Take a look at the above table which compares residential mortgages in Ireland and the UK. Arrears over 90 days in the UK are less than one third the level ofIreland, and yet the repossession rate in the UK is nearly six times that of Ireland. What an incredible difference between two neighbouring countries whose housing and banking sectors have traditionally displayed much similarity to each other.
We were expecting figures from the Financial Regulator, Matthew Elderfield, last week on mortgage arrears, repossessions and restructuring in respect of the second quarter of 2011. Perhaps because of the intense debate on mortgage forgiveness, re-ignited by Professor Morgan Kelly in his presentation to the Irish Society of New Economists on 18th August, the Financial Regulator thought the figures would inflame what is already a vexed issue.
This present Financial Regulator is responsible for having introduced the quarterly reports on the condition of residential mortgages. But he is also the Financial Regulator who has played a pivotal role in the present approach towards mortgage arrears, as he has overseen the introduction of a new code of practice by lenders. The code, available here, was seen by some as kicking the can down the road by allowing some in mortgage distress to delay foreclosure for up to four years. It is also seen as a protocol which is increasingly causing misery as unemployment remains elevated, inflation is increasing – fuel prices are set to increase by 15% from next month, for example – and take-home pay is reducing and there are new taxes in prospect. On the other hand, the protocol was seen by others as a humane way to avoid large-scale repossessions by increasing forbearance whilst the housing and credit markets are still distressed.
In the UK, there will be an estimated 40,000 repossessions in 2011. There were 75,500 repossessions in the UK at the depth of their housing bust in 1991. There are currently 11.3m mortgages in the UK worth GBP 1.2tn, according to theUK’s Council of Mortgage Lenders, so in theUK there are approximately 354 repossessions per 100,000 mortgages. InIreland our repossession rate is approximately 64 per 100,000 mortgages. Figures specially provided by the CML to this bog show that there were at the end of Q2, 2011 234,400 mortgages in arrears of more than three months (they don’t do days in theUK but three months is approximately 90 days) which compares with 55,763 at the end of Q2, 2011 in Ireland. So the UK arrears rate per 100,000 mortgages is just 2,069 whereas in Ireland at the end of Q2, 2011 it was 7,177.
Unemployment and negative equity are the two most important drivers to repossession (that is, not being able to pay the mortgage and not being able to sell the property to repay the mortgage). Ireland’s unemployment rate is 14.3%; the UK’s is 7.7%. Our residential property has dropped 42% from peak according to the CSO. In the UK their property is down 9.3% from peak according to the Nationwide Building Society. Unless the UK is a particularly uncaring or economic illiterate state, then it seems obvious that we are deferring a major problem in Ireland. Whilst none of us has a crystal ball, the recent trend in house prices suggests that further falls are in prospect and we know there are new taxes looming, so the present arrears code may need urgent reform (by the way the position on here is that we reform personal bankruptcy laws before creating some novel innovation to deal specifically with mortgage arrears).
Oh, and why is Matthew Elderfield like Buzz Lightyear?
[The above blogpost has been updated to reflect the Q2, 2011 arrears and repossession data released by the Financial Regulator and analysed in this blogpost]