Time for some common sense on mortgage arrears

Cantillon: All homebuyers are paying a price for the problems of the few

If you are in arrears of more than five or 10 years, it is very difficult to see how that situation is going to be recovered. Photograph: iStock

If you are in arrears of more than five or 10 years, it is very difficult to see how that situation is going to be recovered. Photograph: iStock

 

Almost 5,500 mortgages are in arrears for more than 10 years. 10 years! Just think about it. The average home loan term – at least in 2019 – was 22 years. Even on the 30-year loans most first-time buyers will seek, this equates to arrears of over a third of the mortgage term.

A further 10,450 home loans are in arrears for between five and 10 years, with another 8,600-plus more than two years and less than five behind in their payments.

Together they account for close to half of all mortgage accounts in arrears for more than 90 days, according to the Central Bank. That three-month point is seen as the gap between short-term and long-term arrears, the tipping point beyond which an arrears position becomes chronic.

Arrears are clearly a serious issue for and a tremendous strain on the homeowners involved. We’ve all known people over the past decade who, through various circumstances, have found themselves behind in payments on the largest financial commitment most of them will ever have.

No one but the most reckless gets themselves into such a position lightly.

Interest rates

But it is also a problem for everyone else. Every month when the Central Bank releases its data on retail interest rates, there is a furore over the fact that Ireland is the most expensive country in the European Union in which to get a mortgage – or second worst on those occasions where Greece pips us.

There’s a reason for this. And a significant part of it is the difficulty Irish lenders have in accessing the security behind their mortgage loans.

The Republic doesn’t do repossessions. There are all sorts of very understandable historical and cultural reasons for this. But the issue remains that banks lend mortgages on the basis of right to title of the underlying asset in the event of default. only to find it nearly impossible to secure it when default arises.

Lenders are under massive pressure to find accommodations – even beyond what is practicable – from intense political lobbying and their practical experience of a legal system that has shown itself very reluctant to sanction people being put out of their homes.

But if you are in arrears of more than five or 10 years, it is very difficult to see how that situation is ever going to be recovered.

Data this week showed the median age at which couples buy a home is 38. For single buyers, it is higher, at 42. Thirty-year mortgages bring these buyers up to retirement age, a point where both they and their lenders aim to have no more mortgage debt.

There is little scope for slippage. A year’s mortgage debt might be recovered; 10 years? Hardly.

Until Ireland faces up to the inevitability of people surrendering their homes to fully settle default when their position is beyond reasonable resolution, all other homebuyers will continue to pay the price. And there’s no use complaining about it.

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