Ireland economy: Mortgage arrears are high owing to labour market fragility

Event

New research from the Central Bank of Ireland shows that three-quarters of those in mortgage arrears have jobs, prompting calls for more refined policy intervention in the mortgage arrears crisis.

Analysis

The extent of Ireland’s mortgage crisis has been well documented. It is amongst the worst in the OECD, with close to 130,000 out of 915,000 residential mortgages, including buy-to-let mortgages, in arrears of 90 days or more as of September 2013 (about 20% of the total value of residential mortgage accounts). The scale of the issue is unsurprising. Around 340,000 of the current pool of mortgages were approved at the height (2004-06) of the credit-fuelled property bubble. Many of these loans were issued at relatively high loan-to-value rates, and secured on high wages that could not be sustained once recession set in. These mortgages were often reliant on two incomes at this level, with major shocks to the labour market seriously hindering borrower’s ability to pay.

The latest research from the Central Bank, which matches mortgage loan data with detailed data about the mortgagees, reveals that a surprisingly high 75% of residential mortgage holders in arrears are in fact in employment of some description. However, they are more likely to be in “fragile employment” – emerging from a period of unemployment or on temporary contracts – more likely to have been with their employer for fewer than two years and more likely to have experienced a fall in wages and/or work hours.

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