The Year of Enforcement

Few issues in Ireland are as emotive as the subject of house repossessions.

Our deep-rooted attachment to property, coupled – if not caused by – profound historical associations with our colonised past, has rendered the prospect of repossession almost taboo.

This may be seen in some quarters as a humane and appropriate attitude but in fact it has been a big factor in a deeply dysfunctional property market and continues to exercise a distorting influence on credit markets and personal finance.

But there are signs that this state of affairs is beginning to change and with it hopefully will come a more mature and considered attitude to property and mortgage debt.

Banks have been habitually criticised for a perceived failure to get to grips with mortgage arrears since the onset of the financial crisis. But ask a banker what tool would be best deployed to further that objective and it will inevitably be repossession. This option, however, has been largely unavailable until now, partly as a function of historical factors previously mentioned, and partly because of the politicisation of debt. There is also the not insignificant factor of the Justice Dunne ruling of July 2011 that stymied repossession orders following the discovery of a legislative loophole.

That loophole has since been closed and anecdotal evidence indicates that banks, encouraged perhaps by the rise in property prices over 2014, particularly in the Dublin area, have designated 2015 as the year of enforcement, with a sizeable number of legal proceedings to be expected.

Central Bank figures show that during the third quarter of 2014, legal proceedings were issued to enforce the debt and/or security on 2,514 private dwelling home (PDH) cases. Court proceedings were concluded in 712 cases during the quarter, and in 289 of these the Courts granted an order for repossession or sale of the property. There were 1,274 properties in the banks’ possession at the beginning of the quarter. A total of 302 properties were taken into possession by lenders during the quarter. Of these, 47 were repossessed on foot of a Court Order while the remaining 255 were voluntarily surrendered or abandoned. During the quarter 169 properties were disposed of.

These figures are hardly astonishing given levels of mortgage arrears in the country. While rumours and reports of green economic shoots are everywhere, this has somewhat obscured the persistently high – if not to say dire – levels of arrears that indicate the problem is still very much with us. While the headline number of mortgage accounts for principal dwelling houses (PDH) in arrears fell for the fifth consecutive time in Q3 2014 (a decline of 6.4 percent over Q2), that still leaves a staggering total of 117,889 (15.5 per cent) of accounts in arrears at end-Q3. The number of accounts in arrears over 90 days at end-September was 84,955 (11.2 per cent of total – a fall of 6 percent).

But this does not tell the whole story. While numbers of accounts in arrears falls, a good number of these are accounted for by the rising number of restructured accounts.

A total stock of 109,911 PDH mortgage accounts were categorised as restructured at end-September 2014 – a 7.8 percent rise on the previous quarter. (Restructuring and forbearance techniques include a switching to an interest-only mortgage; a reduction in the payment amount; a temporary payment deferral; mortgage term extension; and capitalization of arrears and related interest. The figures also include split mortgages and trade-down mortgages).

A total of 27,972 new restructure arrangements were agreed during the third quarter of 2014. Of the total stock of 117,889 PDH accounts that were in arrears at end-September one-third were classified as restructured. Of the total stock of 84,955 PDH accounts that were in arrears of more than 90 days, 29.3 per cent were classified as restructured, up from 28.5 per cent at end-June. Some 64.5 per cent of restructured accounts were not in arrears at end-September 2014.

Essentially, what is happening is that mortgages in arrears are being recategorised as restructured mortgages. Given that the most popular form of restructuring is arrears recapitalisation, where the debtor ultimately pays more, it is clear that while accounts in arrears are falling, levels of distress certainly are not.

This is well known by anyone who has eyes to see. Likewise, anyone who is actually in court over this month will know that Q3 Central Bank figures are well out of date and that 2,513 repossession applications will more likely be a monthly figure rather than a quarterly figure before too long.

This is as it should be – Irish repossession levels are tiny based on international comparison – and in fact makes for a fairer marketplace (with sympathies to the debt-distressed facing the prospect of losing their home). As one industry source puts it: “On a Monday I’m dealing with a person in Dublin 6 who hasn’t paid their mortgage in two years and then I’ve got this first time buyer who wants to buy there and in the back of my mind I know that there’s this person who really shouldn’t be living there.”

In fact, a functioning market demands repossessions, particularly in the context of bankruptcy. As the same source puts it: “We have to get rid of this naïve concept that by keeping your tenancy in a property in deep negative equity that you actually own anything. You don’t. You’re in negative ownership.”