Buy to let landlords in Ireland face wholesale repossessions as mortgage arrears spiral out of control.
Banks have been urged to have courage and act against landlords in debt by Fiona Muldoon, a director of Ireland’s central bank.
She criticised banks, indicating that a ‘wait and see’ approach has become the strategy of choice in dealing with non-performing loans, with interest only modifications prevalent, while explaining non-performing loans are a risk to the economy if not dealt with adequately.
She revealed shocking statistics about the buy to let market in Ireland while speaking at the Irish Banking Federation National Conference.
Out of around 150,000 buy to let mortgages in Ireland, a third are in serious arrears or have rescheduled payments.
Banks in denial
The arrears represent 11 billion euros of debt – with 37,000 landlords in arrears and 11,000 ‘treading water’ paying interest only or reduced repayments.
At 20%, buy to let mortgage arrears are running at double the rate of that for residential mortgages.
“A culture of leadership is missing in Irish banking: many of you may dislike me for saying this but arguably, if it was also missing in the creation of the credit bubble then it is still missing,” said Muldoon
“They were urged to show the courage to act on the household debt crisis and were told that the arrears rate for buy-to-let mortgage arrears had risen to 20%.
“What is it that we are waiting for on mortgage arrears? The hope for an economic recovery, hope that house prices will come back, hope that the personal insolvency act will handle the issue for you? This is the stuff of denial.”
Many buy to let landlords are facing a stark choice over their investments in Ireland.
House prices have plunged by around a third, leaving many in negative equity, while if tenants do not pay rents, the landlords have to find money to keep the mortgages going.
The banks don’t want the properties because they can’t sell them and do not want to become landlords themselves – while they can’t or won’t lend to buyers as they struggle to protect their balance sheets.
Meanwhile, John Moran, secretary-general, department of finance, told the conference that personal and housing debt is stopping economic growth
“It is time to find the escape route out of a vicious cycle and recognise much of the debt will never be repaid,” he said.
“It is critical now that the banking sector move speedily and in a determined fashion to resolve all of the arrears situations, by enforcing mortgages where people can pay and by resolving excessive debt in other situations.”