Central Bank governor urges banks to tackle mortgage arrears

The Central Bank has vowed to get tough on banks not doing enough to help customers in mortgage arrears

Central Bank Mortgage Arrears

Mortgage arrears have reached ‘extraordinary’ levels that have never been seen before according to the Central Bank of Ireland’s governor, Patrick Honohan. He has promised that the Central Bank will keep in constant contact with lenders who are not doing enough about their mortgage arrears.

Attending as a main speaker at a Central Bank conference on the issue of distressed property markets this week, Mr. Honohan highlighted the importance of banks to show responsibility in being vigorously proactive in contacting mortgage holders who have fallen behind in their repayments. He mentioned the use of debt write downs as a solution, but only for people who are ‘truly over-indebted’ or facing insolvency.

An applied approach by the banks can be positive for both the bank itself and the borrower as to avoid having to go through the costly and laborious process for personal insolvency arrangements (PIA). From a cost perspective, it is better for a lender to amend loan agreements with a borrower as opposed to banks bearing the additional cost of going through the PIA process.

However, Mr. Honohan admitted the prospect of repossessions, in particular properties owned by investors, is very real. But while there will be concessions for people who cooperate with their bank in resolving their debt, those who don’t make genuine efforts to tackle their mortgage arrears will face consequences.

Increase in mortgage approvals showing activity in housing market

Mortgage approvals in November 2012 up 38% on previous years

Mortgage experts have welcomed a recent jump in the number of mortgages being approved by Irish institutions and may suggest the first steps in a property market recovery. The most recent figures from the Irish Banking Federation (IBF) relating to activity in November 2012 showed that just over 2,000 loans were approved – a 38% increase from the same month in 2011.

2012 has been a buoyant year for people taking the plunge and buying property. The number of mortgages offered during the January 2012 – November 2012 period went up by 12% to over 16,340. While the increase in mortgage applications was helped by the Government’s Mortgage Interest Relief scheme, many of those approved for mortgages in November would not have completed the mortgage process in time to beat the 31st December deadline.

Indeed, there seems to be demand for mortgages. Permanent TSB have announced they are to allocate €350 million this year for mortgage lending – a sign that PTSB have confidence in the market going forward. Despite the recent pick-up in loan approvals, ratings agency Fitch is predicting a further 20 percent drop in property prices this year. Even so, experts are confident of continued rises in mortgage approvals, especially among first time buyers.