Since 2009 Ireland has faced the worst mortgage default crisis anywhere in the Western world. Coming from a base of almost zero default, we reached unprecedented levels of default. The rate of default surpassed 20% at one stage – which is a truly staggering figure.
As far back as 2011, former President Bill Clinton warned that this problem needed to be addressed before economic recovery could be assured.
Now, almost a decade on, the problem remains. Almost 100,000 account remain in arrears with 40,000 of those in long term arrears.
On the bright side the arrears figures continue to improve month by month and there are now systems in place to help people exit unsustainable debt.
The most important factor in fixing the problem is the recovering economy. We estimate that at least 50% of all arrears cases can “self-cure” as people return to employment or improved terms of employment. This is leading to the reduced levels of arrears shown in every quarterly report for almost 2 years now.
There is a second group that needs a more robust intervention.
The new Personal Insolvency system is tailor made to deal with this group. Under recently amended legislation any offer made through this system (which can include debt write off; extension of term; interest rate reduction) can be enforced by the Courts. This is a very powerful mechanism which can ensure that thousands of people remain in their homes with long term sustainable mortgages. The government is even paying for people to get advice from Personal Insolvency Practitioners so there is absolutely no reason for people not to act here as soon as possible.
The third group is the most difficult to fix.
These are people who, for a variety of reasons, cannot reasonably be expected to pay their mortgage or even a restructured mortgage. Every day we see cases of ill health; divorce or separation; of old age – all of which results in the person or family not having enough income or enough time to pay their mortgage.
This group is the group most at risk of repossession. It is hard to gauge the size of the group but we estimate anything up to 10,000 households are at risk.
So, what happens here?
As things stand an order of repossession will be made and the household will be required to leave their home. They, almost by definition, will be unable to afford rent in the private rental market and will therefore be rendered homeless and thus fall back upon the State for accommodation. Meanwhile the repossessed homes will be sold into the private market. The net effect is that the State’s ongoing problem of homelessness is made worse.
Our answer to this is Mortgage to Rent.
In Mortgage to Rent the family surrenders the home to the lender who then sells the home to an Approved Housing Body or to a Local Authority who then provide social housing to the former owner in their own home. The tenants pay a “means tested rent” to the Local Authority and are guaranteed security of tenure while the overall stock of social houses has increased.
Despite this system being in place for years now it has been slow to gain momentum. There are several reasons for the slow pace though recently the pace has picked up.
New Beginning is playing a role here.
As part of our contribution to social housing in the State we are acquiring homes and then leasing them to the Local Authorities on an effective permanent basis. The use of private funding in Mortgage to Rent – coupled with the desire of the funds to move this process along speedily – means that we should be able to ramp this scheme up greatly to deal with as many cases as possible in as short a time frame as possible.
In the end, given the recovering economy, the new Personal Insolvency laws and the ramping up of Mortgage to Rent, we can look to a resolution of the mortgage arrears crisis over the coming years without the need for large scale repossessions. In fact, the actual amount of repossessions would remain very low.
This would be an excellent outcome, consistent with a generally held belief in Ireland that protection of the family home is and should remain an essential norm for our society.