New figures published by the Central Bank of Ireland on Friday showed 77,630 residential mortgage accounts are in arrears of more than 90 days. A further 79,712 mortgages have already been restructured by lenders following contact with borrowers, who faced difficulties meeting their repayments.
The level of mortgage arrears has jumped sharply in the past nine months with 10.2 per cent of the 764,138 residential mortgages now in arrears, compared with 7.2 per cent in June 2011.
“The scale of the problem has overwhelmed the banks,” Matthew Elderfield, deputy governor of the Central Bank, told journalists at a briefing this week.
Mortgage debt is a big problem in Ireland, where a property crash and banking crisis led to the country’s €67.5bn bailout by the EU and International Monetary Fund in November 2010.
Between 1997 and 2007, Irish property prices quadrupled – the biggest increase recorded by any European country. The subsequent collapse of the market, which included price falls of up to 60 per cent in Dublin, has left several hundred thousand homeowners in negative equity.
The overall scale of the mortgage problem is difficult to determine as the Central Bank does not publish statistics for buy-to-let mortgages. However, this week the bank said the arrears problem was much worse for buy-to-let mortgages, compared with residential mortgages.
High unemployment, which is above 14 per cent, and lower wages mean many mortgage holders are struggling to pay their debts. Banks have also warned that strategic non-payment of mortgages is increasing owing to high levels of negative equity and the hope that proposed personal insolvency legislation would introduce some form of “debt forgiveness” for borrowers.
The Central Bank said this week the country’s banks had “no immediate need” for any additional state funding to cover the escalating losses on their mortgage books. The country’s main banks have already received €64bn in state funds since the previous government issued a blanket bank guarantee in September 2008.
Stress tests carried out by the European Banking Authority last year show the main Irish lenders easily passed EU capital requirements following their recapitalisation in summer 2011. But the deterioration of banks’ mortgage books and continued weakness in the economy is causing some investors to question the health of the Irish banks.
Deutsche Bank warned last week that Ireland’s bailed-out banks might need as much as €4bn more capital to cover mortgage losses, a sum that could force Ireland to require a second bailout when its current EU-IMF programme ends at the end of 2013.
“Although resilient during 2009 and 2010, mortgage arrears have risen sharply over the past year, house prices are continuing to fall, market liquidity is limited and over half of customers are now in negative equity,” said Deutsche Bank.
The bank said the size of negative equity balances for some mortgage holders might greatly reduce their incentive to co-operate, pushing them towards default. It said the government’s proposed new personal insolvency laws also created “risks” of widespread debt forgiveness.
Dublin is due to publish personal insolvency legislation next month proposing solutions for borrowers struggling with mortgage arrears. Ministers have said there will be no “blanket write-off” of mortgage debt for borrowers but banks will be encouraged to deal with arrears on a case-by-case basis. The introduction of mortgage-to-rent schemes, whereby mortgage holders can continue living in their homes but ownership of the house passes to the bank, is likely to be proposed.
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