Mortgage arrears deterioration ‘damning indictment’ of banks and regulator, conference told

The deteriorating mortgage arrears situation is a damning indictment of the banks and the regulator, the Dublin Economics Workshop heard at the weekend.

Conall Mac Coille of Davy said macroeconomic conditions do not explain the continuing rise in the number of mortgage accounts in arrears. A pending Central Bank survey will show that two-thirds of those with mortgages in arrears are in employment and the governor of the Central Bank said the data indicates that a "modest change" in many people's spending would see them able to service their mortgages.

David McNamara, also of Davy, said solutions to date had been short-term ones, such as temporary lower repayments, and the Dunne judgment in 2009, along with other factors, had led to the creation of a confused regulatory environment.

Economist Seamus Coffey of UCC said the rules had been such that you could go into arrears without any real consequences and people had played according to those rules.

He said that in the US loans in difficulty would be altered so that the remaining principal could be paid with about 31 per cent of gross salary. If such solution was not possible, the homes were repossessed.

Mr McNamara said a lot of landlords were close to retiring age and on short-term loan contracts involving interest-only and tracker rates. When these loans had to be refinanced, many would find their situation unsustainable. “The ECB rate is going to go up and the banks are planning on fat margins,” he said.

Mr Coffey said the statistics showed that the loans that were in arrears included ones issued as far back as 1995. The spread was across the range of originating dates and this suggested many of the loans might be in positive equity. He said there should be more repossessions and that if loans can’t be repaid, then they should be written off.

He said the statistics showed there were loans to the value of €114 billion out at the end of 2011 to the residential mortgage market and €34 billion out to buy to let. He said 580,000 households had mortgages out of a total of 1.7 million households.

About a third of households have mortgages, a third do not, and a third are local authority and other types.

There has been a jump in the number of privately rented households from 145,000 in 2006 to 305,000 in 2011. The arrears statistics show a massively deteriorating picture since September 2009, when the statistics began.

There are 770,000 accounts associated with primary dwellings (some houses have more than one account), out of which 142,000 cases are in arrears. The average mortgage in arrears (€179,000) is bigger than the average mortgage (€141,000).