Mortgage arrears are masked by supports, says Central Bank

Incomes: Mark Cassidy of the Central Bank said emergency economic supports should be withdrawn only gradually.

Donal O'Donovan Twitter Email

March 24 2021 02:30 AM

The scale of new mortgage arrears stemming from the Covid pandemic will only be seen when wage and business supports are withdrawn, the Central Bank’s chief economist has warned.

Banks have reported a relatively minor increase in mortgage arrears over the past 12 months despite the massive jobs hit as a result of the pandemic and lockdowns.

However, Government wage supports and help to employers as well as payment breaks offered by the banks last year means most households have not yet suffered real drops in income, Mark Cassidy, director of economics and statistics at the Central Bank told the Oireachtas Public Finance Committee yesterday.

"A lot of issues will only become evident once the supports are removed,” he said.

But he said some people will not return to work when the economy does reopen.

Around 960,000 people, or 39.3pc of the labour force, are currently in receipt of some form of income support with younger and lower paid workers most affected, he said.

However, unlike previous economic crisis, the scale of Government support means that, on average, household income rose by 4pc last year, rather than fell.

Without transfers such as the Temporary Wage Subsidy Scheme (TWSS) and Employment Wage Subsidy Scheme (EWSS) household incomes would have fallen 6pc, he said.

Under questioning from TDs, Mr Cassidy said there could be grounds to look at continuing EWSS-style schemes that maintain household income and a link between employee and employer through any future temporary jobs losses.

The Central Bank expects to see economic activity begin to return to normal in the second half of this year, based on the successful administration of vaccines.

Emergency economic supports should be withdrawn only gradually, he said.

Until then "It would clearly be unwise to be think of reducing those supports”.

The economy will not reopen intact, Mr Cassidy warned. The pandemic has introduced changes in consumer preferences, spending habits and commuting patterns that are set to persist.

Even when current supports are removed, Government should focus investment on areas where investment can support recovery.

The long-term effect of failing to do was a key lesson from the last crash, he said.