The revelation that five years into the downturn three-quarters of the people behind on their mortgage payments actually have jobs comes as a surprise. It shouldn’t, but it does, the Irish Times reported in a commentary.
It is also quite scary as most of us soldier on under the assumption that if we can hang on to our jobs we will keep a roof over our heads.
It is a further reminder of a fact we have perhaps lost sight of: the scale of the Irish mortgage default is unprecedented. Nothing really like it has happened anywhere before.
There have been property crashes aplenty and the dynamics of default are pretty well understood. The main drivers are negative equity and unemployment. But something else seems to have been at play in the Irish context. The pay cuts and tax rises of the past five years seem to have produced a very large cohort of people who still have jobs but can no longer afford their boom-time mortgages.
According to the study by Yvonne McCarthy – which relied on a survey of borrowers and data collected as part of the Central Bank’s stress testing of the bank’s mortgage books – this is the situation that three out of every four people who are currently in arrears now find themselves in.
It is a lot of people. Roughly speaking, about one in five of the 800,000 residential mortgages in the Irish market is in default. That is 160,000 mortgages and even when you allow for buy-to-let mortgages and multiple mortgages it’s still hard to avoid the conclusion that there are about 100,000 people in Ireland today who have a job but can’t afford their mortgage. There must be thousands of others who are just one more pay cut or tax rise away from default.
The critical question is whether they will be able to afford their mortgage tomorrow. The answer to this question is the key to deciding what sort of approach should be adopted in arriving at a “sustainable solution” for them, to use the jargon for restructuring.
Every case is different, but on balance you would have say most of them will probably not be able to afford their mortgage tomorrow. Unemployment remains very high so there is little upward pressure on wages. Business may be recovering but its ability to pay higher wages is constrained. Thus, if you are lucky enough to be in a job you are unlikely to get a substantial pay rise any time soon to reverse the pay cut that left you struggling to pay your mortgage. Read more.
