Moody's says average Irish mortgage defaulter likely to be self-employed

THE AVERAGE Irish mortgage defaulter is likely to be a self-employed person who borrowed at the peak of the boom in 2006 or 2007 and does not live in Dublin or Cork. That is the profile presented by ratings agency Moody’s in a new report on the factors likely to lead to default among Irish homeowners.

Mortgage customers with First Active are more likely to be more than three months in arrears on their loans, according to the figures.

The report, What Drives Irish Mortgage Borrowers to Default, breaks down figures presented recently by Moody’s on the basis of 17 portfolios of securities backed by Irish residential mortgages.

It has previously reported that 5.42 per cent of the €38.64 billion in the portfolios was accounted for by mortgages that were more than 90 days in arrears .

In its analysis published yesterday First Active portfolios are showing 90-day arrears levels of 8.3-9.7 per cent. This compares with levels of just 1.3 per cent on the one AIB portfolio.

Moody’s believes the residential mortgage-backed portfolios it has examined provide “good insight into the performance of the total market” as the sums in the portfolios amount to 35 per cent of the total residential mortgage loans outstanding in the first quarter of 2010.

Its examination shows that borrowers in Roscommon, Cavan and Longford have default rates above 6 per cent, more than twice the level in Dublin and Cork. A further breakdown of “benchmark loans” – safer PAYE owner-occupiers not on interest-only loans – shows mortgages in Cavan, Longford and Carlow having the highest levels of default at over 4 per cent.

Moody’s assistant vice president and author of the report Anthony Parry says the severe downturn in the economy “will leave a lasting legacy on the performance of residential mortgage loans”. He believes more than half of Irish mortgages will enter negative equity.

While loans with a higher loan to value (LTV) have not shown greater vulnerability to date, Moody’s believes default rates could still rise in this area.

“Borrowers with higher LTV ratios who are now in negative equity will inevitably emerge with the highest default rates,” said Mr Parry

Moody’s is also worried higher interest rates in the medium term “could lead to further delinquencies, especially since a significant portion of loans are susceptible to interest rate shocks”.

While mortgage defaults among the self-employed are running at twice or three times the rate of the PAYE sector, the report says recent increases in unemployment are likely to have a greater impact on those in the PAYE sector. It points to borrowers with a history of previous arrears, remortgaged loans, interest-only loans, mortgages taken out at the peak of the market and larger loans as other risk factors.