There goes another myth.
A mortgage arrears survey of 6,000 clients by MABS, the free money advice and budgeting service has found that contrary to the common view that the majority of the 95,000 mortgage arrears cases involve younger, first time buyers, instead, 70% of these indebted borrowers appear to be people aged between 41 and 65.
The MABS report paints a complex picture of people who have not only found themselves in mortgage arrears but are also struggling with a pool of unsecured debts like credit cards and personal loans. This older age group, states MABS, have found themselves in this position because their higher incomes, and greater asset wealth (especially in the higher value of their homes) during the boom years at the time allowed them to borrow to extend their homes, trade up or buy holiday homes and investment properties.
In too many cases, their motivation was to provide for an enhanced pension at retirement.
The report (http://www.mabs.ie/fileadmin/user_upload/documents/Reports___Submissions/Mortgage_Report.pdf) contradicts census data about mortgaged head of households that suggested that they include 8.7% of people who are unemployed, 12.5% who are outside the labour force such as students or carers and 78.8% who are employed.
Instead, MABS found that 37% of their clients with mortgages are unemployed, 17.8% are outside the labour force, and only 45% are working.
It also found that 83% of distressed mortgage holders in their survey had loans with the retail banks, only 13% had a subprime loan, 3% local authority loans and 1% credit union or foreign loans and that 86% of the 6,000 had other debts: 50% between two and four other debts, and 5% with 10 or more.
This data is very welcome and puts a different slant on the problems facing the banks.
Just last month the Central Bank instructed AIB, Bank of Ireland, PTSB and Ulster Bank (Danske Bank is outside the CB remit and has the lowest percentage of mortgages in arrears) to start clearing the 95,000 loans in more than three months arrears by offering “long term and sustainable” refinancing arrangements to at least 50% of these distressed debtors by the end of 2013. It is understood that a favoured solution for the banks will be a split mortgage that parks the part of the loan that is unaffordable for a number of years, with new terms negotiated for the part that can be repaid.
A loan like this might be a suitable solution for a younger borrower who has 30 or 40 years of employment and the prospect of higher earnings ahead of them. Inflation will also help devalue the true cost of repaying their new split mortgage, eating away at the capital value that needs to be repaid. It might even make it easier for the bank to write off any remaining arrears at the end of the term.
But this solution, says MABS won’t work for older borrowers. How can a split mortgage be a long-term solution for someone in their 50s or 60s (already hit by falling incomes) in a market where prices are still contracting and which will increase any negative equity on their second or buy-to-let properties?
By retirement, such a person who does not enjoy the magic effect of time on their debt, could end up with a large mortgage shortfall in retirement and little or no employment opportunity. If they have no occupational pension, they may have to depend entirely on state pension income.
MABS believes that these older borrowers need debt write-off because forbearance measures like extended repayment terms and split mortgages will not work. Along with FLAC, (the free legal advice centre) and other consumer groups, MABS are calling for the provision of independent, impartial advice to be made available to debtors negotiating new deals to be included in the revised mortgage Code of Conduct that are now being considered by the Central Bank. More suitable solutions can then be considered at are sustainable.
There is no guarantee that this advice will be made available, but financial advisors and business leaders have for some time noted that money locked in conventional private pension funds could be an ingredient in saving a business starved of bank capital. Could they also be part of a solution to a serious arrears and debt problem for older borrowers if the banks are also willing to write off and not just park some of this debt?
Time really is of the essence as the banks work under the new clearance deadlines. Difficult as it may be to find the money to pay a good advisor, anyone who recognizes their own situation in this MABS report should act as soon as they can to secure that impartial advice.