Why rising mortgage interest rates will resurrect the ghosts of mortgage arrears and foreclosures
Here we go again. Homelessness and the use of emergency accommodation increased to a record high of 10,805 people, including 3,000 children. Meanwhile, more than 46,000 home loans are in arrears. Of these, more than 23,000 have been in arrears for more than two years, more than 8,000 for more than five years and almost 6,000 for 10 years or more.
Given the average of three people per household, it is reasonable to think that nearly 150,000 people are affected.
If there is a homeless crisis (and there is) that affects nearly 11,000 people, then what do you call a crisis with 150,000 people?
All this before increases in the cost of living push more people into paying arrears, and before increases in interest rates push even more people into paying arrears.
What about all those who have restructured their mortgages and been pushed all the way by the banks over the last 10 years?
Restructured deals will not withstand increases in interest rates and increases in the cost of living. There will be more backlogs.
There are 5,908 ongoing repossession cases in the court system. Again, with an average of three people per household, that’s almost 18,000 people.
Over 10,000 households have already lost their homes to repossession and the silent repossession tool of voluntary surrender. If that’s not a tsunami, I don’t know what is.
As we emerge from the latest economic crash, we have a disturbing landscape of thousands of home loans still in long-term default. Real people and families who have endured a long sentence of being under immense mortgage debt pressure. It has disappeared from the political agenda.
But those of us who have been advocating for and helping those in arrears over the past 10 years have correctly warned of a tsunami of foreclosures.
While it may not have all happened, no one in their right mind would conclude that out of 46,000 seriously overdue mortgages and 6,000 court cases, there won’t be a very serious problem.
Indeed, the situation has worsened because people who have been in default for 10 years are now 10 years older and have much less to go to make payments.
With rising interest rates, their accessibility decreases.
The house for which the bank initiated repossession proceedings three years ago has now gone from negative to positive equity, as house prices have recovered.
But now a vulture fund has the loan and is about to take the house.
There are 46,088 family home loans in arrears through June 2022, of which 10,379 are reclassified as already restructured, which is very concerning.
Because many restructured mortgages do not yet reflect interest rate increases. There are more problems to come.
The Central Bank has raised concerns about the sustainability of many of the long-term restructurings in place. What happens when interest rate hikes come into play? How many will survive?
The Central Bank asked banks and vulture funds, based on their own data, how many households would lose their homes through repossession and voluntary disposal.
The banks gave a figure of 16,000 households – 83% per repossession. This tsunami may have been held back, perhaps intentionally to allow real estate prices to rise, but it has not gone away. Of these mortgages in arrears, vultures own more than half.
Many people celebrate that they have a follow-up mortgage. Their interest rate has nearly doubled in recent months, with European Central Bank President Christine Lagarde saying there could be further increases to come: between two and five more increases.
Banks have delayed passing on the rate hike to variable rate customers for the time being. Their flexibility is much appreciated given the current cost of living crisis that many are facing. Some vultures have started raising their rates. These people have now become mortgage prisoners.
Thousands of people suffered greatly in the accident. Many have suffered at the hands of banks and vultures. It’s about to see many people again; indeed, he might see many of the same people who have suffered before.
Thousands of people will have to make important decisions about feeding their families, heating their homes and paying for fuel to get to work. In the back of their minds will be those commentators who have given the false security that no rush of home foreclosures has come, so you are safe – but you are not. There are no houses free from bankers and vultures.
The much heralded insolvency system urgently needs change to prepare for the difficult times ahead. It’s hard to believe that we’ve had more than a decade of mortgage and personal debt crisis, yet still failed to make the system fit for purpose.
In all of this, I don’t want to be right. I don’t want a tsunami, I want solutions.
David Hall is CEO of the Irish Mortgage Holders Organization