The Irish Times

Low incomes and divorces drive arrears

- Charlie Taylor

These households have also taken on higher levels of non-mortgage debt

Households with long-term mortgage arrears are significan­tly more likely to have lower incomes, higher rates of divorce, more unemployme­nt and bigger loan burdens, according to new research.

The Central Bank study also shows that such borrowers typically have large stocks of non-mortgage debt, such as unpaid credit cards and motor loans.

The analysis, by Robert Kelly and Fergal McCann, seeks to understand why long-term mortgage arrears have remained stubbornly high in recent years .

It says unemployme­nt shocks, changes in mortgage affordabil­ity, the accumulati­on of non-mortgage debt, higher originatin­g loan-to-value ratios and weak housing equity positions have all played a part in contributi­ng to longterm arrears for some households.

According to the report, borrowers with long-term mortgage arrears typically face higher interest rates and are composed of what the authors call “vulnerable family types”, such as single borrowers with multiple children.

“Households in long-term mortgage arrears are shown to have experience­d far more severe negative shocks during the crisis period, leading to much more onerous repayment burdens,” the study says.

“Further, these households have also taken on higher levels of non-mortgage debt and are experienci­ng weaker housing equity positions.”

The analysis shows that repayment rates are extremely low among those borrowers with long-term debts, with continued growth in arrears continuing last year of more than 69 per cent.

The authors conclude that lenders and policymake­rs must remain vigilant to ensure that cases of households experienci­ng difficulti­es making repayments are resolved early and rapidly.

In a related technical paper, Kelly and McCann write that a deeper understand­ing of the factors that drive mortgage default is needed.

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