Dealing with Mortgage Over-Indebtedness

Sinéad Pentony25/08/2011

Sinéad Pentony: The issue of mortgage indebtedness has re-emerged. The number of mortgage holders in arrears for more than 3 months has reached 50,000 and this figure will continue to rise. Although we often hear that the level of repossessions in Ireland is low compared to our nearest neighbour the UK, the latest Global Distressed Property Monitor survey from the Royal Institution of Chartered Surveyors published today puts the scale of the problems in the Irish property market in a global context.

The survey finds “that Ireland has the highest projected number of foreclosures and sales by owners who cannot meet rising repayment fees”. The RICS survey also highlights the problems in the Euro periphery (Ireland, Spain and Portugal) where “the property market in these countries is riddled with both a high number of foreclosures and brand new homes which can't attract buyers. To boot, investment funds have lost interest in these markets as their economies try to balance bank bailouts and rising government deficits.”

The issue of mortgage over-indebtedness has been exacerbated by austerity measures, with more and more people going into arrears as their income declines through pay cuts and through unemployment or underemployment. Unsustainable mortgages are not just a problem for individual mortgage holders; they are a problem for the wider economy - given the scale of the debt overhang. Over-indebtedness has a strangling effect on the economy as a growing proportion of spending goes towards trying to service debts from a declining income.

The economy is caught in just such a debt deflation stranglehold. Historical experience has shown that lingering private debt overhangs delay the exit from stagnation because private spending takes longer to recover. The next three years of cuts will amplify this phenomenon.

Although Ireland is not unique in experiencing the problem of unsustainable mortgages the vast scale of the problem requires some fresh thinking and consideration of measures that have been tried and tested in other countries. Debt forgiveness (write-down) and debt restructuring are just two such measures.

In recent months there have been reports of individuals negotiating a write-down of their mortgage debt following the sale of distressed properties. However, these measures need to be part of a robust policy framework that mortgage holders and lending institutions can work within. Radical problems sometimes require radical remedies, and while proper analysis of the likely knock-on effects is required, it makes no sense to take any option off the table at this point.

Posted in: Banking and financeEconomics

Tagged with: personal debtmortgages

Sinéad Pentony

Sinead Pentony

Sinéad Pentony is Associate Director with the Trinity Foundation, Trinity College Dublin working towards securing private funding and other support for a range of projects - primarily from individuals, companies and foundations.

Her fundraising portfolio includes supporting the Schools of Computer Science and Statistics; Mathematics; and Pharmacy and Pharmaceutical Sciences to deliver on their strategic priorities with the help of philanthropy support and sponsorship.

She has been working in the not-for-profit sector since the mid-1990s and generating income and fundraising has been a key part of her roles. She develops strategic relationships with a view to delivering mutually beneficial outcomes.

Her previous roles have involved undertaking research and policy work across a variety of public policy areas, policy influencing and advocacy work with a wide variety of stakeholders, public communications, lecturing, and leading or supported strategic planning and review processes aimed at refocusing the work of programmes and organisations in a changing context.

Sinéad was previously head of policy with TASC.


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