Late loan payments continue to rise

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 …

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Morning Ireland: Interest only loans and the Insolvency Service

We were asked to speak on RTE’s ‘Morning Ireland’ business news with Brian Finn about interest only mortgages and whether or not they constituted a future threat to the mortgage market as well as to comment on the Insolvency Service of Ireland figures that were out which showed a marked increase (although still low gross numbers) in resolutions.

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Central Bank findings on interest only mortgages

The Central Bank released some findings on interest only mortgages (below), we’ll follow up with some commentary and interpretation soon.

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The research analyses the loan characteristics, including loan performance, of mortgages originated on interest-only terms in Ireland.

The main findings of the research are:

While interest-only arrangements have been widely used as a means of temporary forbearance to deal with the current mortgage arrears crisis, mortgages were also originated on interest-only terms during the height of the boom. Between 2005 and 2008, interest-only mortgages were mainly issued to buy-to-let investors on tracker mortgages and at high loan-to-value ratios. Interest-only mortgages were more likely to be issued to buy-to-let borrowers in Dublin and for the purchase of apartments than standard mortgages. The arrears rates on these mortgages are higher than standard mortgages. A significant number of interest-only mortgages are due to revert to principal-and-interest repayments in the next 2 years. The resulting higher repayments for these borrowers could lead to an increase in mortgage arrears. 44 per cent of the buy-to-let interest only borrowers will …

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The issue with the case against ‘Reckless lending’

In operations I have two main roles, firstly is the obvious operational aspect of any company which has to do with logistics of loan suppliers and our distribution to clients as well as looking at the general business planning to ensure we are always at the best of our abilities. The other role is regulatory, I act as a compliance officer, while that is not a legal position, it is one in which the practical aspects of law surrounding financial services are to be found, how it works in real life.

On that basis I was surprised to see that there were several articles talking about the use of tort law to prove negligence in lending, and with that, a particular reference to the Consumer Protection Code (CPC) which has since been updated. While I admire the initiative being taken by New Beginning I have some doubts which I will express here.

One issue we have had with regulation is that it actually …

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Is keeping families ‘in the home’ merely keeping them in the fire?

You must question the morality of ‘keeping people in the home’ when doing so will push them deeper into debt they already can’t afford. The misery of a repossession is not the day you are told you have to move house, rather it is the stress on the way down, the calls, letters, meetings, the apprehension merged with repeated requests to fill in budget forms, and all the time knowing that you are unable to walk away because of our draconian debt laws.

We have 36,500 households in arrears, the greatest attrition is moving from 90-180 days into the 180 days or more unpaid, meaning that the people who go into arrears are not coming back, they remain unable to pay; the figures are hardening in the worst possible sector of the statistics.

Oddly, an increase in the 3-6 month bracket (if the total sum was stagnant) would be a sign of recovery as people paid their way back down the chain towards having a …

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How Negative Equity can cause arrears.

A recent report by Moody’s pointed out that increased negative equity will cause a rise in arrears. The commentary surrounding this (in Ireland) takes the view that correlation is not necessarily causation. That people in negative equity won’t automatically go into arrears unless they cannot pay, that negative equity of itself is only an issue if you lose your job or have to sell. This is a valid opinion but it ignores the operational aspect of a household in respect of the way that they react when financial difficulty occurs.

There are several hundred thousand households in negative equity, and about 35,000 in serious arrears, how many of those people would not be in arrears if they were not in negative equity? The answer is: how ever many would have sold their house as a solution.

The first thing many people do if they know they are going to be headed for a situation where they stand no chance of paying their mortgage is to put their home up for sale, in …

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