Mortgage arrears to peak this year, says Fitch

The number of homeowners more than three months behind with their mortgage repayments is likely to peak this year after hitting a high in the closing months of 2013, according to the latest analysis from ratings agency Fitch.

In the last quarter of last year, 18 per cent of all those with residential mortgages in the Republic were three months or more in arrears, a report published today by Fitch Ratings says.

The figure was a new high and was almost two percentage points up on the 16.2 per cent recorded in the final quarter of 2012. The growth was driven primarily by those who were one year or more behind with their repayments.

Andrew Currie, managing director at Fitch's structured finance team, expects the number of borrowers in long-term mortgage arrears to peak this year. "There has been a slowdown in the number of new borrowers getting into mortgage distress," said Mr Currie. "Recent legislative changes provide lenders with more certainty that they have effective tools to handle the most unco- operative borrowers.

“The combination of fewer new arrears cases and our expectation of a slow pick-up in loan workouts means the peak in late-stage arrears is now close.”

The report points out that a number of schemes were introduced last year to allow banks and borrowers to tackle arrears. It also highlights that legislation reformed a gap in the law that prevented lenders repossessing properties in some cases. However, it also states that the Republic’s banks are reluctant to go this route, preferring instead to find mutually acceptable solutions with delinquent borrowers. “This preference, combined with the slow legal process, is expected to limit the enforcement of security and resultant loan losses in the first half of 2014,” the report states.

Fitch bases its findings in its Mortgage Market Index – Ireland on the performance of residential-mortgage-backed securities (RMBS), essentially bonds tied to homeloans issued by the Republic's banks, most of which date back to the middle of the last decade.

The agency, which assesses businesses’ and organisations’ abilities to repay their debts, argues in the report that the Republic’s housing market has bottomed out and that there is likely to be “single digit” growth in property prices this year.

The biggest increases are likely to be in Dublin and Cork, where there are greater employment opportunities than elsewhere, combined with limited supply of housing.