The latest figures for the last quarter of 2016 from the Central Bank shows that the issue of mortgage and personal debt facing thousands of Irish families has no end in sight yet. A revised legislation seems the only hope of relieving this unprecedented strain on the citizens and the housing sector at large. In the meantime, here is how and why the picture of the situation, as depicted below, is a rather dismal one.
A major issue is brewing in Irish government regarding home repossessions. As thousands of families face losing their homes, the Green party is pushing the government to initiate a temporary ban on home repossessions as many homeowners may not have had their legal rights explained to them by Irish courts.
You have saved some money but found that it is insufficient to buy a house or an apartment. So you have to turn to a financial institution that proposes you a mortgage. It assumes that the property purchased on credit is mortgaged. Property of the creditor, it then constitutes a guarantee that allows the household to subscribe to other credits, generally consumption, which stimulates the economy.
Mortgage arrears remain unsolved as no quick solution announces itself
The issue of mortgage arrears is persisting in Ireland. The Central Bank of Ireland released information regarding the latest statistics: more than 11.3 billion Euros worth of mortgages in arrears of 90 days minimum. This figure was compiled from data as at September 2016. Mortgage arrears are resulting in dramatic scenarios for thousands of families in the country.
Understanding residential mortgage loan account and arrears
According to the explanations of the Central Bank of Ireland, a residential mortgage loan account is an account recording loans to individuals for the specific purchase of a house or apartment. This loan can include renovation or own construction works. Re-mortgages as well as “top up” of existing mortgages are also counted in this account.
Section 3(a) of the Code of Conduct on Mortgages, on its side, stipulates that “a mortgage arrears problem arises as soon as the borrower fails to make a mortgage repayment by the due date”.
Thousands of mortgages held by non-banking institutions
According to the statistics, about 37,185 mortgages are owned by non-banks and the large majority is in arrears. 79,562 of residential mortgages were in arrears in total, making up 11 percent of all residential mortgage continued to be in arrears as at September 2016. However, even if this figure represents a decline of 3.1 percent compared to the previous quarter, the number of mortgages in arrears remain worrying.
The third quarter of 2016 equally reflected that emphasis has been laid on restructuring rather than on loss of ownership. It also highlighted that these restricting methods adopted by banks and non-banks differed. If non-banks focused on arrears capitalizations, banks, on their side, adopted a wide range of solutions including capitalizations, split mortgages and term extensions.
Vulture funds are offering attractive discounts
Amidst this property turmoil, vulture funds are offering huge discounts to homeowners. Certain homeowners may even see 160,000 Euros written off. Tanager, part of a big American private equity fund Apollo, is proposing a discount of up to 40p on the remaining loan if tracker mortgage holders can seek another source of financing. In other words, an individual with a mortgage amounting to 300,000 Euros would benefit from a discount of 120,000 Euros if he can refinance it somewhere else. On the other hand, he will lose the tracker rate.
In 2012, Tanager bought approximately 2,000 distressed mortgages from the Bank of Scotland in Ireland and is now trying to sell them off.
Currently, some 45,600 residential and buy-to-let mortgages are held by unregulated vulture funds. Certain estimates even shoot up this figure to 90,000.
Banks are reluctant to do the extra mile
According to Karl Deeter, Financial Expert at Irish Mortgage Brokers, banks are reluctant to do deals. ” It is outrageous that Irish banks, who received so much taxpayer support in the past, won’t do a deal for a borrower that the vultures are doing,” he stated. He explains that banks would rather sell mortgage loans in arrears at a loss. Certain insolvency specialists even highlight that it can be much easier to “secure forgiveness from vulture funds than from banks”.
Related articles published in Mortgage loan :
- Tips to obtain the best mortgage for a home
- Why you should lock into a fixed-rate mortgage now
- Evolution of prices of residential properties in Ireland
- Property market: Predicted growth in 2017
Image : Shutterstock
Recent Comments