LONG-TERM RESTRUCTURING of Irish mortgages is to become more prevalent – and while we can expect repossessions, they will only be as a last resort.
That is according to Fitch Ratings, which says that long-term restructuring of mortgages in Ireland will become more prevalent. This is because since July the latest version of our Code of Conduct on Mortgage Arrears (CCMA) and the Personal Insolvency Act came into effect, and the Land and Conveyancing Law Reform Act passed into law.
Fitch said:
We expect tools such as split mortgages or trade-down products for borrowers in negative equity to be used first, followed by Personal Insolvency Arrangements (PIAs). Repossession or voluntary surrender will be a last resort.
Fitch stated that the Land and Conveyancing Law Reform Act reopens the repossession route, and it expects the number of repossessions to rise.
However, it believes this will create incentives for lenders and borrowers to agree longer-term alternative repayment arrangements.
Lenders
In Ireland, lenders have started deploying longer-term strategies as the short-term arrangements common here – like principal payment holidays – have “often failed to restore borrowers to performing status”.
Plus, the central bank has set targets for lenders to achieve sustainable solutions for mortgages in arrears, noted Fitch.
The new CCMA should accelerate discussion of arrears problems between borrowers and lenders, and also limit the risk of reduction of willingness to pay.
Restructuring
Fitch said that discussion with lenders suggests they will deploy their own restructuring tools first, before moving on to a PIA if necessary.
They view a PIA as a niche product, most suitable where a borrower has various creditors and types of debt. We maintain our view that PIA is not an easy route to debt forgiveness, as it would be likely to entail relatively stern restrictions on living costs.
Repossession, meanwhile, will be the final resort, but all three options “are likely to involve losses for mortgage pools”.
The ratings agency said that trade-down mortgages may lead to a mild prepayment increase.
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