High rents ‘motivate’ restructured borrowers to repay, according to KBRA

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The Republic’s “very high” level of restructured mortgages, where holders meet new loan terms, is aided by the fact that they face higher monthly rents if they lose their homes, according to the report. an American rating agency.

Credit rating agency Kroll Bond (KBRA) pointed out in a new report that on average more than 86% of mortgage loans to homeowners in the Republic whose loans were restructured as they experienced financial difficulties after the crash , have continued to fulfill their new mandate since 2015.

The rate stood at 87% in March, according to the latest figures from the Central Bank. KBRA analyst Gordon Kerr said he thought it was “the high end” of the experience of banks across Europe.

KBRA reviewed four loan portfolios consisting largely of restructured loans meeting their revised terms that had been refinanced in bond markets this year. They concluded that homeowner loans within these portfolios earn less in monthly mortgage payments than they otherwise would have to pay in rent.

In a portfolio, called Primrose Residential 2021-1, comprised of previously non-performing TSB, Irish Nationwide and Springboard permanent loans that were acquired by distressed and restructured debt companies, the average monthly mortgage payment on a Dublin property in equity own negative was € 1,133 in the first quarter. Average rents in Dublin were € 1,820, he noted, citing data from the Residential Tenancies Board.

Negative equity

The average mortgage payment on a non-Dublin building with negative equity in the portfolio was € 781, against a corresponding rent of € 1,017.

“This underlines a strong motivation of borrowers to keep pace with mortgage payments. If they fail to keep their payments, they might consider paying more rent than their mortgage payments, forcing these borrowers to potentially move to lower cost areas or downsized housing, ”the KBRA report says. .

House prices also rose to a level that pulled many borrowers out of negative equity, giving holders of restructured mortgages yet another reason to stick to their revised terms, he said.

Irish residential property prices are up 99% from their 2013 low in July, but remain nearly 11% from their 2007 high, according to data from the Central Statistics Office.

Restructured

More than 72,300 private mortgages were classified as restructured at the end of March, which equates to 10% of all home loans. So-called split mortgages account for almost 30 percent of restructured loans, while cases where arrears are added to the principal of a loan represent an additional 27 percent.

As banks and rating agencies expect non-performing mortgages to increase over the next nine months as special government Covid-19 aid for households and businesses is cut, they expect that the peak is much less severe than after the financial crash of 2008..

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