Key Post Mortgage arrears factfile - home loans

Brendan Burgess

Brendan Burgess

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The purpose of this thread is to get all the mortgage arrears data into one place. Correctionsand questions and other numbers are welcome. Please post your comments on the implications of the data in this thread. The mortgage arrears problem is serious, but greatly exaggerated


Summary of arrears figures at 30 June 2012

In arrears up to 90 days|36,000 homes|6%
In arrears over 90 days|66,000 homes|11%
Homes which have been restructured and are no longer in arrears|32,000 homes|5%
Not in any arrears or restructured |476,000 homes |78%
Total number of homes with mortgages|610,000 homes
Total value of mortgages outstanding|€112 billion
Increase in arrears outstanding since June 2011|€500m
Total amount of arrears |€1.5 billion
The Central Bank [broken link removed] show mortgage accounts. Some homes have more than one account due to top-ups. The average number of accounts per home is 1.25. The above figures have been adjusted accordingly.

Estimate of Negative Equity and arrears over 90 days as of June 2012
|June 2012|Homes
Positive equity and not in arrears over 90 days|41%|272,000
Negative equity but not in arrears over 90 days|45%|272,000
Positive equity but in arrears over 90 days|4%|16,000
Negative equity and in arrears over 90 days|10%|50,000
Total homes||610,000
66,000 homes were in arrears over 90 days at 30 June 2012. Around 25% of these had positive equity. Based on the annual reports of AIB/EBS, BoI, PTSB as of 31 Dec 2011, it is estimated that around half of homes not in arrears are currently in negative equity.

From the annual reports, it is estimated that around 25% of those in arrears and negative equity have loans in excess of 150% of the value of their homes.
Arrears over 90 days and mortgage in excess of 150% of the house value|12,500 homes
For example, if they have a home worth €100k, their mortgage is at least €150k.


The stories of the following people tend to grab our attention

  • They bought with 100%, interest-only mortgages
  • They borrowed 5 times their salary
  • They have lost their job
  • They bought at the peak of the marke
  • Their house has fallen in value by 70%
  • The house is now worth 1/3rd of the mortgage outstanding
But, these make up a very small proportion of people in difficulty

  • Most people did not buy at the peak of market
  • Most people did not get 100% mortgages
  • Those who got 100% mortgages tended to be young professionals who are less likely to have lost their jobs and to be in arrears
There are some people who have a mortgage of €450k on a house which is now worth €150k. But there are far more people who have a mortgage of around €200k on a house worth €150k.
 
How serious is the problem of 100,000 households in arrears?

Let’s look at the figures in more detail:

|Households|Average arrears
In arrears up to 90 days|36,000|€2,172
In arrears 90 – 180 days|14,000|€5,868
In arrears over 180 days|52,000|€26,076
Total|102,000|Total arrears: €1.5 billion
What does being "in arrears" mean?

A borrower is in arrears when they are not making the full payment due under their mortgage.

As each mortgage payment has a capital and interest element of it, a borrower could be paying the full interest on their mortgage and would still be classified as being in arrears. With 10 years remaining on a mortgage, around 70% of the monthly repayment goes to repaying capital. The remaining 30% is interest. A borrower who is paying the interest in full every month could still be in the arrears statistics. All this means is that they are not paying off their loan as quickly as they had originally planned.

In fact, a borrower could be paying the full interest and could be paying down some of the capital and could still be in arrears.

Some borrowers fall into arrears when they lose their job. They get a job and start repaying their mortgage in full again each month. However, they are unable to pay off the historic arrears built up while they were unemployed. These people are also included in the arrears figures.


We don’t know the numbers for those who are paying at least the interest on their mortgage. It would be very helpful if the Central Bank issues statistics showing the number of people whose mortgage balance outstanding has increased over the past 12 months.

So being in arrears can mean any of the following

  • The borrower is paying nothing at all
  • The borrower is paying something but not the full interest due
  • The borrower is paying the full interest on the mortgage, so the loan balance is not increasing
  • The borrower is paying more than the full interest due so the loan is being slowly paid off
  • The borrower is paying the full mortgage repayment, but has historic arrears which they are not able to clear
 
For 50% of borrowers, their monthly repayments have fallen since 2006

At least 50% of mortgages are cheap trackers. The percentage is higher for those who bought at the peak of the market in late 2006 and early 2007.

| Dec 2006|November 2012
ECB rate|3.5%|0.75%
Interest rate with a 1% tracker|4.5%|1.75%
Repayments on a €200k mortgage over 25 years |€1,100|€800
Interest element of repayment|€750|€300
Capital being paid off each year|€4,200|€6,000

Someone who bought a house at the peak in 2006 with a 25 year tracker mortgage will have paid off around 25% to 30% of their mortgage by December 2016.

Those on Standard Variable Rate mortgages are paying about the same as they did 6 years ago
|Dec 2006|November 2012
Average standard variable rate|4.5%|4.5%
Repayments on a €200k mortgage over 25 years |€1,100|€1,100
Capital being paid off each year|€4,200|€4,200

While the margin on SVRs over the ECB rate has increased, the ECB rate has decreased. So people who borrowed on a SVR mortgage or a fixed rate mortgage, are making roughly the same repayments now as they were then. However, for most of the last 6 years, they were paying a lot less as SVRs have been increased only recently.
By 2016, they will have paid down around 20% to 25% of their mortgage.
 
Trackers and negative equity

|Tracker |SVR
Interest rate |1.75%|4.5%
House value|150,000|150,000
Mortgage |200,000|150,000
Negative equity|50,000|0
Term remaining|25 years|25 years
Monthly repayments|€823|€823
A borrower with a cheap tracker of €200,000 will make the same repayments as a borrower with an SVR mortgage of €150,000. So the possession of a tracker effectively eliminates around 15% to 25% of the mortgage which greatly reduces the effective negative equity.

Which would you prefer?

  • A €200,000 mortgage on a 1.75% tracker, or
  • A €180,000 mortgage at 4.5% SVR
 
Repossessions

|2010|2011|To June 2012
Court ordered|102|196|109
Voluntarily surrendered |262|412|207
Total|364|608|316

In 2011, just under 200 homes were repossessed by court order. It is estimated that around 40% of these were due to sub-prime lenders.

If you have a home loan from a mainstream bank and you pay anything at all towards it, you are extremely unlikely to be repossessed.
 
What has been done for people in arrears?


  • The Mortgage Arrears Code has banned banks from charging penalty interest on arrears
  • The Mortgage Arrears Code has banned banks from charging a higher interest rate to those in arrears
  • The Mortgage Arrears Code has banned banks from forcing people in arrears off cheap trackers
  • The Mortgage Arrears Code has limited banks to three calls per month to those in arrears
  • Banks have restructured 68,000 mortgages, around half of which have stayed out of arrears
  • The MARP has put an effective moratorium of between one and 5 years on repossessions for those engaging with the bank
  • With only 200 repossessions by court order last year, the banks are allowing people in arrears to keep their homes
  • 16,000 people are getting Mortgage Interest Supplement
  • Those who bought at the top of the market are getting additional tax relief on the mortgage interest.
 
How much will the losses in the state owned banks cost the taxpayer ?

While the total amount of mortgages outstanding is €112 billion, the three state owned banks – AIB, EBS and PTSB account for only €51 billion of this.

Mortgages held by AIB, EBS & PTSB

Positive equity and not in arrears |€21 billion
Positive equity but in arrears |€2 billion
Negative equity but not in arrears |€23 billion
Negative equity and in arrears |€4 billion
Total mortgages outstanding |€51 billion
Provisions already made in the last stress tests| €4.5 billion
If the banks repossess all homes currently in negative equity and arrears and sell them off for 25% of the amount of the mortgage, they will lose €3b.

It is very hard to see how the losses on home loans could exceed the €4.5 billion already provided for.

A bigger problem for the banks is their future losses on cheap trackers.

Check this thread for a more comprehensive analysis of this issue:
How much more will mortgage defaults cost the taxpayer?
 
Summary of arrears figures at 31 December 2012
In arrears up to 90 days|38,600 homes|6.2%
In arrears over 90 days|73,800 homes|12%
Homes which have been restructured and are no longer in arrears|32,800 homes|5.3%
Not in any arrears or restructured |474,000 homes |77%
Total number of homes with mortgages|619,000 homes
Total value of mortgages outstanding|€111 billion
Total amount of arrears |€1.8 billion
Increase in arrears outstanding since Dec 2011|€675m

 The Central Bank [broken link removed] show mortgage accounts. Some homes have more than one account due to top-ups. The average number of accounts per home is 1.25. The above figures have been adjusted accordingly.
 
Mortgage Arrears Factfile

Hi Brendan very interesting post, having difficulty with my mortgage provider IRBC (need I say more) currently querying current interest rate and penalty interest as I am currently in arrears unfortunately getting nowhere on gaining information from them, they are blaming lack of information on current situation with liquidators.

Was just wondering where would I get a copy of the Mortgage Arrears Code ?
 
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