Mortgage arrears continue to fall but vulture funds strengthen their grip on the market
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So called non-bank entities, or vulture funds, continue to strengthen their grip on the market in the Republic as lenders offload poor performing loans, a report by the Central Bank suggested.
The number of households in mortgage arrears has fallen against a backdrop of cooling inflation and reduced interest rates, however the firms that service the loans on behalf of vulture funds have seemingly absorbed a greater portion of accounts in arrears by the end of June compared to the same period a year earlier.
In June, 39% of all principle mortgage accounts in arrears were held by banks, whereas 61% were controlled by so-called non-bank entities, according to Central Bank figures. This compares to the same month last year when non-banks held 55% of accounts in arrears.
“Unfortunately, interest rates available in credit servicing firms can be higher than those available through the pillar banks,” said Rachel McGovern, deputy chief executive of Brokers Ireland.
Brokers Ireland said it appears the main lenders on the retail banking market in the Republic are adopting a more aggressive strategy in offloading loans in arrears.
In a recent example, Permanent TSB agreed the sale of a non-performing loan portfolio to Mars Capital, a credit services firm that manages mortgages sold by banks to vulture funds.
Permanent TSB, which trades as PTSB, completed the deal as part of a consortium arrangement with Mars Capital and certain funds managed by US based vulture fund Apollo Global Management.
The latest arrears figures also showed a continuing downward trend for mortgage accounts falling into arrears.
The number of homes in early stage arrears of over 90 days and those in long-term arrears of more than a year decreased by 4% and 6% respectively in June, compared to the same month a year earlier, continuing an ongoing downward trend.
Central Bank figures showed the number of mortgage accounts in early stage arrears stood at just over 28,000 at the end of June and represented 4% of all principle dwelling accounts in the Republic, falling to the lowest proportion since the year following the banking crash of 2008.
The decline in arrears follows a period where they crept upwards amid a cost-of-living crisis and lack of support from lenders.
Lenders contributed to rising short-term mortgage arrears levels earlier this year as they failed to provide adequate customer support services , the Central Bank previously said.
The banking watchdog published the outcomes of a review into early mortgage arrears in recent months and found that while “significant” increases have not been observed by the regulator, “stress is evident” among these mortgage customers.
Meanwhile, the European Central Bank (ECB) has fully embarked on its interest rate reduction roadmap. The first, a 25 basis point cut, was announced in June followed by another quarter point reduction in September.
The changes to monetary policy will immediately be passed on to tracker mortgage customers but other mortgage holders may be waiting some time to feel the effects of the cuts.
There were 700,955 private residential mortgage accounts for principal dwellings held in the Republic with a value of €101.7bn by the end of last June. Of the total stock, 45,843 of these accounts were in arrears, a decrease of 1,777 accounts, driven primarily by a decrease in the number of accounts in arrears less than one year.