Mortgage arrears rise as long-term debt restructuring remains negligible

The number of homeowners unable to meet their mortgage repayments is continuing to rise despite banks being ordered to deal with the crisis.

Figures published by the Central Bank yesterday showed homeowners are now a staggering €2 billion behind on their payments, with almost 30,000 mortgages two years in arrears, and close to 100,000 more than three months in arrears.

While the data pointed to a rise in the number of homes taken into possession by lenders, from 166 in the first three months of the year to a total of 223 during the second quarter, the majority of these were abandoned or voluntarily surrendered.

The Government and the Central Bank have in recent months told lenders to get to grips with the arrears issue but this seems to have made little difference so far.

Sustainable solutions
Last March the country's six main banks – AIB, Bank of Ireland, ACC Bank, Permanent TSB, Ulster Bank and KBC – were ordered to move away from temporary restructuring and implement long-term, sustainable solutions.

Banks were told to offer these solutions to 20 per cent of distressed borrowers by the end of June. This number was to rise to 50 per cent by the end of 2013, when Ireland is due to exit its EU-IMF bailout.

Yesterday’s data shows long-term, permanent loan modifications remained negligible in the second quarter, with split mortgages accounting for just 0.4 per cent (309 accounts) of the total.

Interest-only and reduced- payment restructuring plans still dominate the bulk of all modifications.

The Irish Banking Federation said the number of distressed customers being offered these longer-term, sustainable resolutions can be expected to increase over the coming months, as the banks begin to roll out more offers.

“It is important to note that the transition from short-term forbearance to longer-term sustainable resolutions takes time to conclude: detailed assessment of each case is central as is the borrower’s consideration of the resolution proposed,” it said.

Davy chief economist Conall Mac Coille said a confused regulatory approach far too favourable to delinquent borrowers has encouraged a weakening in payment discipline.

“Ireland now has significant numbers of solvent borrowers who can service their mortgage debt but choose not to do so,” he said.

This was highlighted earlier this month by AIB chief executive David Duffy, who said about 20 per cent of homeowners behind on their mortgage repayments were “strategic defaulters” – people withholding payments and instead to servicing other debt.

In addition, the Government has only just passed legislation to address the 2011 Dunne ruling, which prevented banks from repossessing homes associated with delinquent loans.