Mortgage arrears…

Richard Curran tells it like it is in the SBP as regards mortgage arrears.

The latest mortgage arrears figures from the Central Bank represent a truly appalling vista for a society trying to cope with one of the biggest property boom/bust scenarios in recent decades.

And he continues that although…:

The headline figures are quite depressing…the cold statistic that 10.9 per cent of private residential mortgage accounts, or 83,251, are in arrears by over 90 days, doesn’t fully capture the stress and pain that thousands of families are going through.

Because:

…add on to that the 45,165 mortgages in arrears by less than 90 days, and the 84,941 that have already been restructured in some way, and it really begins to mount up.
The net result is that 22 per cent of home loans in the state are in trouble in some form or have got some kind of restructuring deal.

This is an astounding figure on the face of it. Just over 1 in 5 mortgages and creeping up to 1 in 4 are now in trouble. Remember, this is a figure that has increased rapidly in the past three or four years.
And for all the nebulous but positive spin put on it by various parties Curran doesn’t believe it is likely to improve any time soon.

The small chink of light at the end of the tunnel is the fact that the numbers in arrears by less than 90 days has dipped slightly from 46,284 to the 45,165 figure. This is being welcomed as a sign that perhaps levels are beginning to bottom out and while the problem is very significant, it may not be about to get worse.
Not so. The big problem on the horizon is the budget – and then possibly the budget after that. If within the last eight months, some categories of figures had stabilised, it doesn’t take into account the savage cuts/tax hikes likely to come in the next two budgets.

Alan McQuaid formerly of Bloxham in his single transferable – but gloomily accurate – statement that was issued with each new round of house price figures, used to emphasise that until there was employment stability there would be no stabilisation in house prices. And that, in a sense, is the other side of this equation. Because the two issues – that of rapidly falling house prices and rapidly increasing mortgage arrears are directly linked to the broader health of the economy. As Curran notes taxation and cuts (and interesting that he recognises that the latter impact directly upon this as well) will make mortgage repayment starkly more difficult for many, and for a number essentially impossible. Indeed Curran makes a very very important point that is often ignored in the discussion on tax increases/expenditure cuts.

Spending cuts reduce the amount of money going into the economy which has a knock on effect on companies that would otherwise benefit from that spending. This will put pressure on jobs.

Little wonder that in the face of sustained pressure from various media commentators the Government is unwilling to do too much as regards Croke Park. Substantial cuts in that area and the knock on effect on local economies will be significant. And Curran, unusually – though not for him, he’s made the point before – tackles that explicitly.

There is a strong body of opinion, and it may well be shared by the Troika itself, that we cannot get through this crisis while keeping the Croke Park deal intact. Any further pay or job cuts in the public sector would also affect people’s ability to repay mortgages.

But this is true more broadly.
And Curran number crunches the figures to suggest that ‘in theory [mortgage losses] present a loss to the banks of up to… €13.7bn’, but that the various re-capitalisation programmes have ‘in theory … [brought] the total sum available to cover mortgage losses to €14bn’. As he says, that’s tight, and if there are requirements to use part of that €14bn on other areas of loss – he mentions business loans – then there’s deep problems ahead for the banks. And as he notes, that’s putting aside the sheer misery that this represents for those caught in this situation.

The problem is though that it’s not just the next Budget. Consider his words above ‘and then possibly the budget after that’. That too is going to be another deflationary Budget. And Michael Taft and others have pointed to the reality that subsequent budgets will also be deflationary. Moving towards 1 in 4. And we’re a long way from the end of this process. Oh yes, and one last figure from Curran. Relative to GDP, at €62bn we have the unlovely record of the most expensive bank bailout in a developed state in history.