Research by Central Bank of Ireland economists shows that most Irish buy-to-let (BTL) mortgages in arrears have been funded by tracker mortgages that have become more affordable through the financial crisis as they have been linked to plunging European Central Bank (ECB) interest rates.
The low rate of repossessions, rising rents in Dublin coupled with falling interest costs, and a period of two years for the Oireachtas to fix a loophole in a 2009 law, has given rise to speculation of political protection for some investors.
According to the Central Bank research 70% of BTL mortgages that have been in arrears for 90 days or over, are funded by tracker mortgages.
At end-December 2013, there were 145,530 residential mortgage accounts for buy-to-let properties held in the Republic of Ireland, to a value of €29.7bn. Some 39,250 (27%) of these accounts were in arrears, compared to 40,396 (27.4%) at the end of the third quarter. Of this total stock of accounts, 30,706, or 21.1%, were in arrears of more than 90 days, reflecting a decrease of 1.5% over the quarter. The outstanding balance on BTL mortgage accounts in arrears of more than 90 days was €8.7bn at end-December, equivalent to 29.2% of the total outstanding balance on all BTL mortgage accounts.
ECB interest rates fell from 4.25% in July 2008 to 0.25% in November 2013.
According to the paper, "Analysing Mortgage Arrears with Aggregated and Granular Data" variable-rate mortgagees who have seen rises in rates to offset the falling tracker rates, account for most of the arrears related to principal dwellings.
While tracker mortgages, as a whole, outnumber variable-rate products, the latter accounted for 51% of the long-term arrears total, and 64% of account holders in long-term arrears.
At a conference held Tuesday in Dublin by the Central Bank, the results of another paper, "Deleveraging in a Highly Indebted Property Market," were presented. The study found that well-off retirees in Ireland had been better at cutting their debt burden during the crisis.
As a consequence, the study said certain less well-off sections of the mortgaged population were likely to remain significantly indebted as they remain unable to address “their leveraged position”.
We will post links when available to the papers.
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