How many mortgages are in trouble?

There seems to be some disagreement about the extent to which residential mortgages in the State are in trouble. In the Dail yesterday FG leader Enda Kenny suggested (citing Morgan Kelly) it was 100,000 but that was rejected by the Taoiseach who claimed that the number was about 70,000 – “There was some suggestion that at least 100,000 mortgages have seen negotiated repayment reductions or defaults. This significantly overstates the situation. The figure is closer to 70,000, which includes restructured payments and the arrears figure of 36,000.” Enda was referring to the article penned on Monday this week by economist Morgan Kelly writing in the Irish Times who claimed “between negotiated repayment reductions and defaults, at least 100,000 mortgages (one in eight) are already under water”. This entry examines the figures.

Firstly I think there are three categories of mortgages that are in trouble

(a) Those in arrears over 90 days. Whilst our new-ish Financial Regulator is trying to force banks to adopt a common definition of when arrears first occur, he is at present publishing quarterly figures for mortgage arrears based on what the banks tell him using their own definitions. The latest quarter available is Q2, 2010 which showed that there were 36,438 mortgages in arrears for more than 90 days (and of these, 24,797 were in arrears for more than 180 days). The arrears have grown consistently over the past year (before which the banks didn’t even produce aggregate figures) as shown below and the betting would be that the Q3, 2010 figures which won’t be released until December will show an increase to over 40,000 as there has been a fairly consistent (and indeed slightly accelerating) 4,000 increase in each quarter in the past year.

(b) Those mortgages whose terms have been restructured. Again there is no definition of what a “restructure” comprises but it is widely assumed to mean (a) putting repayments on an interest only basis for a period of time (b) extending the period over which the mortgage is to be repaid with a consequent reduction in monthly repayments (c) some form of payment holiday where the interest is rolled up for a period and principal payment deferred (though importantly not forgiven). There are no reliable figures on the present level of restructured mortgages but in April 2010, Charlie Weston did an article in the Independent where he claimed that an estimated 3,000 mortgages a month were being restructured and that the IBF had said that a total of 30,000 mortgages had been restructured and that this figure “dated back to the first or second week in January”. So you could take a stab at the present number as being 30,000 plus (10 months to the end of October 2010 x 3,000) = 60,000. That would clearly be an estimate. If a mortgage has been restructured and is operating in accordance with its restructured terms then presumably it is no longer in arrears, so a 60,000 estimate would be additional to the estimated 40,000 in arrears.

(c) Mortgages in receipt of State assistance – mortgage interest subsidy. Some people facing hardship with repaying their mortgages are entitled to claim support. The most recent estimate given is, I think, from this exchange in the Oireachtas in October 2010 where the Taoiseach said “it is worth recalling that the Government has already provided help to over 16,700 families with the mortgage interest subsidy scheme.” It is not clear if this is the number currently being helped or if it is some historical cumulative figure. It is also not clear if there is any overlap between this 16,700 figure and mortgages in arrears or restructured. However it is clear that there is some level of hardship before the State pays the mortgage interest subsidy and it may well be the case that a proportion of these 16,700 mortgages (perhaps even a large proportion) are additional to those mortgages in (a) and (b) above.

So whose figures are more likely to be closer to the reality – the Taoiseach’s or Enda Kenny’s/Morgan Kelly’s – I would have said the latter’s based on the above. Unfortunately restructured mortgage statistics aren’t reliably collated nor is the overlap of mortgage interest assistance with the other two categories examined.

It is worth pointing out that at the end of June 2010, there were 789,000 residential mortgages in the State, some 1.6m households and some 2m dwellings.

UPDATE: 13th November, 2010. The Independent’s Personal Finance Editor Charlie Weston writes on this subject today. Whilst apparently ignoring those in receipt of mortgage assistance he reports that the likely figure is 70,000 mortgages being in trouble as he claims that those which have been restructured amount to 45,000 (not 60,000 as estimated above using Charlie’s own reporting and estimates earlier in the year) and that some 15,000 of these 45,000 are included in the banks’ own statistics on arrears.” “The figure for those who are struggling to repay their mortgage is 70,000 tops. Where Morgan Kelly got his figures, I don’t know,” a [n unidentified] spokesman for the Irish Banking Federation said, insisting that there had been no attempt to massage the figures.” Elsewhere in the article Charlie tells us that it is 70,000 people that are having difficulty – well that claim is definitely wrong as the average household in the State has 2.75 souls so 70,000 mortgages in difficulty would imply 192,500 people are in difficulty – the entire population of Cork, not Galway. I still tend to think Morgan Kelly’s 100,000 is closer to the reality – if the arrears are growing at 4,000 per quarter then to mid Q4 of 2010 that would imply 43,000 in arrears formally plus 45,000 on Charlie’s numbers (on what basis would a restructured mortgage that was complying with its terms be in arrears?) plus some part of mortgage assistance homes estimated by the Taoiseach in October at 16,700. Regardless though whether it’s 70,000 or 100,000 mortgages it is still a major issue and I regard the situation at present to be a denial of the realities – compare Ireland with Nevada and you’ll see what I mean.