The State's competition watchdog has called for a more effective home-repossessions regime in Ireland, under a series of recommendations to encourage new players into the country's "dysfunctional" mortgage market.
In a report by the Competition and Consumer Protection Commission (CCPC) on options to shake up the mortgage market, the authority said restrictions in Ireland on lenders being able to “possess loan security” in the event of a mortgage default have the effect of raising loan rates for the wider market.
“Objectively, the scale of non-performing loans in Ireland is high relative to European peers and the number of loans in arrears over 720 days is exceptionally high. Despite this, repossessions are very low,” it said, adding that the high number of backlogged legal cases speaks “of a courts system that could work better”.
Speaking to The Irish Times, CCPC chairwoman Isolde Goggin said the uncertainty lenders and borrowers face when cases end up in the legal system makes it difficult for banks to "price risk", serving to discourage new entrants to the market.
Repossession rate
The 158-page report, drawn up following a review carried out by the body in adherence to terms of the programme for government last year, noted that the repossession rate in Ireland was 0.7 per cent of loans in default as of last year, compared with 1.7 per cent in the UK, despite the fact that mortgage arrears on the other side of the Irish Sea are at their lowest level since 1994.
Data published by the Central Bank last week showed that 10 per cent of owner-occupier loans remained in arrears at the end of March in Ireland, despite years of restructuring and forbearance by the banks. About 43 per cent of all problem cases are more than two years behind in repayments.
Under Central Bank codes, lenders can start legal proceedings to repossess a home only once it has made every reasonable effort – through a four-step process – to restructure or they can prove the borrow has not been co-operating.
“Compared to many other European jurisdictions, including those with lower levels of non-performing loans, the legal process through which lenders effect security takes substantially longer in Ireland,” the report said. “The time taken to go through the court process for residential property repossessions has also meant that there will continue to be a backlog of cases in the system for some time.”
The CCPC cited evidence during its review from an unnamed bank that it can take between 18 months and 72 months to secure possession a property, compared with between nine and 12 months in the UK and six months in Denmark.
The commission said that while banks were calling for repossession practices to be “streamlined, there was little support for the wholesale implementation of repossession, particularly for family homes”.
Frustration
However, respondents expressed “some frustration” about the apparent lack of consequences for those who refused to engage with lenders.
The CCPC has recommended that suspended possession orders should be used for borrowers to engage and reach a deal with a lender. It also called for an interdepartmental working group or Oireachtas committee to weigh potential changes to possession policy.
Meanwhile, the CCPC also said Ireland needed to do “considerable work” to encourage borrowers to switch lenders and boost competition in the market. The organisation proposes working with the Legal Services Regulatory Body to facilitate the introduction of “e-conveyancing”.
It also said the increasing reliance by banks on “auxiliary items and mortgage add-ons rather than rates” to entice new mortgage customers could have the ability to “mislead customers in their choices”.
The CCPC also recommended that Ireland look, in the long term, at long-term bond funding structures for mortgages, rather than the current reliance on deposits, so that lenders could offer long-term fixed rates to mortgage holders.
