Resolving mortgage distress after COVID-19: some lessons from the last crisis

Fergal McCann () and Terry O'Malley
Additional contact information
Terry O'Malley: Central Bank of Ireland

No 7/FS/20, Financial Stability Notes from Central Bank of Ireland

Abstract: We analyse micro data on Irish mortgages and distressed households’ balance sheets in the last decade to assess the debt resolution process in the Irish mortgage market in the lead up to the COVID-19 shock. We highlight the widespread engagement of Irish borrowers with debt resolution mechanisms during a decade in which one sixth of mortgage accounts were restructured by 2016. Lenders favoured short-term mortgage modifications at the beginning of the decade and threequarters of performing mortgages with short-term modifications in 2011-2012 remained performing at end-2017. However, close to half of these cases involved a subsequent longer-term restructure, consistent with concerns that short-term modification alone is not sufficient to ensure mortgage sustainability. In other cases, an over-reliance on unsustainable short-term arrangements translated into longer-term arrears accumulation. Turning to the financial distress of households seeking a resolution to their arrears, we find an average income fall of roughly one third since mortgage origination and that one third had already reduced their non-housing expenditures to below the recommended minimum level used in the personal insolvency system. Finally, we show that larger cuts in repayment burdens and lower ex-post payment-to-income ratios are both highly predictive of successful long-term restructures.

Date: 2020-09
New Economics Papers: this item is included in nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.centralbank.ie/docs/default-source/pub ... malley).pdf?sfvrsn=4 (application/pdf)

Related works:
Working Paper: Resolving mortgage distress after COVID-19: some lessons from the last crisis (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbi:fsnote:7/fs/20

Access Statistics for this paper

More papers in Financial Stability Notes from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().