Mortgage arrears decline for a second successive quarter

Mortgage arrears and repossessions statistics released this morning by the CSO show that total industry arrears have declined for a second successive quarter in Q4 2013.

This chimes with industry commentary and other data releases such as the monthly Department of Finance series, so while welcome news, it will not come as a particular surprise.

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Within the data there are some striking divergences between early arrears and late arrears, with the large stock of arrears of more than 720 days a particular concern. However, the general economic recovery (in particular, favourable labour market and residential property price trends) and overall progress in terms of restructuring troubled mortgages should help with addressing this problem. In all, we believe that mortgage arrears statistics should continue to record improvements over the coming quarters.

Number of owner-occupied accounts in arrears falls for a second successive quarter

In Q4 2013 there were 764,567 mortgage accounts for principal dwelling houses in issue, with a total balance of €107.4bn. Of these, 96,474 (12.6%) were in arrears of more than 90 days past due (dpd), with a balance of €18.2bn (16.9%) at the end of the quarter. This represents an improvement on the arrears of more than 90dpd at end-Q3 (12.9% in volume terms and 17.3% in value terms) and while the size of the decline was impacted by asset sales over the quarter, the CBI says “this does not change overall trends”.

While overall arrears are trending in the right direction, we see different trends when analysing the arrears by duration. In Q4 the volume of arrears up to 720 days fell by 6%, while arrears of greater than 720 days rose by 6%. While arrears of more than 720 days account for 28% of the outstanding balance of all mortgages in arrears, they account for 63% of all outstanding arrears.

Tackling troubled mortgages such as these remains a key priority for policymakers. During Q4 the banks made further progress on restructuring mortgages, with 84,053 accounts with a balance of €13.9bn now deemed to have been restructured, up 4% and 2% respectively relative to the previous quarter. Some 79.3% of accounts are deemed to be meeting the terms of their restructuring. We note that the banks have a greater propensity to use more sustainable restructuring methods, with increases in the share of restructured mortgages accounted for by split mortgages (from 0% in Q2 to 4% in Q4) and arrears capitalisation (from 17% to 22%) while the share of interest only (from 27% to 16%) and reduced payments greater than interest only (from 23% to 18%) declining over the same period. Permanent solutions are estimated to now make up 59% of restructurings, from 40% in Q2.

Buy-to-let arrears little changed during Q4

In Q4 2013 there were 145,530 buy-to-let (BTL) mortgage accounts with a total balance of €29.7bn. Of these, 30,706 (21.1%) were in arrears of more than 90dpd, with a total balance of €8.7bn (29.2%), with the share of total BTL mortgages accounted for by this cohort unchanged in both value and volume terms relative to the Q3 2013 outturn. However, as with owner-occupied mortgage arrears there was a divergence between early arrears and very long-term arrears. Arrears of up to 720 days fell 6% q/q in volume terms and by 7% q/q in value terms, while arrears over 720 days rose by 5% q/q in both value and volume terms.

The release suggests that recent moves to restructure troubled BTL mortgages have met with mixed results. While 21,777 accounts are classified as restructured in Q4, up 1% q/q, of these, 13,070 are deemed to be performing (-1% q/q). Similar to owner-occupied restructurings there has been a shift from previous favoured methods such as interest only (from 50% of all restructurings in Q1 to 32% in Q4) to methods such as arrears capitalisation (from 16% to 21% over the same period). Split mortgages rose from just 28 cases in Q2 to 174 in Q4, although their share of overall restructurings remains modest.