THE Central Bank of Ireland released figures in December last year showing the number of Irish principal dwelling house owners in mortgage arrears for more than two years is over 22,000*.

That’s despite the overall number of mortgage accounts in long-term arrears declining by 12.8% year-on-year** and that, during the period of the pandemic, there was no surge in arrears as payment breaks offered by banks were not classified as such.

However, as Financial Brokers you’ll be very aware that as a result of the financial crisis in the late 2000s and the economic downturn that followed, around 1 in 8*** mortgage holders (at its highest in 2013) fell behind on their payments.

Leading protection provider Royal London contends that many families who fell into mortgage arrears during this time may now be underinsured on their mortgage protection policy.

This is regardless of whether they are still in arrears or have entered into restructuring arrangements with their lender.

Thousands of struggling mortgage holders left financially exposed According to the Central Bank of Ireland, the number of principal dwelling house mortgage accounts that were classified as restructured at end-September 2021 was 68,718.

*Proposition Lead at Royal London, Barry McCutcheon, commented: “We believe a significant proportion of the over 68,000 families who have found themselves in this position may not have reflected these changes in their mortgage protection cover, and therefore may have become underinsured as a result.

As you will know, mortgage protection policies generally cannot be restructured, and in most cases a new policy would need to be put in place to reflect the fact that the mortgage isn’t reducing or to match the revised mortgage agreement. Understandably, this could come as a great source of shock and worry for a client who is a surviving spouse.

This unknown underinsured amount could mean they are left with a shortfall on their mortgage at a time when they can least afford it. And while it’s quite possible that the lender might write off the uninsured balance in such an instance, it would be unwise for any mortgage holder to rely on the possibility of such ‘generosity’ on their behalf.”

In arrears and underinsured Royal London looked at a couple who had taken out a €300,000 mortgage for 30 years in 2006, the couple also took out the equivalent amount of mortgage protection.^ In 2016, their bank agreed to switch them to interest-only for four years and they returned to full repayments in 2020.

Should either pass away, the individual left behind would currently have a shortfall of €11,569 – which is the difference between what they owe and what a typical mortgage protection policy would cover. Barry explained, “When the interest-only period ends, the lender will re-establish repayments in one of two ways.

They may extend the term sufficiently to ensure that if the homeowner resumes the monthly repayments at the original amount the loan will clear, usually after an extra couple of years. Or they can increase the regular repayment amount so that the arrears are repaid over the original mortgage term. Either way, there’s likely to be a shortfall. The higher the repayment, the quicker the shortfall may reduce.”

There are a number of situations where mortgage holders in arrears enter into special agreements with their lenders. It would then be necessary to review or amend the mortgage protection cover in place to avoid any underinsurance. The 68,718* restructured mortgages are currently subject to measures, like the following, which are designed to help the homeowner stay in their home:

1. Split Mortgage
2. Arrears Capitalisation
3. Other
4. Term Extension
5. Reduced Payment (greater than interest only)
6. Temporary Interest Rate Reduction
7. Interest Only (over one year)
8. Interest Only (up to one year)

See chart. **