Ireland’s mortgage arrears crisis ‘not yet solved’

Ireland’s mortgage arrears crisis is not yet solved, according to a new report from Moody’s Investors Service - and the country still has the highest levels of late-stage arrears in Europe.

However, the expansion of restructuring methods and introduction of restructuring targets have helped address borrowers’ payment problems.

Gaby Trinkaus, assistant vice president-analyst in the residential mortgage-backed securities (RMBS) team of Moody’s structured finance group in London, said: “Borrowers are benefitting from the strong economic recovery in Ireland, with improving employment and housing markets almost halving 60 to 90 day arrears over the past year.

“With the level of late-stage arrears still the highest in Europe, the expanded use of restructurings should help curb losses as the economy continues to pick up steam.”

Over the past three years, existing restructuring methods such as temporary payment arrangements have been supplemented by new options such as split mortgages and dual approach arrangements, Trinkaus said.

The shift from temporary to long-term payment arrangements is credit positive for RMBS, providing both certainty and further incentive to pay for borrowers with a long-term insufficient debt servicing capacity.

The shift is also credit positive for Irish banks, since it will reduce their costs on workout units and help resolve long-term arrears in a more efficient manner than through repossessions. Restructuring involving debt write-down is positive for covered bonds while the issuer’s support continues.

The report found that restructuring of buy-to-let (BTL) loans have outpaced that of owner-occupier loans, due in part to the weaker credit position of buy-to-let borrowers.

Trinkaus added: “We expect arrears and losses to decline during the next year on the back of economic recovery.”