Surge in Non-Prime Mortgage Arrears Observed Over Three Years

Research conducted by Morningstar DBRS has highlighted a significant rise in arrears within the Irish mortgage sector, particularly affecting non-prime borrowers. This trend is attributed to increased mortgage payments and financial strain for certain borrowers.

The findings indicate that portfolios of non-prime mortgages, particularly those distributed by nonbank lenders, are beginning to show signs of decline. Those who are most impacted include vulnerable borrowers with restructured loans and individuals holding variable-rate mortgages.

This uptick in delinquency follows a lengthy period where arrears were on a downward trend, as borrowers benefited from historically low interest rates for over a decade, coupled with lenders adjusting repayment plans for those in financial difficulty.

Morningstar DBRS reported, “The combination of rising mortgage repayments and decreasing disposable income has led to a noticeable rise in arrears for non-prime residential mortgage-backed securities (RMBS), with total arrears nearly quadrupling since early 2022.”

The agency suggests that arrears may have already reached their peak, noting that recent cuts in interest rates by the European Central Bank, including a reduction last Thursday, are likely to alleviate some of the financial burdens faced by borrowers.

In contrast, prime loans that are issued by major banks are performing better than the average in Europe. The Central Bank of Ireland’s macroprudential regulations have been credited for this stability.

According to the report, “Prime originations undergo stringent underwriting processes, which means that the borrowers generally experience high levels of mortgage affordability.”