Research on the Impact of Repossession Risk on Mortgage Default

An Economic Letter by Terry O’Malley, published today, considers whether reducing the risk of repossession resulted in more Irish borrowers defaulting on their mortgages. An Economic Letter, entitled Did the Dunne Judgement Lead to More Mortgage Defaults? (PDF 438.84KB) specifically considers the impact of a high court ruling in 2011, known as the “Dunne judgment”, which temporarily removed a bank’s ability to lawfully repossess a home.

The key findings are:

• Borrowers defaulted on mortgages after the judgement at a higher rate than if the repossession regime at the time had been legally upheld.
• Borrowers who defaulted were more likely to be in negative equity, more likely to have missed payments before the judgement, more likely to have slightly lower incomes on average and were more likely to face higher interest rates and be on a variable rate mortgage.
• The default rate is found to have been one half a percentage point (0.5%) higher on average in each quarter after the judgement than would have been otherwise expected, given the difference in the default rates before the judgement.

The issues and methodology are explored in more detail in a Research Technical Paper entitled The Impact of Repossession Risk on Mortgage Default, also published today.

The views presented in Economic Letters and Research Technical Papers are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.

Library of Economic Letters

Library of Research Technical Papers