Central Bank governor Patrick Honohan said today that he expects there will be repossessions by Irish banks of buy-to-let properties that are in arrears with their mortgages but hopes there will be "very few" of owner-occupied family homes.
Mr Honohan also expressed his preference for split mortgages - whereby part of the loan is warehoused for a period of time without repayments being made - over interest-only repayment solutions as the country seeks to tackle the crisis of home loan arrears that has built up in the banking system.
Latest figures from the Central Bank show that 95,554 or 12.3 per cent of mortgages were in arrears of 90 days or more at the end of March.
In an interview on RTÉ Radio One, Mr Honohan said “temporary” solutions such as only repaying the interest part of the loan was “not going to do the trick” for a large number of people in arrears.
“It’s clear there have to be some more fundamental, sustainable approaches,” he said.
One such approach was warehousing part of the loan. “We’ll put it aside in a warehouse in accordance with clear rules that are understood now. So there’s clarity to what’s going to happen to the part of the loan that you can’t seem to afford,” he explained.
Mr Honohan accepted that “some banks are resistant” to this approach. “It takes them away from what they’ve traditionally done and it makes them nervous.”
He said that “unfortunately, for some [borrowers]…and I focus on buy to let mortgages, this will mean an end to those mortgages. They will have to be repossessed. I hope there will be very few repossessions for owner-occupied family homes.”
“Some repossessions for buy to let, a lot of split mortgages I hope, and some other sols for people who don’t fall into these categories,” are the solutions that Mr Honohan envisages for those in arrears.
The Governor suspects that there is a “backlog of buy to lets” waiting to be repossessed by the banks.
Earlier this year, the Central Bank issued a timetable of targets for banks to meet in relation to providing solutions to those in arrears. The first target was to provide solutions to 20 per cent of customers in arrears by the end of June.
Mr Honohan said the banks would report to the regulator next week on their progress in meeting these targets .
Last week, Ulster Bank said it would take legal action, if necessary, against borrowers who were not servicing their mortgages and highlighted the problem of strategic defaulting by certain customers.
