration of their unemployment.

“People who are long-term unemployed have an 8 per cent probability of being in distress relative to people who are in secure employment,” she said.

Separately, the Central Bank presented data which showed that more than 50 per cent of mortgages taken out in 2007 were still in negative equity at June 2014.

People who bought in 2005 and 2006 were also likely to remain in negative equity. The data showed that some 40 and 45 per cent of these home buyers, respectively, had property worth less than the sum of their home loan.

The survey pointed to an increase in the volume of new lending in the run-up to new Cental Bank mortgage lending restrictions, with new home loans increasing from €750 million in the third quarter of 2013, to €1.1 billion in the same period in 2014.

The number of new loans rose from 4,482 to 6,308. First-time buyers accounted for 51 per cent of new loans in the third quarter, with movers accounting for 35 per cent and just 4 per cent for investors.

“The share of first time buyers has been consistent throughout 2014,” the Central Bank said.