Last week the credit ratings agency, Moody’s warned Ireland that their new personal insolvency legislation could increase arrears and losses on existing mortgage loans in the short term.
June, Ireland passed the “Personal Insolvency Bill” which will introduce debt forgiveness for borrowers deemed to have unsuitable mortgage debt in an effort to bolster a national recovery and strengthen bank balance sheet on a long term scale.
However, Moody’s have issued a statement warning that since debt forgiveness rather than repossession is likely to become the preferred option for lenders, residential mortgage backed securities and covered bonds could start to suffer from increase arrears in the short term; although they have said that the country’s recovery will benefit from the legislation in the long-term.
Currently, borrowers can remain liable for an outstanding mortgage loan for up to twelve years after they have defaulted and lost the property; and it is estimated that over half of Irish residential mortgage loans are in negative equity since houses have fallen by fifty percent, from the peak experienced in 2007.
Under the new legislation, which is expected to come into force next year, borrowers could enter into a Personal Insolvency Agreement with their creditors in an effort to bring the mortgage down to the relevant property’s current market-value.
If you are concerned about insolvency, the insolvency specialists at Milsted Langdon can offer honest, tailored advice designed to assist you in dealing with financial issues.
Tim Close is an accountant specialising in business insolvency, debt recovery and business rescue.