Irish Owner-Occupier Arrears Up as Banks Focus on Loans

Irish private residential arrears rose in the first quarter of the year, with one in eight loans behind in repayments as the Irish central bank and government intensify pressure on lenders to address the delinquencies.

Payments on 12.3 percent of the nation’s 774,109 owner-occupier loans were at least three months behind at the end of March, compared with 11.9 percent in December, the Dublin-based central bank said in a statement today. The number of restructured loans rose 1.8 percent to 79,689.

“Given that the economy is stuttering along and the level of joblessness is far too high for comfort, then the likelihood is that the mortgage arrears situation will get worse before it gets better,” Alan McQuaid, chief economist at Merrion Capital, said in a note before the data were released.

Ireland’s government and central bank have prioritized tackling the country’s unprecedented mortgage crisis, as the nation plans to exit from its international bailout by the year end. Irish mortgage arrears have surged since the collapse of the nation’s real-estate market in 2008 and tripling of the unemployment rate since 2007.

Buy-to-let loans to landlords that were in arrears of 90 days or more in the first quarter rose to 19.7 percent of such loans from 18.9 percent at the end of December, the central bank said. The value of the loans in arrears was 8.6 billion euros ($11.4 billion), or 27.7 percent of the total. The comparable figure for private dwellings was 18.1 billion euros or 16.5 percent.

Prices Fall

Irish home prices have fallen by half from their 2007 peak, the Central Statistics Office said on June 4. The government forecasts that gross domestic product will grow by 1.3 percent this year, marking a third year of expansion, driven by exports and improving domestic demand.

Ireland’s jobless rate remains high even as signs that the country is over the worst of the bursting of its decade-long property bubble. Unemployment fell to 13.7 percent in May from 14.9 percent a year earlier, according to the CSO.

The central bank told the country’s lenders in March that they may have to write down loans more than 90 days in arrears that haven’t been properly restructured by the end of 2014 to their repossession value. Bank chief executives are taking the central bank targets “very seriously” because of this penalty, Matthew Elderfield, central bank deputy governor, told reporters on May 9.

Banks are turning to more permanent solutions for loans, including term extensions, permanent interest-rate reductions and split mortgages, where some of the loan is hived off until a borrower’s circumstances improve.

A total of 166 private dwellings were repossessed in the first quarter, bringing seizures to 910 at the end of March, the central bank said.

Before it's here, it's on the Bloomberg Terminal.