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What Lies Beneath? Understanding Recent Trends in Irish Mortgage Arrears

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  • Lydon, Reamonn

    (Central Bank of Ireland)

  • McCarthy, Yvonne

    (Central Bank of Ireland)

Abstract

This paper presents a comprehensive analysis of Irish mortgage arrears using a new loan-level dataset which incorporates data from four Irish banks. We identify the main characteristics of accounts in arrears and examine the role of ability-to-pay and equity factors in the recent hike in mortgage delinquency rates. We find that borrowers who took out their mortgage for buy-to-let purposes, those with high loan-to-value ratios and those with high repayment burdens are all more likely to be in arrears. This is also the case for borrowers with properties in regions that have suffered more severe economic shocks, as proxied for by changes in the regional unemployment rate. Our empirical analysis suggests that affordability issues and general macroeconomic developments have had an important and sizeable effect on arrears trends over time, suggesting that policy efforts to target the growing level of mortgage arrears need to take account of these issues.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 14/RT/11.

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Date of creation: Nov 2011
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Handle: RePEc:cbi:wpaper:14/rt/11

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Keywords: Debt; Mortgage Delinquency; Arrears; Default;

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References

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  1. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
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Cited by:
  1. Kelly, Robert & McQuinn, Kieran, 2013. "On the hook for impaired bank lending: Do sovereign-bank inter-linkages affect the fiscal multiplier?," Research Technical Papers 01/RT/13, Central Bank of Ireland.
  2. repec:cbi:wpaper:10/rt/11 is not listed on IDEAS
  3. Lydon, Reamonn, 2013. "Do households with debt problems spend less?," Economic Letters 02/EL/13, Central Bank of Ireland.
  4. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics, Department of Economics, Central bank of Iceland wp59, Department of Economics, Central bank of Iceland.
  5. repec:cbi:wpaper:12/rt/11 is not listed on IDEAS
  6. Gregory Connor & Thomas Flavin, 2013. "Irish Mortgage Default Optionality," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n243-13.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.

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