High rents ‘motivate’ restructured borrowers to repay, KBRA says

The Republic’s “very high” level of restructured mortgages where holders stick to the new terms on their loans is helped by the fact that they face steeper monthly costs in rent if they lose their homes, according to a US credit ratings agency.

Kroll Bond Rating Agency (KBRA) highlighted in a new report that an average of more than 86 per cent of owner-occupier mortgages in the Republic whose loans were restructured, as they ran into financial trouble after the crash, have continued to meet their new terms since 2015.

The rate stood at 87 per cent in March, according to the latest Central Bank figures. KBRA analysts Gordon Kerr said he believes that is "on the higher end" of the experience of banks across Europe.

KBRA looked at four loan portfolios largely comprised of restructured loans meeting their revised terms that had been refinanced on bond markets this year. They concluded that owner-occupier loans within these portfolios are paying less in monthly mortgage payments than they would otherwise have to pay in rent.

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In one portfolio, called Primrose Residential 2021-1, comprised of previously non-performing Permanent TSB, Irish Nationwide and Springboard Mortgage loans that were acquired by distressed debt firms and restructured, the average monthly mortgage payment on a Dublin property in negative equity was €1,133 in the first quarter. Average rents in Dublin stood at €1,820, it noted, citing Residential Tenancies Board data.

Negative equity

The average mortgage payment on a non-Dublin property in negative equity in the portfolio was €781, compared to a corresponding rent of €1,017.

“This underscores a strong motivation for borrowers to keep up with mortgage repayments. If they fail to maintain their payments, they could be looking at paying more in rent than for their mortgage payments, forcing these borrowers to potentially move to lower-cost areas or downsized accommodations,” the KBRA report said.

House prices have also risen to a level that has removed many borrowers from negative equity, giving restructured mortgage holders further reason to stick with their revised terms, it said.

Irish residential property prices have increased by 99 per cent from their low point in 2013 as of July, but remain almost 11 per cent off their 2007 peak, according to Central Statistics Office data.

Restructured

More that 72,300 private home mortgages were categorised as restructured as of the end of March, equating to 10 per cent of all home loans. So-called split mortgages account for almost 30 per cent of the restructured loans, while cases where arrears are added to the principal of a loan make up a further 27 per cent.

While banks and ratings agencies expect an increase in non-performing mortgages over the next nine months as special Government Covid-19 supports for households and businesses are tapered, they expect the spike to be much less severe than in the aftermath of the 2008 financial crash.