Figures published this week by the Central Bank paint a broadly more positive picture of Irish mortgage lending and household debt than a year ago.
This is to be expected in a recovering economy where unemployment is declining (down to 7.7 per cent), interest rates have moderated (the standard variable rate on new lending was 3.6 per cent at the end of the second quarter versus 4.13 per cent a year ago) and more people are being lifted out of negative equity due to rising property prices.
Household debt sustainability in Ireland continues to improve with both debt-to-income and debt-to-asset levels decreasing. And the arrears rate on non-mortgage loans is dropping.
But it’s not all good news. In spite of the reduction in the number of owner-occupied homes in mortgage arrears of 90 days or more – down 3.6 per cent to 57,571 – the percentage of these in long-term arrears, by value, has increased.
At the end of the second quarter of this year, some €7.82 billion of total arrears was more than 720 days past due. That represented 68 per cent of the €11.5 billion of mortgage arrears more than 90 days outstanding. In the previous quarter, the figure was just under 67 per cent. And while 812 mortgage accounts moved out of the 720 days past-due category – through one means or another – the total arrears on this cohort of defaulted home loans increased by just under €33 million.
This has been the trend over five successive quarters.
On average, the near 35,000 families who were two years or more behind with their payments owed €61,159 in arrears on their home loans at the end of June. The average balance outstanding on their mortgages was €223,789.
We know from data previously supplied to the Department of Finance by the Banking and Payments Federation Ireland that in 40 per cent of long-term mortgage arrears cases, people hadn’t engaged with their lenders.
Some of these are strategic defaulters, chancing their arms at getting a writedown. But many others involve families who will never be able to afford their loans and who are hanging in there for as long as possible. In the words of David Hall, chief executive of the Irish Mortgage Holders' Organisation, these families are "goosed".
The national debate might have moved on to a lack of new housing and loan-to-value ratios but long-term mortgage arrears remain a timebomb waiting to go off.
The banks effectively have two options. Repossess the homes or package up the loans and sell them on to a vulture fund to work out, as Ulster Bank did recently.
Repossessions aren’t part of Irish culture. At the end of June, the number of repossessed homes being held by the banks amounted to 1,683. This figure doesn’t change hugely from quarter to quarter. In the year to the end of June 2016, 609 homes had been repossessed on foot of a court order. Most of the homes that end up with the banks are either voluntarily surrendered or abandoned.
Selling loans to vulture funds would be politically explosive for AIB and Permanent TSB, both of which are majority State owned. But they can't keep kicking the can down the road, either.
There’s no obvious or easy solution to the problem. The domestic banks, which have been bailed out by taxpayers, can’t simply write off billions in loans.
The mortgage-to-rent scheme hasn’t worked and we know there isn’t enough social housing in the system to provide an alternative to those who might lose their homes. And years of undersupply of housing means rental properties are at a premium. Rents in Dublin are now almost 10 per cent higher than their previous peak in early 2008, according to the latest data from Daft.ie.
Some form of creative solution is required to deal with this problem. Hall has already flagged that he is looking at the feasibility of a mortgage-to-lease scheme, where his entity would buy the loans from a bank (presumably at a haircut) and lease them back to the owners. Other groups are reported to be looking at similar schemes. The devil will be in the detail.
It might be time for one of Taoiseach Enda Kenny’s national conversations involving the various parties – lenders, Government, debt advisory groups, insolvency practitioners and other stakeholders – to thrash out a solution for the 35,000 families at risk of losing their homes.
A commission on long-term mortgage arrears anyone?