HOUSEHOLD DEBT in Ireland has doubled in the past five years, largely due to a massive increase in mortgage borrowing, the Oireachtas Committee on Social and Family Affairs has heard.
As a result, personal debt here is rising faster than in most other countries in the euro zone, according to John Kelly, head of statistics at the Central Bank.
The cumulative debt on Irish mortgages grew at three times the annual rate in the euro zone between 2004 and 2006, Mr Kelly told the social and family affairs committee yesterday. An expectation of capital gains from rising house prices played a significant role in this growth, with almost one-quarter of mortgage borrowing last year devoted to buy-to-let properties.
Mr Kelly said the proportion of personal debt which is secured on property now exceeded that of all other euro zone countries apart from the Netherlands. We also have one of the highest proportions of mortgage debt at variable interest rates.
This means borrowers, while benefiting from current low rates, could be particularly open to future increases in interest rates.
However, he also pointed out that recent interest rate cuts by the European Central Bank have produced savings in mortgage interest rate payments for Irish borrowers of €3.5 billion this year, or €2.5 billion when tax relief is allowed for. This benefit had accrued mainly to the most indebted households, which needed it most.
Trends in credit card debt were reasonably positive, he said. Many borrowers made substantial repayments on their card borrowings in 2007 when their SSIAs matured, and increases in debt since then have been modest.
Mary O’Dea, acting chief executive and consumer director of the Financial Regulator, said a consumer protection code introduced in 2007 required mortgage lenders to alert customers as soon as possible if their mortgage falls into arrears and to have procedures in place for handling arrears. A code of conduct on arrears was introduced this year.
She said the regulator had written to all lenders saying they should not only deal with someone fairly when they are actually in arrears but also when they seek to move to prevent an arrears problem.
However, Paul Joyce of Flac (Free Legal Advice Centres) said the code on arrears didn’t go far enough. He said the code should oblige lenders to explore alternative payment proposals before having a right to bring debt recovery proceedings in the courts. He criticised the “lack of connection” in State policy between those dealing with banks and those dealing with borrowers.