The Central Bank of Ireland reports that the total amount of mortgages that are now classified as long-term arrears have hit record highs, topping the charts at almost 6 billion euro. There are many types of properties that can and have become part of this number, but the largest group tends to be that of more residential properties.
In the previous quarter, mortgages in arrears were down significantly. Sadly, the largest category in mortgages in arrears, residential properties that are two years or above in late payments, is still increasing. The buy-to-let sector has been the largest subcategory of residential properties in arrears; 17.62% of the total is in arrears.
In April 2019, only 118 of all applications of mortgages for buy-to-let properties were approved while in April 2018 154 mortgages were approved. There was a 30% decrease within the same months separated by only one year, according to the Banking and Payments Federation Ireland (BPFI).
This huge scale down may be due to Brexit, or perhaps the seeming unreliability of buy-to-let properties ability to bring in an income that is enough to pay off general living expenses and loan repayments.
Arrears are a slippery slope and they can be extremely difficult to pay off. There are two different types of arrears, interest arrears and principle arrears, of which borrowers should be aware.
Interest arrears build up on an account from the time of the last payment until you pay again. Interest is calculated on a daily basis, causing the accounts to rise swiftly between payments especially if you were to miss one. Interest arrears are the difference between what is expected to compound over the agreed upon period and what has been compounded if you don’t pay on time.
Principle arrears can be less costly, but are still be difficult to catch up on. These amounts are calculated beforehand with set amounts that are to be paid during each period of the loan. If you were to miss a payment in this instance, it would have the actual balance be behind what is planned for the loan. More interest can be charged for these late payment as well.
Overall, arrears can cause lots of problems both for the loaner and the borrower. Without the ability to pay back initial loans, interests will continue to build up and can leave people in serious debt and banks with the possibility of not being compensated for their loans.