The covid-19 pandemic has had a massive impact on all areas of the financial world, including banks, loans, and mortgages. Mortgage arrears, or payments failed to be made by their original specified due date, had been consistently falling every year since 2013. However, Fitch predicts that arrears of at least 90 days will constitute about 14-16% of Irish home loans this year, their highest rate since the financial crisis.
Additionally, the pandemic has led to widespread payment breaks for mortgages in Ireland. Payment breaks involve the deferring of repayment of a loan to a later date; they do not change, however, reduce the total amount to be paid. In March of last year, the major banks in Ireland agreed to industry-wide payment breaks for those facing financial hardship as a result of the pandemic. This was done out of consideration for borrowers’ situations and lenders’ own desire to avoid high default rates. Ultimately, by May 2020, one in nine owner-occupier mortgage payments was on such a break.
Though this measure was taken of the industry’s own volition, soon after, the Banking and Payment Federation Ireland, the Central Bank of Ireland, and the European Banking Authority issued their own guidelines for banks offering payment breaks. Concerns over how payments would be rescheduled and reported to borrowers were raised by the Central Bank, and it was adamant that those borrowers remain informed on the continuous developments of lenders’ decision-making.
Further concerns raised by these measures include how these payment breaks will affect borrowers’ credit ratings in the future. Lenders have attempted to alleviate these concerns by definitively stating that breaks will not be used against borrowers at a later date; there nonetheless remains skepticism surrounding this declaration.
These payment breaks, initially offered for a period of three months and later extended to six months, ended in September 2020, and ever since some have been calling for them to be reintroduced. Continued automatic payment breaks have largely been rejected by lenders, even in light of subsequent lockdowns, in favor of reviewing borrowers’ situations case-by-case.
Covid-19’s effects on the mortgage market are as apparent as any other economic sector, with radical measures being taken to mitigate the damage it has caused. Moving forward, borrowers should be aware of all the options available to them; despite automatic payment breaks being discontinued, those with concerns should still talk to their lenders to see if their cases might be considered for closer review. This situation will likely continue to develop as the pandemic starts to wind down, so borrowers should pay close attention to how their payment schedules are affected.
