Real Solutions Needed for Those in Long Term Mortgage Arrears

According to the latest Central Bank figures for Q1 2023, there are 22,015 mortgages in arrears for more than one year. Of these, 4,828 have been in arrears for more than 10 years. These mortgage accounts comprise 45 per cent of all accounts in arrears at the end of March 2023. About three quarters of these loans (16,718) are with non- banks. Non-bank entities are Retail Credit Firms and Credit Servicing Firms and do not, as the name might suggest, provide banking facilities. In recent years, mortgage banks have been selling mortgage loan books to non-bank entities as part of a strategy to reduce the number of non-performing loans (NPLs) to within EU parameters. Consumer advocates have expressed concerned about the lack of consumer protections for borrowers, particularly those whose loans were performing, while those in favour of this strategy cite the high level of NPLs acting as a barrier to accessing better credit terms, thereby contributing to Ireland’s high mortgage rates. These borrowers are, arguably, most at risk of losing their home should the financial institution pursue their right to take possession of the property.

 

The Central Bank data "indicate that of the total number of Principal Dwelling House (PDH) accounts that were in arrears at end-March, 12,129 (or 25 per cent) were classified as restructured" and that the bulk of accounts in mortgage arrears are not currently subject to legal proceedings of any type. 67 per cent of PDH accounts in arrears had no formal demand issued as of the end of March 2023. 12 per cent were at the stage where a formal demand had been issued but no legal proceedings have begun and 11 per cent "currently have legal proceedings in process; this includes cases at Civil Bill lodgement stage and where the case is still active in the courts system". A new Report from Eurofound, 'Unaffordable and inadequate housing in Europe' also notes that overall, "Rent, mortgage and utility arrears have declined since the Great Recession (2007–2009). However, for the cohort still trying to find a resolution for their long term mortgage arrears, more needs to be done. 

Insolvency Supports

In October 2017, the Government established the Abhaile project under the remit of the Citizens Information Board. This project increased funding to MABS (the State’s Money Advice and Budgeting Service) existing mortgage supports in place since September 2015; continued to fund the Accountants’ service, put in place in October 2017; and funded a new voucher system for borrowers in late-stage mortgage arrears to access a Personal Insolvency Practitioner for one meeting to determine eligibility for an insolvency arrangement or a Solicitor for legal advice as well as a system of Court Mentors at repossession hearings across the country.

According to the Fifth Report of the Abhaile Scheme, some 17,299 Personal Insolvency Practitioner (PIP) vouchers were issued between mid-2016 when the Scheme began and December 2021 (p.24). It should be noted here that PIP vouchers are provided per borrower, not per mortgage, and so the number of mortgages involved is less. Of these, 12,669 have been presented for payment. At €500 plus VAT of 21 per cent per voucher, this equates to a value of €7,664,745 redeemed out of a possible €10,465,895. A breakdown of the outcomes for the 12,669 borrowers who presented their PIP Vouchers for payment (p.30). Just 25 per cent were granted a Personal Insolvency Arrangement (PIA) (n=3,158); a further 11 per cent entered into an informal solution with their lender (n=1,403), either an Alternative Payment Arrangement (ARA) or Mortgage to Rent (MTR); and just 1.5 per cent were made bankrupt (n=202).

So, for €10.4 million, less than half of all borrowers who presented their PIP voucher for payment (n=6,249, 49 per cent) had accessed or were in the process of accessing an insolvency solution. The 3,430 (27 per cent) who accessed or were in progress towards an informal solution could have achieved the same result by accessing MABS’ free money advice supports without the need or expense of a PIP. The recent addition of the Dealing with Debt website from the BPFI to the space simply signposts visitors to the site to existing supports. 

Mortgage to Rent

Since its introduction in 2012, only 2,130 households have availed of the scheme out of a total of 6,750 cases (31 per cent) and a further 560 are being progressed. Mortgage to Rent does not serve all counties equally. Counties Sligo, Roscommon, Leitrim, Galway City, Monaghan and Longford have all had less than 100 successful cases. Mortgage to Rent has been reviewed twice, the first time in February 2017. Following that review, one of the main outcomes was the introduction of a new funding model, using private equity. Private equity vehicles are, by their nature, profit driven and without tight regulations and buy-back options for the State, Mortgage to Rent tenants may fall foul of market fluctuations. The second review took place in February 2021 and resulted in welcome improvements to the eligibility criteria, including income limits, equity limits and size of the property. These improvements will no doubt help support some households, however based on the last ineligible cases summary report from the Housing Agency, 341 cases were ineligible on the grounds that the household was either over or under-occupied. The changes to this element announced in February 2021 apply only to borrowers aged 65+ or where there’s a disability in the household. There is no evidence in the 2021 review that this will have a significant impact on the numbers eligible. Of the 6,750 applications for Mortgage to Rent, 4,060 were ineligible or terminated during the process. 

Both Personal Insolvency Arrangements and Mortgage to Rent will work for some households, but there are still many in long-term arrears for whom there is little support.

An Equity Scheme for Long Term Mortgage Arrears 

A range of supports is required that take into account the individual circumstances of households in mortgage arrears. One such support, proposed by Social Justice Ireland in our 10 Point Plan to Deliver Housing for All, is for Government to take an equity stake in homes with mortgage arrears and that Government start with those in arrears of more than 10 years. The Government is not adverse to taking equity in private homes, as has been demonstrated by the Shared Equity provisions in the recently passed Affordable Housing Bill, 2021. The problem is these schemes tend to favour those who need them least and artificially maintain high property prices. Our proposal would see the State use the Shared Equity model to support those who need it most to avoid homelessness.

How would it work?

The actual working of the scheme would be a matter for policymakers, however based on the current model set out in the Affordable Housing Bill, Social Justice Ireland proposes the following possible scheme: 

1. Government would establish an equity fund to support borrowers in long-term mortgage arrears.
2. A call would be made to borrowers who meet eligibility criteria to apply to access the fund in exchange for giving the State an equity stake in their property.
3. An assessment of the borrowers' eligibility, property condition and equity proportion would be conducted and approval granted / denied within a specified period set out in Regulations.
4. If the application is approved, the State would pay the equity amount direct to the mortgage lender, decreasing the amount owed by the borrower and, consequently, their mortgage repayments (it may also be the case that the amount is used to clear arrears on the mortgage if the borrower can sustain the mortgage repayments, but not the additional arrears repayments).
5. The equity stake would be registered as a charge on the property, subordinated to the mortgage(s) registered at the time of application. No subsequent subordination in favour of new mortgages would be permitted save in the case of a remortgage by the borrower to take advantage of more favourable rates and reduce their indebtedness.
6. The borrower will have the option to repurchase the equity at a point in time.

Who would be eligible?

Eligibility criteria would be set out in Regulations, however Social Justice Ireland suggests that this take into account research from the Central Bank of Ireland on profiles of borrowers in long-term arrears and tailor criteria to include as many as possible within the scheme.

How much would it cost?

Social Justice Ireland proposed the commencement of this scheme with borrowers in arrears of more than 10 years. The latest data from the Central Bank of Ireland indicate that 4,828 mortgages were in arrears of more than 10 years at the end of March 2023. Funding for this scheme would need to be levied at between €783m and €1.4bn. 

[1] Non-bank entities comprise of Retail Credit Firms and Credit Servicing Firms. More detailed information on these institution groups is available from the Central Bank.