Interest rate cuts by the ECB in June might not be enough to prevent many Irish borrowers from slipping into arrears with their mortgage repayments. Illustration: Paul Scottholders in Ireland and across Europe. The expected reduction, the first cut since the ECB started to hike rates about 22 months ago, will certainly be a relief to many homeowners, particularly those on tracker mortgages.
For some borrowers, particularly those whose incomes have not risen much or have fallen since they took out their home loan, there will be a greater risk of mortgage arrears – and the recent increase in short-term arrears is evidence that this is already happening. The latestfigures reveal that early mortgage arrears rose by 3 per cent in the final quarter of 2023 – and this could be just the tip of the iceberg.
For many, there’s an expectation that once the ECB cut its rates, this will result in an immediate reduction in variable and fixed rates for consumers. While there has been some tweaking of green mortgage rates recently, as well as cuts by some lenders to their mortgage rates, we must remember that the market has already priced a number of expected ECB rate cuts in the second half of 2024 into the current fixed-rate deals.
Most banks and loan servicers are currently enhancing their loan arrears management resources to ensure that they get ahead of the problem and limit the impact of non-performing loans on their financial performance. The challenge will be to ensure that adequate resources are in place to continue with business-as-usual activities while also responding to the needs of a growing number of customers in financial difficulty.
The Central Bank is set to enhance the protections available to those in or at risk of mortgage arrears as part of its ongoing review of the Consumer Protection Code. Under one proposal put forward by the Central Bank, more information must be provided by firms to borrowers around whether or not the borrower is to be offered an ARA if they are experiencing difficulties with meeting repayments.
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