Irish mortgage arrears are still extraordinaily high by international standards , although the past few years have seen a significant decline. The number of Principal Dwelling Home (PDH) loans in arrears over 90 days , the standard measure, peaked in the autumn of 2013 at just under 99,000 , equivalent to 12.9% of the total outstanding. and in the final quarter of 2016 had fallen to some 54,000 (7.4%). The trend in the Buy To Let (BTL) sector is broadly similar, although the peak there was later, in the second quarter of 2014, at some 32,000, equivalent to more than 1 in 5 of the outstanding stock. The BTL figure has now declined to 15,500 or 15.7%.
What drives arrears? Research has generally shown that there are three main factors; unemployment, house prices and interest rates. Indeed, we developed an equation predicting PDH arrears based on these variables which performed very well for a time, capturing the decline. That fall was largely driven by lower unemployment, but the recovery in house prices was also important, with a resultant reduction in the numbers in negative equity. The latter peaked at over 300,000 in 2012, according to the ESRI, and on our estimate fell to around 50,000 at the end of 2016.
Unemployment is still falling, of course, but the number in arrears has been consistently higher than our predicted figure for some time now. In fact it is clear the pace of arrears decline has slowed; the PDH fall in the second half of 2016 was just 3,300 against over 8,300 in the same period a year earlier. The BTL decline in the latter half of 2016 was less than 1500.
This suggests that the arrears issue is moving into more intractable territory, with the total numbers (PDH plus BTL) in arrears for more than 720 days still over 47,000. Moreover, the flow of mortgages into arrears ( i.e. in arrears for less than 90 days ) actually rose for both PDH and BTL in the final quarter of 2016, the first rise in four years.
Reposessions are also rising in Ireland, for a variety of reasons, although about half are voluntary, with the quarterly flow now at around 700, from less than 400 in 2014. This is equivalent to less than 4% of the arrears figure and again unusual relative to elsewhere, this time very low.
The arrears issue is not going away any time soon.