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Strategic, unaffordability and dual-trigger default in the Irish mortgage market

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  • Connor, Gregory
  • Flavin, Thomas

Abstract

A mortgage holder whose property is worth less than the repayment value of the mortgage may decide to strategically default, i.e., renege on the cash flow liability of the mortgage loan and surrender the property to the mortgage issuer. In other circumstances a mortgage holder may default due to personal income decline which makes payment infeasible (unaffordability default) or for a combination of strategic and affordability causes (dual-trigger default). This paper utilizes a database of troubled Irish mortgages to model the default decisions of Irish mortgage holders. We include both affordability-related and strategic-related explanatory variables. We find that both types of explanatory variables play a role in the explosive growth in Irish mortgage default after the Irish banking crisis and temporary legal prohibition of property repossession. We find that a dual-trigger model of default best fits the Irish data. Given the unusual features of the Irish market, our findings both complement and strengthen existing empirical findings from other national mortgage markets.

Suggested Citation

  • Connor, Gregory & Flavin, Thomas, 2015. "Strategic, unaffordability and dual-trigger default in the Irish mortgage market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 59-75.
  • Handle: RePEc:eee:jhouse:v:28:y:2015:i:c:p:59-75
    DOI: 10.1016/j.jhe.2014.12.003
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    References listed on IDEAS

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    Cited by:

    1. Kelly, Robert & McCann, Fergal, 2015. "Households in long-term mortgage arrears:lessons from economic research," Economic Letters 11/EL/15, Central Bank of Ireland.
    2. Gregory Connor & Thomas Flavin, 2014. "Unpublished Appendix:Ancillary Results and Robustness Checks on a Probit Model of Irish Mortgage Defaults," Economics, Finance and Accounting Department Working Paper Series n253-14.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.

    More about this item

    Keywords

    Strategic default; Irish mortgage market; Negative equity;

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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