Fitch Ratings expects the number of repossessions to rise in Ireland following the enactment of the Land and Conveyancing Law Reform Act. However, it adds that the Act will also create "incentives for lenders and borrowers to agree longer-term alternative repayment arrangements".

These arrangements will likely include the use of tools such as split mortgages or trade-down products for borrowers in negative equity to be used first, followed by Personal Insolvency Arrangements (PIAs). Repossession or voluntary surrender will be a last resort as “lenders may not want to repossess a distressed property and crystallise a larger loss”.

“It is still early to estimate how many mortgages will be subject to the three main options of restructuring, PIA and repossession,” Fitch says, but notes that it is likely that lenders will deploy their own restructuring tools first, before moving on to a PIA if necessary.

“They view a PIA as a niche product, most suitable where a borrower has various creditors and types of debt. We maintain our view that PIA is not an easy route to debt forgiveness, as it would be likely to entail relatively stern restrictions on living costs,” Fitch said in a statement.

With regards to securitised mortgages, Fitch said it would be “difficult” to predict the impact of the aforementioned repayment arrangements, but noted that they may begin to halt the rise in arrears.

“ Broadly, we would expect the warehoused portion of a split mortgage to translate into a debit on principal deficiency ledgers. Trade-down mortgages may lead to a mild prepayment increase, although it is not yet clear if these will be widely used by banks,” Fitch said.