Home mortgage debt outstanding legacy of Ireland’s financial crisis
DUBLIN: Jason and Orlaigh O’Connor secured a half-millioneuro mortgage 11 years ago to buy the family home from Orlaigh’s ageing parents, even though Jason had to work overtime to meet the repayments and Orlaigh had no regular income.
Now, with barely a dent made in the principal and their account 75,000 euros in arrears, the couple face the prospect of never being able to pay back the loan.
The O’Connors’ case is typical of a situation stymying Irish efforts to deal with some of the most stubborn home mortgage arrears in Europe, after the 2008 crash halved house prices and led to the most expensive bank rescue in the euro zone.
While Ireland’s economy has recovered, clocking the fastest growth in Europe for four straight years, a push to purge the soured loans has stalled - a legacy, critics say, of forced evictions of peasants by absentee landlords in the 19th century that sowed a national aversion to repossession.
Shane O’Sullivan, director of operations at Permanent tsb , which has the highest non-performing loan ( NPL) ratio in Ireland at 26 per cent, said the bank managed just 80 evictions last year.
“Consumer protection is very strong in Ireland and in the legal system there is a healthy bias in favour of homeowners in the courts,” he told a March news conference.
Data from the Central Bank of Ireland shows Irish lenders have reduced their NPL stock by more than a third to around 14 per cent since 2013, when the number was 32 per cent, the worst in the euro zone. The regional average is around four per cent.
The most intractable issue is home loans, many owed by homeowners who refuse to engage with lenders.
Of the 100 billion euros of Irish residential mortgages now outstanding, 10 billion euros are deemed non-perfoming, or in arrears of more than 90 days.
About 6.5 billion euros’ worth are more than two years past due, of which three billion euros are more than five years in arrears. The value of the last category rose more than 10 per cent between June 2016 and June 2017.
Morgan Kelly, an economics professor at University College Dublin who is credited with predicting the scale of the crash, says the average first-time buyer in Ireland borrowed eight times average annual earnings in 2006, more than twice the 3.5 times currently mandated by the central bank. The average new house cost 10 times average earnings, with secondhand houses in Dublin changing hands at 17 times earnings.
A decade earlier, by contrast, first time buyers took out a mortgage equal to three years’ earnings on average, and the average house in Dublin cost four years’ earnings.
Faced with the impossible multiples, the O’Connors said they did what many were doing at the time: they fudged the numbers.
GE Capital Woodchester Home Loans, a sub-prime lender, agreed to the loan without documentation from Orlaigh to prove that she could afford her share.