Those who pay for everything are left furious again

WE ALL face moral dilemmas every day. If you found yourself in a convenience shop where the staff are not in sight, and there are no surveillance cameras, would you shoplift?

Most of us would not – because of our moral and social codes, even if we see the chances of being caught as very slim. But others, albeit a minority, would not think twice about swiping everything they could carry.

The same dilemma has been playing out for almost a decade now with mortgages. Some people reckon they will get away with it, so they do not pay up even though they can do so.

New research from the Central Bank is set to reignite the nasty debate on this that has been dormant for a while now.

A research paper has found that many people gave up paying their mortgages when the courts blocked banks repossessing properties.

The so-called High Court Dunne judgment in 2011 found an issue with the Land and Conveyancing Act, which meant property repossessions were halted. It was another two years before legislation was passed to allow lenders repossess again.

However, even now repossessions take up to two years, and are few relative to the numbers in long-term arrears.

But the judgment had the effect of stopping some people paying their mortgage, even though they could pay.

The paper found that making it difficult to repossess homes prompts more people to default on their payments.

This is what is known as ‘strategic mortgage default’, a phrase that sends the blood pressure rising for different groups of people.

Those who feel they pay for everything, and may have scrimped and saved to meet their repayments, are furious that others choose not to pay. The ire of these people was fuelled when then AIB chief David Duffy (right) said in 2013 that up to 20pc of those in mortgage arrears were strategic defaulters. He said strategic default helped explain why we have some of the highest arrears levels in the eurozone.

Classic economic theory suggests that it is a rational reaction to do something that we should not do if there is no risk of any consequences.

Then there are those who work with people in debt distress, who say only tiny numbers are strategic defaulters. They say bankers are making excuses for their own reluctance to deal with people who are financially goosed. But the issue may not be black and white. With money tight, many people who may have been able to scrape some of the mortgage payment money together may have decided to take the short term decision to spend on living expenses instead.

According to Mr O’Malley’s Central Bank paper, the people who took the decision to give up paying on the back of the Dunne judgment tend to be in trouble anyway. They over-borrowed when they took out their mortgage, ended up in negative equity and generally are on expensive variable rates.

Yes, these people were financially flummoxed. Some decided they would take their chances and stop paying. However, banks too have questions to answer. They keep trying to frustrate the State personal insolvency machinery and many are reluctant to write off debt for those they lent recklessly to.

The best hope for those who are in deep mortgage trouble is large-scale, mortgage-to-rent schemes. More banks need to embrace that initiative.