Pepper Advantage, the largest servicer of Irish mortgages acquired by international funds in the wake of the financial crisis, insists it has not seen the arrears spike reported by S&P Global across a segment of boom-era mortgages that had previously been in trouble.
S&P said in a report last week that 25.7 per cent of Irish re-performing loans – loans that had got back on track after previous arrears – held in residential mortgage-backed securities (RMBS) deals were behind in repayments at the end of December, up from 8.4 per cent in January 2022 before the European Central Bank (ECB) started to raise official rates aggressively to rein in inflation. This equates to about 8,700 of such mortgages.
The rate of increase was amplified by certain better-off borrowers repaying loans more quickly to minimise the effect of rate hikes.
Investment funds, or so-called vulture funds, that acquired billions of euro of non-performing loans from banks in the wake of the financial crisis have essentially refinanced many of these loans on the bond markets through such RMBS deals.
However, Pepper Advantage, which services about 80,000 Irish mortgages owned by investment funds such as Carval, Goldman Sachs and Pimco, the majority of which were non-performing when acquired, said that its data shows that 30-plus days arrears across variable rate mortgages only increased by 0.58 of a percentage point between July 2022 and March 2025. It did not provide an actual arrears rate for March.
“There is no question that rising living costs and higher interest rates have been challenging for many, which is why we have strong frameworks in place to support borrowers who may be experiencing financial difficulties,” said Niall Sorohan, chief executive at Pepper Advantage.
“We also actively and closely monitor arrears across our portfolio, which show a different picture from the numbers reported [last] week.”
While the Central Bank of Ireland does not collect data on re-performing loans, its figures point to a 13 per cent increase in 30-plus-days arrears cases across non-banks, to 26,939, in the three years to the end of March – equating to 22 per cent of such accounts. Cases of arrears across banks fell by 39 per cent over the period to 15,446 accounts.
Some of the divergence can be accounted for, however, by banks continuing to offload non-performing portfolios during the period to non-banks.
The spike S&P referred to relates to what are often referred to as “mortgage prisoners”, homeowners who are typically charged higher rates than mainstream banks and who have not been able to refinance elsewhere because of their low credit ratings.
As of last June, more than 80 per cent of mortgages in the hands of firms not actively lending were on rates of at least 6 per cent – with many paying between 8.5 and 10 per cent, following rate hikes in recent years, according to a recent report from the Oireachtas Library and Research Service.
At the time, the average new loan was being priced at a little more than 4 per cent, Central Bank data shows. Market rates have come down since then as the ECB has been reducing official rates since last June and it is expected that the level of arrears across re-performing loans will fall, too.
Pepper Advantage said on Thursday it will soon start contacting about 10,500 residential mortgage customers to notify them of new and further decreases in variable mortgage rates on their loans. The ECB last week reduced its rates by a quarter point, bringing its benchmark rate down to 2.25 per cent.
“As before, these rate reductions will primarily apply to those customers who have experienced the highest increases since the ECB implemented 10 consecutive rate increases beginning in July 2022,” Pepper said.
