THE NUMBER of residential mortgage holders who are more than 90 days in arrears on their loan repayments continues to rise. Figures from the Central Bank and the Financial Regulator for the second quarter to June show that one in every 20 mortgages are in some difficulty: 36,348 were in arrears out of the 789,814 mortgage loans outstanding. The Central Bank data may well understate the problem as the collection of mortgage arrears statistics only began a year ago.
By then borrowers already in financial distress may have agreed new repayment arrangements with their lenders.
A particular concern is that by June two-thirds of all mortgage loans in arrears were held by borrowers who were more than 180 days behind in their repayments. Since June all the main mortgage lenders have increased interest rates on their loans, which has put more pressure on holders of standard variable rate mortgages already experiencing financial difficulties.
One consolation in the figures is the low level of repossession of residential properties: 496 accounted for just over 1 per cent of the number of loans in arrears. In part, the low number of repossessions is explained by the length of time the foreclosure process takes and by the 12 month moratorium on repossesions the Government introduced in February, 2009.
But the figure also suggests lenders have shown some forbearance in their handling of mortgage arrears, by helping homeowners in difficulty and by showing greater flexibility in restructuring loan repayments. Further deterioration in the housing market, resulting in greater negative equity for some mortgage holders; or an increase in unemployment, depressing household incomes, could produce a sharp increase in the number of mortgage loans in arrears.
In an interim report in July, a Government-appointed expert group on mortgage arrears and personal debt made some recommendations to help to improve the position of families in arrears. It will complete a final report later this month. The group’s proposals, and in particular those of the Financial Regulator, which last month recommended greater protection for mortgage holders in arrears – by making it harder for banks and building societies to seek repossessions – will offer welcome reassurance to distressed mortgage borrowers.
The challenge in finding the best solution lies in achieving a balance between assisting those mortgage holders in difficulty without providing financial incentives for mortgage arrears to worsen.