Cliff Taylor: seven reasons why repossessions are in the news
Rising level of action by banks seeking repossessions has put focus on mortgage debt
The Gorse Hill saga and figures published in this morning’s Irish Times showing a rising level of court action by banks seeking repossessions have put the spotlight back on mortgage debt. Seven years into the crisis why is whole area of home repossessions in the headlines now?
1. Well, there is a big problem
Sometimes the scale of the mortgage arrears problems is missed, as we focus on figures showing whether things are getting “better” or “worse”. The latest Central Bank figures show more than 110,000 homeowners in mortgage arrears at the end of 2014. Out of a total number of just under 760,000 mortgages on private dwellings, this is very significant.
In addition, more than 35,000 buy-to-let mortgages, out of a total of 141,000, are in arrears.
The overall arrears figures have started to improve, but only slowly and a rise in the number of repossessions is inevitable in the next few years as this arrears crisis is worked through.
2. The banks only started to deal with it in mid-2013
For the first few years of the crisis, the banks were concentrating on fighting for their own survival. In many cases mortgage borrowers were offered no solutions, or at best temporary solutions such as moving to interest only for a period.
Both borrowers and lenders signed up to this “extend and pretend” strategy in the hope that things would improve.
While house prices have started to rise, many of those who bought at or close to the peak are still in very difficult positions.
In March 2013 the Central Bank published new targets for mortgage arrears resolution targets (MART targets, in the jargon) which the banks now have to meet and this finally sparked action on dealing with arrears.
3. The legal barrier which has delayed banks dealing with some cases
A judgement by Ms Justice Elizabeth Dunne in mid-2011 limited banks in taking enforcement action against many mortgages taken out before December 2009.
In March 2013 the government enacted legislation which effectively nullified the impact of this judgement.
Many of the repossession cases now coming to a head in the courts are these longer standing ones, relating to pre-2009 loans, which banks acted on once the legal barrier was lifted.
4. Banks say in some cases legal action is the only way to get borrowers to engage
As they work through mortgage defaults, banks say that there is a minority of borrowers who have fallen behind but have refused to engage with the bank. In some cases the issuing of legal proceedings brings the two sides to the table and the case does not come to a court hearing.
5. Many of the cases first addressed in 2013 are now moving to the courts - a lot more will follow
An analysis completed by UCC economist Séamus Coffey shows very low levels of court enforcement action from 2008 to mid 2013. The Central Bank targets and the new legislation led to a significant increase with between 1,500 and 3,000 court proceedings initiated in every quarter since then.
In the fourth quarter of last year, proceedings were issued in just over 2,500 cases and concluded in 721 cases. In 314 the court granted an order for repossession or sale. Typically in court proceedings an even higher percentage of voluntary repossessions are agreed during or before the hearing, meaning the court does not have to make a ruling. Also in other cases the banks put pressure on borrowers to sell, outside the court process.
6. In many cases other solutions offered to borrowers in arrears have not worked
Banks have offered a range of measures for troubled borrowers, but in many cases these have not proved to be enough. For example in half of the cases where a permanent interest rate cut has been offered, the borrower is again in arrears.
In almost 30 per cent of cases the same applies to “arrears capitalisation” - where what it owed is rolled up and added back to the capital of the loan. There is an even higher failure rate when this is offered to buy-to-let borrowers in trouble.
7 This is the system we have
Repossession is the ultimate threat on which the system of mortgage borrowing in this country is based. So a rise in repossession actions is inevitable as the legacy of the bust is dealt with.
Coffey calculates that there have been only around 1,000 court -forced repossessions since the crisis started, which is a remarkably small number. Unfortunately this now looks set to rise, fuelling a debate on just what are the appropriate circumstances for a bank to force repossession.