A quarter of borrowers behind the State's 29,400 long-term mortgage arrears cases are over 60, leaving them at risk of losing their homes unless lenders come up with more "extensive or ambitious" ways to restructure their loans, according to the Central Bank.
Central Bank deputy governor Ed Sibley told a Banking and Payments Federation Ireland webinar on distressed debt on Tuesday that the solutions banks and loan-servicing firms offer this group “does not take into account the scale of the financial and demographic challenges”.
“Greater innovation is required, anchored by consideration of resolving the underlying affordability issues; and longer-term cost of credit for the borrower – and so, not overly relying on long-term interest only arrangements,” he said.
A Central Bank paper on long-term arrears, also published on Tuesday, said solutions allowing for a pause or substantial reduction in payments ahead of the loan ultimately being cleared through a property sale “buy valuable time” to allow the household to remain in a home for an agreed period and minimise monthly outgoings.
The scope for this has been highlighted by recent innovations in personal insolvency arrangements, it said.
Older borrowers with moderate repayment capacity could be offered a range of solutions, particularly those who are in positive equity, it said.
“A combination of modifications already regularly used within the lenders’ suites (for example, arrears capitalisations combined with term extensions, interest rate reductions, or split mortgages), and debt write-down in some cases, may allow many within this group to clear their mortgages by maturity and retain homeownership,” the paper said.
There is also a group of borrowers who can afford to pay most, if not all, of their mortgage balance, it noted.
While the level of long-term arrears cases – where borrowers are more than a year behind in payments – has fallen by more than 50 per cent from a peak of almost 61,000 loans in 2014, they now account for more than 56 per cent of all owner-occupier loans in arrears.
The increased regulatory focus on long-term distress comes as lenders face a spike in non-performing loans in the next 12 months as the true cost of Covid-19 on households emerges and Government supports are tapered. More than half of long-term arrears cases are no longer owned by mainstream banks.
Still, Mr Sibley said that lenders appear to be "ready and committed" to deal with financial distress emerging from the pandemic on the basis of the plans they have submitted to supervisors. Most borrowers who availed of temporary payment breaks last year have since returned to normal payments.
The Central Bank paper on long-term arrears said that half of such cases are made up of borrowers who are classified as “non co-operating”.
“In cases of continued long-term non co-operation, the functioning of the legal system to ensure the realisation of collateral for lenders will continue to be critical to the effective functioning of the mortgage market for all Irish citizens,” Mr Sibley said, adding that it is “never too late for borrowers to engage with their lenders”.
Of the nearly 10,000 court repossession proceedings that have been initiated since the financial crisis, 54 per cent have concluded without a possession order being granted. Most of these cases ended up being renegotiated or settled.
Meanwhile, another Central Bank paper published on Tuesday showed that lenders estimate that borrowers behind 95,000 owner-occupier loans – or 13 per cent of the total – are not currently on track to repay all that they owe by the end of their loan term.
Almost 63,000 accounts are assessed as having a shortfall of greater than 10 per cent of the balance, it said. Almost 45 per cent of these cases fall into the long-term arrears category.
“The taboo around debt needs to be addressed and consumers need to be encouraged to engage at an early stage when encountering issues with repayments,” said Rachel McGovern, director of financial services at Brokers Ireland, which represents more than 1,200 financial and insurance brokers, adding that favoured loan restructures, such as rolling up arrears and adding them to a mortgage principal, is “effectively a method of kicking the can down the road”.