Could harsher punishments for mortgages in arrears lead to lower rates?

Mortgages are notoriously expensive in Ireland, with rates twice those of the Eurozone average. How best to address this problem has been a hot-button issue in Ireland for some time. Now, some are putting forward a new solution: harsher punishments for borrowers with mortgages in arrears. One of Irish banks’ stated reasons for rates being so high is that failing to meet mortgage payments doesn’t have high enough consequences for borrowers. For example, home repossessions in Ireland aren’t very common, since the process is so complex and can take several years. As a result, loans are riskier investments for lenders in Ireland relative to other Eurozone countries. If this is indeed the reason for rates being high, it follows that tougher treatment of such borrowers would lead to lower rates for everyone else.

Regarding the number of borrowers this would affect, statistics from the Central Bank of Ireland show that 5.3% of all principle dwelling house (PDH) mortgage accounts were in arrears as of December 2020. This percentage includes a total of 38,785 accounts. However, it’s also worth noting that this number appears to be decreasing; the number of accounts in arrears had fallen by 2,104 since the same time the previous year.

So, what would a tougher stance on mortgages in arrears actually look like? It may equate to less generous forbearance from lenders, which might not be advisable for many in the current economic climate. It might also lead to a greater number of home repossessions.

One should consider how harsher treatment would affect different people, as well as how many. While it would certainly make irresponsible borrowers more accountable, it could also affect victims of circumstance. This is especially true considering the current state of the Irish economy, which is in a rough spot from COVID and ongoing lockdowns. Considering the economic recession and ensuing job losses they have caused, it may be that many mortgages in arrears at present are at least partially the product of these extraordinary circumstances.

So, would it be better for mortgages in arrears to be treated more harshly by lenders and the government to lessen the burden for everyone else? There’s no guarantee that lenders would lower their rates accordingly. What’s worse is that tougher measures would also impact people stuck in unfortunate situations, especially when considering the current state of economic hardship. One should keep these factors in mind when suggesting changes to the ways mortgages are handled in Ireland.

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