FINANCE MINISTER MICHAEL Noonan has dismissed a recent claim that over a third of mortgage arrears cases in Ireland are as a result of strategic default where borrowers choose not repay their mortgages.
In response to a parliamentary question this week Noonan poured cold water on a claim that 35 per cent of Irish mortgage arrears cases are a result of strategic defaults, saying such a claim is “wholly anecdotal”.
Strategic defaults are cases where borrowers make a choice not to repay their mortgage despite having the financial ability to do so. This is commonly done in cases where the price of a house has dropped substantially as has been the case in Ireland in the last five years.
In a recent blog post, the NUI Maynooth economics professor Gregory Connor suggested, based on US studies, that: “It seems likely that the proportion of strategic arrears in Ireland is greater than 35 per cent.”
At the end of last year a total of 94,000 or around 12 per cent of mortgages in Ireland were in arrears of 90 days or later. This week the government unveiled plans to pressure banks to address 50 per cent of arrears cases by the end of this year.
Noonan said: “The suggestion that the rising number of mortgage arrears is in part being driven by increased levels of strategic default, that is individuals deliberately withholding payments when they are in a position to service their debt in hope of gaining concessions from lenders, is wholly anecdotal.
In a response to the parliamentary question from Fianna Fáil’s Michael McGrath, the Minister added that such a claim was “not based on any robust, structured, or in-depth analysis of the situation”.
He also said that the Central Bank expects financial institutions to have “more challenging and in-depth conversations with borrowers on the reasonable priority that should be afforded to mortgage repayments” while “having regard” to other financial commitments.