More than half of mortgage accounts in long-term arrears made no payments towards their home loans in the past two years, according to new Central Bank data.
The report comes at a time when lenders are bracing themselves for a fresh increase in loans in distress as households grapple with the cost-of-living crisis and rising interest rates, following almost a decade of declining default rates.
The average outstanding balance of accounts making no repayment in 2021 was €240,410 and the majority of these accounts were more than five years in default, the bank said in a report published on Thursday.
At the end of last year, lenders in the State, including non-banks and servicing firms managing portfolios on behalf of investment funds, classified borrowers behind 15,000 long-term arrears (LTMA) cases, or 55 per cent of the total, as “not co-operating”. Long-term arrears accounts are defined by the regulator as loans in arrears for more than one year.
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While LTMA cases declined 12 per cent last year to just under 27,000, and fell further in the first half of this month, to 25,000, the report highlighted that the level remains “elevated”.
A separate report published in September showed that LTMAs continued to account for more than half of all accounts behind on payments in June. That followed a period over nine years in which the rate of owner-occupiers at least 90 days behind in payments fell from a peak of almost 13 per cent to 4.4 per cent, as lenders restructured tens of thousands of problem loans and many borrowers’ financial situation improved as the economy recovered from the financial crisis.
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Retail credit firms and credit servicing firms managing portfolios of loans bought by overseas investment funds from mainstream lenders in recent years now hold almost two-thirds of all LTMA accounts, even though they are only responsible for 14 per cent of all owner-occupier loans, according to the Central Bank.
“There is still more that firms themselves can do to continue to enhance how they engage with borrowers and to go deeper into the suite of options available to reach an agreed resolution with a borrower,” Colm Kincaid, director of consumer protection at the Central Bank, said at an event hosted by the Compliance Institute on Thursday.
“It would be foolhardy to think that mortgage arrears is simply an issue from the crisis of the past and fail to anticipate that we will need these frameworks in place also for the challenges of the future.”
While AIB and Bank of Ireland both said in recent trading updates that they have yet to see a deterioration in the quality of their loan books as a result of the inflationary pressures customers are dealing with, banks are expected to set aside large provisions for such risks in their full-year accounts.
Meanwhile, Bank of Ireland became the latest Irish lender to increase rates after the European Central Bank (ECB) hiked its main lending rate from zero to 2 per cent in less than three months.
Bank of Ireland said on Thursday that it was increasing the cost of new fixed-rate mortgages for new customers by 0.25 of a percentage point. AIB, ICS Mortgages, Finance Ireland and Avant Money have each increased rates on certain products since the ECB first moved in July.
