Decline in mortgage arrears could be temporary as payment breaks end

THERE has been a fall in the number of homeowners in arrears on their mortgages.

Figures from the Central Bank show that close to 39,000 mortgage accounts were three months or more behind on their payments in the last quarter of last year.

However, ratings agency Fitch warned that bad loans at Irish banks will increase in the coming quarters due to the ending of the Covid-19 payment breaks.

The majority of payment breaks finished at the end of February.

In more than 85pc of cases borrowers had returned to pre-pandemic payment arrangements. This was well above initial expectations of the lenders.

The Central Bank said that 5.3pc of residential mortgage accounts were in arrears over 90 days at end-December.

This represents 38,785 accounts, and is down slightly on the previous quarter.

Some 8,926 accounts were overdue by between two and five years.

A total of 10,789 accounts were in arrears by between five and 10 years, and 5,266 were in arrears for more than 10 years.

Just over 7,301 accounts that are in arrears are currently part of a legal process.

The majority of these have been in the legal system for over two years, with 2,181 of those accounts in the courts system for over five years.

The overall number of accounts in arrears over two years fell by 790 over the last quarter to 24,981.

Accounts in arrears over two years made up 45.4pc of all arrears cases at end-December.

Those who are two years or more behind on their payments are at risk of losing their homes.

Non-bank lenders and credit servicing firms that manage mortgages on behalf of vulture funds account for just 13pc of all residential mortgages.

But they hold 57pc of all residential mortgages in arrears over two years.

The Central Bank said that in the last three months of 2020, some 253 accounts entered legal proceedings.

The majority of mortgage accounts in arrears are not currently subject to legal proceedings.

Meanwhile, Fitch does not expect the scale of the mortgage arrears to be as severe those after the 2008 financial crisis.

It noted that overall non-performing exposures increased only moderately at AIB and Bank of Ireland last year.

Fitch said it believes this reflects the unprecedented level of Government support given to individuals and businesses during the pandemic.

The support schemes, including unemployment and other subsidy schemes for individuals as well as grant schemes for businesses, amounted to nearly 20pc of gross national income.

Businesses were also supported by widespread rent and tax deferrals, it noted.

Fitch said that Irish banks significantly frontloaded their pandemic-related expected credit costs in 2020.

It said this resulted in reported net losses but should lead to lower credit charges for 2021.

“Nevertheless, we expect loan impairment charges to be above normalised levels this year as banks continue to adjust their provisioning to reflect actual impaired loan flows, and potentially strengthen it to support NPE disposals,” the rating agency added.

Online Editors