Households with long-term mortgage arrears are significantly more likely to have lower income, higher rates of divorce, more unemployment and bigger loan burdens, according to new research.
The study also shows that such borrowers typically have large stocks of non-mortgage debt such as unpaid credit cards and motor loans.
The analysis, which has been undertaken by Robert Kelly and Fergal McCann at the Central Bank, seeks to understand why long-term mortgage arrears have remained stubbornly high in recent years .
The authors say unemployment shocks, changes in mortgage affordability, the accumulation of non-mortgage debt, higher originating loan-to-value ratios and weak housing equity positions have all played a part in contributing to long-term arrears for some households.
According to the report, borrowers with long-term mortgage arrears typically face higher interest rates and are composed of what the authors call ‘vulnerable family types’ such as single borrowers with multiple children.
Severe negative shocks
“Households in long-term mortgage arrears are shown to have experienced far more severe negative shocks during the crisis period, leading to much more onerous repayment burdens. Further, these households have also taken on higher levels of non-mortgage debt and are experiencing weaker housing equity positions, “the authors write.
The analysis shows that repayment rates are extremely low among those borrowers with long-term debts, with continued growth in arrears continuing last year of more than 69 per cent.
The authors conclude that lenders and policy makers must remain vigilant to ensure that cases of households experiencing difficulties making repayments are resolved early and rapidly.
In a related technical paper, Mr Kelly and Mr McCann say that a deeper understanding of the factors that drive mortgage default is needed.
“Our results suggest that high loan-to-value ratios, consumer credit growth, shocks to mortgage affordability and unemployment should all trigger serious concerns among policy makers regarding subsequent stability in the mortgage market, with these measures all shown to have differentially large impacts on entry to deep, relative to early-stage arrears.”
