Defaulters ‘cost other mortgage holders €250 a month’

Irish mortgage holders have to pay about €250 each month for the lifetime of their loans to pay for the costs of those who are not able, or refuse to pay their mortgages, it has been claimed.

Banks are forced to price in difficulties in recovering the security on loans in default and to sell non-performing loans to vulture funds at "huge discounts", Brendan Burgess, of the consumer forum askaboutmoney.com said.

"If the public realised that there was a connection between no evictions and difficulties in getting mortgages, they would have less sympathy for those evicted," he told The Irish Times.

There are 600,000 mortgages currently in the State. Nearly 22,000 have long-term arrears. More than 110,000 mortgages have been restructured. Since 2008, 6,000 repossession orders have been granted and 3,024 of these properties have been repossessed.

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Mr Burgess said if financial institutions were unable to "repossess a family home and the Central Bank is telling them to cut their non-performing loan ratio, all they can do at that stage is to sell the mortgage to a vulture fund. And, of course, they sell it at a huge discount."

Vulture funds are better at managing such cases, he claimed: “If they get their act together in the courts, and if they are dogged, they will get an order if the borrower is not engaging or paying anything. They will get a voluntary surrender or an eviction eventually.”

The level of house repossession in Ireland is low by international standards and the legal process for banks in relation to family homes is lengthy and unpredictable.

Lengthy process

A report into the mortgage market from the Competition and Consumer Protection Commission (CCPC) published last year highlighted the fact that the process took between 18 to 72 months in the Republic compared with between nine and 12 months in the UK and six months in Denmark.

The CCPC said restrictions in Ireland on lenders being able to “possess loan security” in the event of a mortgage default had the effect of raising loan rates for the wider market.

"Whether lenders like it or not, it is very challenging to get a repossession order in this country," said Felix O'Regan of Banking & Payments Federation Ireland. "They need to go through the courts and if they succeed in getting a repossession order it only comes at the end of a very long process," he said.

Mr O’Regan also pointed out that lenders do not want “the negative publicity that comes with a repossession case so they seek to resolve situations before it gets to that point.”

Echoing the comments made by Mr Burgess, he said difficulties in executing repossessions “goes some way towards explaining why mortgages are priced the way they are in this country”.

According to recent Central Bank figures Irish mortgage borrowers are still paying well above their counterparts elsewhere in the European Union with average rates of 3.21 per cent in May on new mortgages, compared with a 1.8 per cent euro-zone average. That is €2,000 to €2,500 more a year for the Irish borrower.

Mr Burgess said the current system which protects distressed borrowers should be “more or less maintained to protect those who are paying what they can from banks who try to pressurise them into giving up their home. But all such restrictions should be removed in dealing with strategic defaulters”