Irish Legal rights group FLAC (Free Legal Advice Centres) has raised concerns over mortgage arrears figures released by the Central Bank of Ireland’s latest statistics on Residential Mortgage Arrears and Repossessions from Quarter 4 in 2016.  The group said the data confirms that worrying trends continue where family homes are in mortgage arrears. Over 5,000 homes have been repossessed over the last four years.

Paul Joyce, senior policy analyst at FLAC said:“With the Quarter 4 figures for 2016, we now have four full years of data on repossession in Ireland. “Since 2013, a total of 28,917 new repossession cases have been brought, and 5,306 family homes have been repossessed through court orders or by voluntary surrender during this time. We also know that a substantial number of cases have been struck out or withdrawn but it is worrying that there is no figure provided for the number of repossession cases currently before Circuit Courts. What is clear is that many such cases have been in the system for some time and the households involved are at serious risk of repossession. FLAC believes that this information is necessary to understand the scale of the issue facing such households and should be made available.”

“The rate of failure in restructures is another worrying trend. Almost 1,400 split mortgage arrangements are failing to meet the terms of the arrangement, and the failure rate for capitalisation of arrears is 22.5 per cent, almost a quarter. This indicates that unrealistic restructuring arrangements are being made, with most lenders continuing to avoid the write-down of the mortgage to a sustainable level. FLAC believes lenders must consider all available restructuring options, including mortgage write-down where appropriate, if the aim is to keep as many people in their homes as possible.”

While overall arrears continue to fall, FLAC is concerned that there is limited progress in tackling longer term arrears cases. The number of accounts in arrears for over two years has decreased from 34,551 to 33,447, but the average arrears amount on these accounts increased from €63,611 to €65,895 over the last quarter of 2016.

Vulture funds are also increasing their share of impaired mortgage accounts, particularly those which are in deep, longer-term arrears. Vulture funds now own over 15 per cent of the accounts in arrears over two years, up from 11 per cent in the previous quarter.

Here is a summary of the report’s findings:

  • The number of mortgage accounts for principal dwelling houses (PDH) in arrears fell further in the fourth quarter of 2016; this marks the fourteenth consecutive quarter of decline. A total of 77,493 (11 per cent) of accounts were in arrears at end-December, a decline of 2.6 per cent relative to September 2016.
  • The number of accounts in arrears over 90 days at end-December was 54,269 (7 per cent of total), reflecting a quarter-on-quarter decline of 3.7 per cent. This represents the thirteenth consecutive decline in the number of PDH accounts in arrears over 90 days.
  • The majority of maturity categories of arrears, including the over 720 days’ category, declined in Q4 2016. This category recorded a sixth consecutive decline, having declined for the first time in Q3 2015. The decline of 3.2 per cent in Q4 2016 was the largest decline in this category to date.
  • The number of PDH mortgage accounts that were classified as restructured at end-December was 120,944. Of these restructured accounts, 87 per cent were deemed to be meeting the terms of their current restructure arrangement, down slightly from previous quarter. There was a continued reduction in short-term restructure arrangements such as Interest Only and Reduced Payments, which was partly offset by an increase in longer-term arrangements such as Split Mortgages.
  • Buy-to-let (BTL) mortgage accounts in arrears over 90 days decreased by 4.4 per cent during the fourth quarter of 2016. At end-December there were 14,028 BTL accounts in arrears over 720 days, with an outstanding balance of €4.1 billion, equivalent to 17 per cent of the total outstanding balance on all BTL mortgage accounts.
  • There was a slight decrease of 0.5 per cent in the number of BTL accounts where a rent receiver was appointed; this follows on from an increase of 5.4 per cent in the previous quarter.
  • Non-bank entities now hold 48,562 mortgage accounts for PDH and BTL combined. Of this number, almost 63 per cent are held by regulated retail credit firms, with the remainder held by unregulated loan owners. Some 41 per cent of PDH accounts held by unregulated loan owners are in arrears of over 720 days, compared to 18 per cent of accounts held by retail credit firms.

Residential Mortgages on Principal Dwelling Houses Arrears

At end-December 2016, there were 736,894 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, to a value of €99.6 billion. Of this total stock, 77,493 accounts were in arrears, representing a fall of 2,069 or 2.6 per cent over the quarter. Some 54,269 accounts (7 per cent) were in arrears of more than 90 days.

The number of accounts in arrears over 90 days fell by 3.7 per cent over the quarter, marking the thirteenth consecutive decline in this category. The outstanding balance on all lenders’ PDH mortgage accounts in arrears of more than 90 days was €11 billion at end-December, equivalent to 11 per cent of the total outstanding balance on all PDH mortgage accounts. 

Accounts in arrears of up to 90 days increased slightly in the fourth quarter of 2016, marking the first increase in this category since end-September 2012. However, this increase in early arrears is offset by significant reductions in longer-term arrears categories. The number of accounts in arrears over 360 days fell to 42,031 at end-December, equivalent to 6 per cent of the total stock of PDH mortgage accounts and representing a fall of 1,612 accounts over the quarter. Accounts in arrears of between 361 days and 720 days saw a decline of 5.6 per cent.

The number of accounts in arrears over 720 days also declined by 1,104 accounts in Q4, or 3.2 per cent; this was the sixth consecutive decline in this category and follows a 1.2 per cent fall in the previous quarter. This represents a year-on-year decline of 8 per cent for accounts in arrears over 720 days. Accounts in arrears over 720 days now constitute 43 per cent of all accounts in arrears, and 88 per cent of arrears balances outstanding. For all institutions the value of accounts in longer-term arrears over 360 days remains large, amounting to just over €9 billion at end-December 2016.

Restructuring Arrangements

Forbearance techniques include: a switch to an interest only mortgage; a reduction in the payment amount; a temporary deferral of payment; extending the term of the mortgage; and capitalising arrears amounts and related interest[2]. The figures also include advanced modification options such as split mortgages and trade-down mortgages, which have been introduced to provide more long-term solutions for customers in difficulty.

A total stock of 120,944 PDH mortgage accounts were categorised as restructured at end-December 2016. This reflects a reduction of 196 accounts compared to end-September 2016. The share of interest only arrangements and reduced payment arrangements fell further during Q4, to 11 per cent, indicating a continuing move out of short-term arrangements. Arrears capitalisations and permanent split mortgages showed the most significant increases and continued to account for the largest shares of restructured accounts at 32 per cent and 22 per cent, respectively, at end-December. A breakdown of restructured mortgages by type is presented in Figure 2.

A total of 8,475 new restructure arrangements[3] were agreed during the fourth quarter of 2016. The data on arrears and restructures indicate that of the total stock of 77,493 PDH accounts that were in arrears at end-December, 26,503 (34 per cent) were classified as restructured at that time. Of the total stock of 54,269 PDH accounts that were in arrears of more than 90 days, 26 per cent were classified as restructured; this is unchanged from the previous quarter.

Some 78 per cent of restructured accounts were not in arrears at end-December 2016. Restructured accounts in arrears include accounts that were in arrears prior to restructuring where the arrears balance has not yet been eliminated, as well as accounts that are in arrears on the current restructuring arrangement. At end-December, 87 per cent of restructured PDH accounts were deemed to be meeting the terms of their arrangement. This means that the borrower is, at a minimum, meeting the agreed monthly repayments according to the current restructure arrangement.

It is important to note that ‘meeting the terms of the arrangement’ is not a measure of sustainability, as not all restructure types represent longer-term sustainable solutions as defined within the Mortgage Arrears Resolution Targets[4]. For instance, short-term interest only restructures are, in general, not part of longer-term sustainable solutions. The MART sustainability targets also include a significant number of accounts in arrears which are part of a legal process. These accounts are not classified as restructured within the Mortgage Arrears Statistics. Arrears associated with such accounts are recorded in full in the data.

 Inability to meet the terms of the arrangement implies that the restructure agreement put in place may not have been suitable. Table 1 shows the percentage of restructured accounts that were deemed to be meeting the terms of their arrangement at end-December 2016, broken down by arrangement type. Lower numbers indicate a higher incidence of ‘re-default’, which is particularly evident amongst cases in which a permanent interest rate reduction has been granted. As the figures in Table 1 only reflect compliance with the terms of the current restructure arrangement, we should expect to see a higher percentage of compliance among the restructure types that are likely to be shorter-term.[5] Nonetheless, the figures imply that of the total stock of accounts in the arrears capitalisation category, just over 23 per cent of PDH accounts have ‘re-defaulted’, i.e. the arrears balance has increased since the arrangement was put in place.

Legal Proceedings and Repossessions

During the fourth quarter of 2016, legal proceedings were issued to enforce the debt/security on a PDH mortgage in 1,397 cases. During Q4 2016, there were 482 cases where court proceedings concluded but arrears remained outstanding. In 273 cases, the Courts granted an order for repossession or sale of the property. There were 1,704 properties in the banks’ possession at the beginning of the fourth quarter. A total of 455 properties were taken into possession by lenders during the quarter, the highest recorded since the series began. Of the properties taken into possession during the quarter, 112 were repossessed on foot of a Court Order, while the remaining 343 were voluntarily surrendered or abandoned. During the quarter 462 properties were disposed of. The number of properties in possession at the end of the quarter are also impacted by reclassifications. As a result, lenders were in possession of 1,693 PDH properties at end-December 2016.

Residential Mortgages on Buy-to-Let Properties Arrears

At end-December 2016, there were 130,710 residential mortgage accounts for buy-to-let properties held in the Republic of Ireland, to a value of €24 billion. Some 25,218 (19 per cent) of these accounts were in arrears, compared to 26,041 accounts at end-September 2016, reflecting a decrease of 3.2 per cent over the quarter. Of the total BTL stock, 20,499 or 16 per cent were in arrears of more than 90 days, reflecting a decrease of 4.4 per cent over the quarter. The outstanding balance on all BTL mortgage accounts in arrears of more than 90 days was €5.6 billion at end-December, equivalent to 23 per cent of the total outstanding balance.

The number of BTL accounts that were in arrears of more than 180 days was 18,905 at end-December 2016, reflecting a quarter-on-quarter fall of 4.3 per cent. BTL accounts in arrears greater than 720 days declined by 3.4 per cent in Q4; this represents the largest decline in this category since this series began and marks nine consecutive quarters of decline. Accounts in arrears of over 720 days now number 14,028 or 11 per cent of the total stock of BTL mortgage accounts, and 87 per cent of outstanding arrears. The outstanding balance on these accounts was €4.1 billion at end-December, equivalent to 17 per cent of the total outstanding balance on all BTL mortgage accounts.

 Restructuring Arrangements

A total stock of 25,292 BTL mortgage accounts were categorised as restructured at end-December 2016, reflecting a decrease of 859 accounts from the stock of restructured accounts reported at end-September 2016. Of the total stock of restructured accounts recorded at end-December, 77 per cent were not in arrears, while 86 per cent were meeting the terms of their current restructure arrangement. A total of 2,134 new restructure arrangements were agreed during the fourth quarter of the year, up from a low of 1,870 new agreements in the previous quarter. On the BTL side, the largest cohort of restructured mortgages was in reduced payment (greater than interest only) arrangements, which represented 25 per cent of all restructure arrangements. The data on arrears and restructures indicate that of the total stock of 25,218 BTL accounts that were in arrears at end-December, 5,873 (or 23 per cent) were classified as restructured at that time.

 Legal Proceedings and Repossessions

During the fourth quarter of 2016, rent receivers were appointed to 562 BTL properties, bringing the stock of accounts with rent receivers appointed to 6,023; this is down from a stock of 6,051 in the previous quarter. There were 631 BTL properties in the banks’ possession at the beginning of Q4 2016. A total of 259 properties were taken into possession by lenders during the quarter. Of the total BTL repossessions in the quarter, 110 were repossessed on foot of a Court Order, while the remaining 149 were voluntarily surrendered or abandoned. During Q4 2016, 287 properties were disposed of. As a result, lenders were in possession of 596 BTL properties at end-December 2016; this was the lowest number of BTL properties in possession since end-March 2014.

 Residential Mortgages held by Non-Bank Entities Arrears

At end-December 2016, non-bank entities accounted for 5 per cent of the total stock of PDH mortgage accounts outstanding. For BTLs the proportion was higher at just under 8 per cent. Overall, non-bank entities accounted for more than 6 per cent of the total stock of residential mortgage accounts outstanding (PDH and BTL) at end-December 2016 (8 per cent in value terms).

In terms of PDH mortgages held by non-bank entities, over 68 per cent were held by regulated retail credit firms at end-December 2016. For retail credit firms, 28 per cent of accounts were in arrears over 90 days, with 18 per cent in arrears of 720 days (Table 4). The equivalent figures for unregulated loan owners was 53 per cent and 41 per cent, respectively. Restructuring activity was higher among retail credit firms, with 24 per cent of loans restructured at end-December, compared to 21 per cent for unregulated loan owners.

 In terms of BTL mortgages held by non-bank entities, a higher number of BTL accounts are held by unregulated loan owners compared with retail credit firms. Unregulated loans owners account for 58 per cent of total loan accounts held by non-bank entities. The number of BTL accounts in arrears for unregulated loan owners was particularly high with 3 out of every 4 accounts in arrears, and over 55 per cent of all accounts in arrears over 720 days at end-December 2016. For retail credit firms, 43 per cent of accounts were in arrears, with 25 per cent of accounts in arrears of 720 days.