Time runs out for 10,000 homeowners in arrears

TIME HAS run out for at least 10,000 homeowners behind with their mortgage payments as they are no longer under the protection of the 12-month mortgage arrears moratorium.

Ciarán Phelan, chief executive of the Irish Brokers Association, said yesterday that, based on figures from the Financial Regulator and from ratings agency Moody’s, “at least 10,000 borrowers” are 12 months behind on their mortgage repayments.

A 12-month mortgage arrears moratorium was introduced under the Financial Regulator’s Code of Conduct for Mortgage Arrears in February this year.

It meant lenders could not take legal action to repossess homes from borrowers until 12 months after their mortgage went into arrears.

The moratorium offered a temporary breathing space for borrowers in difficulties, but over 10,000 of these have now run out of time.

Figures from rating agency Moody’s show an average of 1.38 per cent of prime Irish mortgages have been in arrears for more than 12 months.

There were almost 790,000 mortgages at the end of September in the entire Irish market, including prime and sub-prime mortgages. Based on the prime lenders default rate, 10,900 residential mortgages were in arrears for 12 months or over.

The level of arrears among the prime lenders varied; just over half of 1 per cent of the residential mortgages on AIB’s books were in 12 months arrears, according to Moody’s figures, compared to 2.7 per cent of First Active’s residential mortgages. The figures for Bank of Ireland and EBS are 1.3 per cent and 1.8 per cent respectively.

Moody’s has also said the deferred interest scheme, recommended by the Government’s Mortgage Arrears and Personal Debt Group, will push troubled borrowers deeper into debt.

Set up by the Government to help address the growing problem of mortgage arrears, the group recommended interest payments for people behind with their mortgage payments could be reduced to two-thirds for five years. The unpaid or deferred interest would then be added to the outstanding balance of the mortgage after the five-year period.

The scheme was the main recommendation to come out of the group after 10 months of consultation and most mortgage lenders have agreed to implement it.

In its weekly credit outlook, Moody’s said it believed there would be a large take-up of the deferred interest scheme, “given the political pressure” on lenders and their limited appetite for repossessions.

The scheme would provide short-term relief to financially distressed borrowers but “actually pushes the troubled borrower deeper into debt” because the deferred interest is adding to the ultimate cost of the loan.