Fivefold rise in home loans in ‘pre-arrears’
Experts warn cost-of-living crisis and interest rate hikes are biting hard
THE number of people in ‘pre-arrears’ – those about to go into mortgage arrears – has increased at least fivefold since interest rates began rising, according to debt experts.
And the Money Advice and Budgeting Service (MABS) – the Government’s free money advice service – has confirmed it has seen a significant 28% increase in new clients for June and July compared to last year, with many of those in pre-arrears.
It comes as the European Central Bank (ECB) confirmed another interest rate hike this week – the 10th since last July – in its attempt to bring rampant inflation in the eurozone under control.
While the ECB signalled the latest hike may be the last of the rate rises, the seemingly endless series of increases have tipped many mortgage-holders who were already struggling to repay their loans over the financial edge.
Irish Mortgage Holders Organisation (IMHO) founder David Hall told the Irish Mail on Sunday the number of people in ‘pre-arrears’ seeking help since rates began steadily climbing last year is ‘five times more – if not nearer to 10 times’.
The mortgage advocate said the level of engagement with the service is ‘nearly akin to the recession again’ but with the difference this time that clients’ falling into arrears ‘hasn’t happened suddenly’.
He told MoS: ‘This has been a slow, torturous event for the last year and people are watching it worsen and worsen and worsen.
‘It’s a lot more difficult now to talk to somebody who’s not just yet in arrears, but is at the end of their tether because they’re anticipating it and it’s been a much longer journey than it was when the recession hit and everyone just went over a cliff.’
Mr Hall said the 10 consecutive rate hikes have had ‘a massive impact on people who have done well with their mortgage up to now and all of a sudden are being thrown into a penalty situation not of their own making’.
He added: ‘The cost of living has had an impact on them, the interest rates on cars and everything else has had an impact on them and their mortgage. So every single thing relevant to the household has been affected. Yet the extra punishment, the extra penalty, has been placed upon people with mortgages.’
Michael Laffey, MABS’ north Leinster regional manager, said the service has seen a 28% increase in new clients over the summer compared to last year.
‘Traditionally, the months of June, July and August tend to quieten down for us but that’s not the trend this year,’ Mr Laffey said.
The service’s national helpline – which Mr Laffey called ‘a good barometer of demand for our services’ – saw a 19% increase in activity in June and July compared to last year.
Mr Laffey said many of those were ‘pre-arrears’ clients who might ‘come to us to see if we can advocate on their behalf with the financial institution, and maybe get some sort of payment holiday or reduced repayment for a limited period until rates have settled back down’.
The service has seen a rise in people having to renegotiate their Alternative Repayment Arrangements (ARAs) for those in arrears.
‘It would have been the repayment put in place 18 months or two years ago, based on their household income and expenditure,’ Mr Laffey said. ‘That has been impacted significantly since then.’
And those with shortterm Personal Insolvency Arrangements (PIAs) – a debt restructuring mechanism that can last for up to six years – are finding themselves in trouble again after completing their repayment programme. People can only avail of one PIA in their lifetime.
Mr Laffey told the MoS: ‘There’s an argument that while people do want to get out of stuff in the short term, maybe sometimes it’s more beneficial to take a longer-term approach to a PIA.
‘Then, if something does happen, as in a cost-of-living crisis, you’re still in it and you have recourse in the insolvency court to go back and say your circumstances have changed. The judge can rule: “Yeah, I’ll amend the terms of that – you only now need to pay X or Y.”’
In another indication of the escalating debt crisis, leading personal insolvency expert Mitchell O’Brien said his practice, IRS Ireland, has gone from an average of eight new pre-arrears cases presenting each week in 2022 to an average of 38 weekly cases this year.
He said he is worried by a rise in people falling into short-term arrears – less than 90 days.
The Central Bank’s latest figures showed a 23% rise in the number of mortgages in arrears of up to 90 days between March 2022 and March 2023.
Mr O’Brien said: ‘PIPs are working very diligently on the older [mortgages in arrears] and having the desired impact. It’s slow but it is happening. But the new ones, those people are somewhat in denial.
They just can’t believe that this is happening to them.’
Mr O’Brien said the multiple interest rate hikes have caused ‘structural damage’ to borrowers.
‘Borrowers who had, let’s say, free cash flow of a grand a month after their living expenses and debt payments and were getting on fine – they have no money left. They’ve used their savings. So it’s not a surprise the short-term arrears numbers are going up.
‘It’s carnage here on the frontline and the platitudes from the relevant Government ministers and the Banking and Payments Federation Ireland (BPFI) are hard to wear when you have evidence of the enforcement proceedings coming across your desk every day. PIPs are like Canute trying to hold back the tide.’