On the face of things, the publication of the Central Bank’s Q4 2014 Mortgage Arrears Resolution Targets (MART) paints a reassuring picture of an orderly process around the return to sustainability in the mortgage market but a wider perspective shows the myriad conflicts and trade-offs.

The MART targets cover both proposed and concluded sustainable solutions with respect to the lenders’ Republic of Ireland principal dwelling home/primary residence (PDH) and buy-to-let (BTL) mortgagees, and specifically is concerned with resolving arrears cases which are 90 days or more overdue.

The figures for PDH and BTL combined show 104,938 proposed solutions and 67,617 concluded solutions reported to date. Of the reported concluded solutions, 40,837 (60%) relate to repayment and restructure arrangements, including split mortgages, term extensions, arrears capitalisations and borrowers clearing their arrears. Some 91% of the concluded restructure and insolvency solutions are reported to be meeting the terms of the arrangements.

Two-thirds or 34,279, of the reported PDH concluded solutions relate to repayment and restructure arrangements “agreed bilaterally between borrowers and lenders, which seek to deliver an affordable mortgage payment aimed at keeping borrowers in their homes.” But 16,683, or 33%, involve “potential loss of ownership outcomes”. According to the Central Bank “15% of these cases involve voluntary sale/surrender agreements with the balance relating to cases where lenders are involved in different stages of repossession proceedings with borrowers, with the majority of these cases involving borrowers that have been classified as non-cooperating.” In the BTL sector, some 60% of the reported concluded solutions involve potential loss of ownership.

MART Performance Against Q4 2014 Targets

While the application of the banks in meeting their targets seems laudable, the criteria for determining an offer of a “sustainable solutions” masks a less wholesome underlying reality.

As mentioned, one-third of the concluded solutions in the PDH sector involve loss of home ownership. For the purpose of meeting targets, the Central Bank accepts the issue of a standardised sustainability letter as evidence that a particular bank has proposed a solution.

This letter includes four options for the debtor: voluntary sale, voluntary surrender, mortgage-to-rent and trade down mortgage. In many cases, there is no choice here: it is well accepted that mortgage to rent is simply not working and instances of trade down mortgages are almost non-existent.

Yet, as the banking sector takes plaudits for apparently coming to grips with the mortgage crisis, the irony of this becomes rich when taken in context with the escalating controversy over mortgage rates, in particular the single variable rate (SVR).

Today the SVR mortgage average is 4.5%. Meanwhile, banks have three sources of funding available: the EURIBOR market, the ECB marginal lending rate, which is slightly higher than ECB rate, and customer deposits. The EURIBOR rate at April 1 was 0.018% and the average retail deposit rate 1.5%.

It doesn’t take a particularly gifted mathematician to work out that the margins involved here are staggering.

A large part of the apparent reluctance of the government to address this blatant profiteering must be tied up with the desire to allow a banking sector with such a massive government ownership factor to repair their balance sheets (all the better to sell those government stakes at a later date).

Yet the effect that the status quo has on the affordability of mortgages is clear and has massive implications for personal insolvency numbers.

Variable mortgage rates in Ireland are running at about twice the European average and were rates at just over 2% rather than the current 4.5% there are many individuals and families who would not be insolvent. It is difficult to avoid the conclusion that the banking sector in general is heartily prepared to take a hit on marginal mortgage lending in the context of the massive honey pot it enjoys from the performing loans.

Some figures to illustrate. Take the case of a €200,000 mortgage at 4.3% over 20 years. A reduction of 1% would see monthly payments reduced from €1,243 to just €1,139. In other words, the 1% difference accounts for a mortgage balance of some €17,000 over the lifetime of the mortgage or 3 years and 2 months of extra payments.

The government, Central Bank and the banks themselves would have us all believe that the banking sector has been adequately recapitalised at taxpayers’ expense yet clearly this is apparently not sufficient to allow them to break off from the mortgage teat. But with clear signals that the government is about to dilute the bank veto over personal insolvency schemes, and with the courts overflowing with repossession cases, how long can it be before it is forced to deal with the single greatest threat to personal solvency?