Permanent or long-term debt relief agreements on mortgages “have significantly higher success rates” than temporary agreements and are in the best interests of borrowers and lenders, a new research paper concludes. published by the Central Bank.

“This is especially true in a crisis like the one in Ireland after the 2008 crash, where shocks to borrower income were deep and lasting, and negative equity was rampant,” the authors said. the article, Claire Labonne, Fergal McCann and Terry O’Malley. writing.

“At the end of the day, although they may seem more expensive to begin with, those arrangements that adequately address repayment capacity are in the best interests of both the borrower and the lender.” Temporary arrangements “may delay default” only in cases where borrower income shocks are permanent.

Financial difficulty

The technical research paper looked at household and loan data from 2012 and 2016 and found that borrowers with “moderate capacity” to repay were more likely to receive permanent changes to their loans than “those in financial difficulty. the most serious ”.

Repayment cuts were more generous as borrowers’ ability to repay weakened, but only if borrowers had excess income to service mortgage debt. Larger reductions in repayments and lower payment-to-income ratios resulted in a decrease in defaults thereafter.

The analysis reflects the Central Bank’s concerns at the onset of the financial crisis that Irish lenders were too dependent on temporary relief measures such as interest-only periods or unsuccessful temporary payment interruptions. address the deep capital shortage and illiquidity faced by many mortgage borrowers.

This in turn raised concerns about the potentially low level of banks’ loss allowances on defaulted mortgages.

The authors said the loan repayment moratorium policies put in place during the Covid-19 crisis had further underscored the importance of understanding how debt relief measures should be designed.


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