The decision by the Banking & Payments Federation Ireland to open talks with regulators on extending the time frame for mortgage-payment breaks for customers affected financially by Covid-19 is a pragmatic one that recognises uncertainty about when lockdown restrictions will be lifted.
A three-month break is already available from the five lenders in the market, with the federation now in talks with the Central Bank of Ireland to extend this to six months, a time frame in place in some other EU member states.
To date, 45,000 mortgage accounts have had a payments break applied by their lender, which amounts to about 5 per cent of all home loans.
In essence, the European Banking Authority guidelines allow banks to extend “payment moratoria” to borrowers for up to six months, without having to classify them as being in default or forbearance. This is in recognition of the sudden, and hopefully only temporary, shock to economies from Covid-19.
This is hugely important to Irish banks who already have non-performing loan levels that are higher than the EU average, and who have been working hard in the past couple of years to offload non-performing loans via sales and other mechanisms to satisfy European regulators.
It’s worth remembering that there were still 60,526 residential mortgage accounts (8.2 per cent of all home loans at the time) in arrears at the end of 2019, a legacy of the 2008 financial crash. The arrears amounted to €2.7 billion, with €2.36 billion more than 720 days due.
Suddenly another 45,000 accounts, and counting, are at risk of default, with no certainty that they will all be able to return to their normal payment schedules once their break period has expired.
With a vaccine still probably 12 months away, the impact on the economy will be devastating and many jobs will inevitably be lost by the time the fog clears. Having come down steadily in recent years, it now seems inevitable that mortgage arrears will once again rise with potentially thousands more Irish families facing the stress of not being able to meet their monthly repayments. Yet more victims of this deadly virus.
