Irish regulations require lenders to exhaust all possible solutions before repossessing properties and, as a result, the enforcement process takes longer than in most European countries — and that means arrears are high.
A report published by Moody's this week suggested mortgage loans that are more than 90 days and 180 days overdue were both in excess of 20% in Ireland’s fast growing buy-to-let sector as of December 2019.
In the shrinking owner-occupied sector, overdue loans accounted for about 8% of the market.
Owner-occupancy in Ireland has fallen faster than in any other European country, with roughly a third of the population living in rented houses in 2018.
According to the same report restructured loans, where mortgage payments are much more likely to become overdue, exceeded 15% of all loans in the buy-to-let sector and stood at around 10% in the owner-occupied sector.
"The current crisis will likely lead to a further wave of restructurings and, as previous experience has shown, delinquencies will increase," Moody's warned.
Added to this house prices remain stubbornly below their 2007 peak and in July prices fell for the first time since 2013.
The economic impact of lockdowns designed to stem the spread of Covid-19, alongside a potential disorderly UK exit from the EU will probably add further stress to Ireland’s beleaguered housing market leading to a further wave of restructurings and rising delinquencies.
That does not bode well for investors in Irish ACS, or other securities linked to the country's housing market and suggests that, rather than pay market prices, issuers will continue to rely heavily on the European Central Bank for funding.
But, with only three covered bonds publicly issued in the last five years, they probably won't be missed.