One in five mortgage defaults ‘strategic’, says AIB chief

Half the debts secured on buy-to-let properties

AIB chief executive David Duffy said yesterday about 20 per cent of those who have fallen behind with home-loan repayments due to the bank are “strategic defaulters” – people who have decided to withhold payments and use the cash to service other debts. Photograph: Alan Betson

AIB chief executive David Duffy said yesterday about 20 per cent of those who have fallen behind with home-loan repayments due to the bank are “strategic defaulters” – people who have decided to withhold payments and use the cash to service other debts. Photograph: Alan Betson

 


About one in five of those whose mortgages are in arrears can afford to make repayments but have prioritised other debts, according to the chief executive of one of the State’s biggest banks.

AIB chief executive David Duffy said yesterday about 20 per cent of those who have fallen behind with home-loan repayments due to the bank are “strategic defaulters” – people who have decided to withhold payments and use the cash to service other debts.

He also warned a few thousand debtors, with arrears of 955 days or more, who have not engaged with the bank, face the threat of legal action.


Genuine cases
“Where there is a persistent refusal to engage, we will take the legal route and hopefully that will result in them coming back to the table,” he said, adding the problem was preventing the bank from dealing with genuine arrears cases.

He described the overall rate as a “significant number” for the bank, which believes half of the debts are secured over buy-to-let properties and the rest over family homes.

The bank’s chief executive argued the problem was rooted in legal and political barriers to repossessing homes: “For the past few years, there has been no credible risk of losing your home.

“So then people default to paying the next thing where they are facing pressure.”

Mr Duffy revealed the overall rate of mortgage arrears had been in decline but stepped up again ahead of the introduction this year of the new Personal Insolvency Agency, part of a reform of outdated bankruptcy laws.

“People believed that if you went down the PIA route, you would get a better deal than from the banks, but then it became clear to them that to get into that, you had to be insolvent,” he said.

AIB’s accounts for the first half of the year, published yesterday, show it has taken an impairment charge against home loans with a total value of €140 million.

A further €3.4 billion’s worth was “criticised”, meaning there is a high risk of default.


Negotiation vs court
Mr Duffy stressed the bank preferred to deal with mortgage arrears through negotiation rather than court.

He said that AIB intended to have resolved its mortgage arrears problem by this time next year.