Irish mortgage arrears fall to 12-year low even as cost of living surges

The rate of Irish owner-occupier mortgages at least three months behind in payments fell to a 12-year low in the second quarter, even as households grappled with soaring living costs.

Some 4.4 per cent of home loans were at least 90 days in arrears as of the end of June, compared with 4.5 per cent in March and 5 per cent a year earlier, the Central Bank of Ireland said on Monday, continuing an unbroken downward trend in defaults since figures peaked at 12.9 per cent in 2013.

While the number of cases of arrears of less than 90 days rose by 1,195 to 14,443 by the end of June from a year ago, that was 1,109 fewer than at the end of March.

A Central Bank note published last month estimated that up to a third of lower-income Irish mortgage holders could face financial distress trying to meet loan repayments if recent levels of inflation were maintained.

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The paper defined a homeowner as being “at risk” of financial distress when their residual income is less than 10 per cent of their monthly mortgage payments, after meeting home loan obligations and paying for essential non-housing items.

It estimates that in a case of Irish inflation topping 9 per cent for 2022 as a whole, some 32 per cent of the mortgaged households in the lowest-quarter income range would fall into the “at risk” category. That is up from 26 per cent before the recent inflation shock.

Lenders including ICS Mortgages, Bank of Ireland and Finance Ireland have signalled in recent weeks that they are tightening new mortgage lending criteria in an effort to ensure that new borrowers can meet repayments in the face of rising living costs and interest rates.

Cases of long-term arrears, where borrowers are at least a year behind in payments, declined by 12 per cent in the year to June, according to the latest Central Bank. Still, they continue to account for more than half of the total.

Lenders struck 2,354 new restructuring arrangements on problem loans during the second quarter, down from 3,092 for the first three months of the year, with arrears capitalisation and term extensions accounting for most of the deals.

At the end of June, there were 719,548 private residential mortgage accounts for principal dwellings held in the Republic, with a value of €98.7 billion, it said. Some 63,422 private dwelling home mortgage accounts were categorised as restructured, representing 9 per cent of the total.

About 15 per cent of Irish home loans were in the hands of non-bank entities as of the end of the reporting period, including non-bank lenders and international funds that acquired billions of euros of soured loans in the wake of the State’s arrears crisis.

Meanwhile, the ratio of buy-to-let mortgages at least 90 days in arrears declined to 11.5 per cent in June from 11.7 per cent in March and 12.7 per cent a year earlier, the Central Bank said.