The Mortgage Crisis in Ireland and Household Resilience

Ireland experienced a decade of economic prosperity from 1997 to 2007, a period which saw strong economic growth, large scale job creation and an unparalleled residential property boom. During the boom housing supply increase dramatically and house prices increased exponentially. However, since 2007 there has been a severe and sharp economic recession, in large part caused by excessive property lending by banks and other financial institutions. The economy has contracted, joblessness has increased from 3% to 14%, incomes reduced, some banks have been nationalised, government spending cut and the country has been subject to a ‘bailout’ by the troika of the International Monetary Fund , the European Union and the European Central Bank. Like the general economy, the residential property market has contracted sharply. In particular, house prices have, since 2007, fallen by an average of 55%, with some commentators suggesting that they will fall 70% from their peak.
As unemployment has increased and incomes reduced, there has been a sharp rise in the level of mortgage arrears. At the beginning of 2012 there were 77,630 households in mortgage arrears, representing 10.2% of outstanding mortgages by number and 14% of mortgages by value. These figures are likely to worsen. This is a serious and potentially catastrophic social problem but government have been slow to address the issue. Most government and banking responses to date have been related to forbearance of some kind, for example switching households to interest only mortgages or extending the term of the mortgage. The more controversial issue of debt forgiveness has to date been ruled out. This paper, using a large scale survey of households in the Dublin area, assesses the extent to which households are under mortgage stress (including arrears), examines the impacts (financial and social) of the crisis on households and, in particular, explores the strategies used by households under mortgage pressure to cope with the financial pressures of repaying their mortgage. By exploring what kinds of strategies are used to withstand and cope with these pressures the paper will contribute to the debate on resilience at times of economic retrenchment.