The number of problem mortgages in Ireland rose at a slower pace in the second quarter, in a small positive for the bailed-out economy and its banks, which nevertheless still face pressure from stubbornly high unemployment and falling house prices. Almost one in six Irish home loans are not being fully repaid, figures from the Central Bank showed on Thursday.
The proportion of loans in arrears for more than 90 days was 10.9 percent at the end of June, up from 10.2 percent at the end of March and 9.2 percent the quarter before that, indicating a slight slowdown. "The pace of increase is slowing but it's a very, very modest slowdown," said Dermot O'Leary, chief economist at Goodbody Stockbrokers. "It still indicates significant problems in the mortgage market and a still significant worsening." The number of mortgages over 90 days in arrears may peak soon as banks move to restructure more loans, but the level of loans restructured will likely continue to grow, O'Leary said.
A total of 123,472 mortgages were either in arrears or had been restructured at the end of June, representing some 16.2 percent of the total residential mortgage market. Earlier this year, Ireland's two largest banks said they expected mortgage arrears to peak this year, but both have since pulled back from that forecast.
Bank of Ireland said in February it expected mortgage arrears to peak in 2012 but said earlier this month that it could not be certain, while Allied Irish Banks now sees arrears peaking in the middle of next year. While the banks have booked huge losses on their bloated commercial property books, relatively few residential loans have been written off.
Stress tests carried out as part of Ireland's EU-IMF bailout prompted banks to bulk up their balance sheets to deal with rising arrears, but a report from the European Commission warned last year that losses could be higher than anticipated. Thursday's figures showed that of the 112 billion euros of total residential mortgage loans outstanding, one-fifth were either in arrears or restructured. The central bank for the first time released figures of accounts less than 90 days in arrears, showing that 45,165 customers were behind at the end of June but that the figure was down for the second successive quarter.
The figures only include owner occupiers and not investors who bought properties to rent out, which represent some 22 percent of outstanding mortgages according to research carried out by the central bank last year. A study by Davy Stockbrokers last week said that arrears in buy-to-let mortgages were over double owner occupier rates and forecast that mortgage losses would exceed estimates in government stress tests.
Highlighting the level of forbearance being shown by lenders, repossession since the central bank started issuing data in late 2009 remained close to 1,000 at end-June, far below the 40,000 repossessions assumed in the stress tests. The government, which needs the economy to grow to help it cut its own mountain of debt, announced proposals in January for new personal insolvency and bankruptcy regimes. But insolvency experts have said it is too soon to say how the new rules, which have not been finalised, might help.