Confusion about trends and the usefulness or otherwise of some indexes is delaying activity in the market, writes JACK FAGAN

THOUGH THE overall stock of houses repossessed this year is relatively small it does not tell the full story. The reality is that many of the lenders have been smacked by a wave of mortgage defaults that could cause trouble down the line.

Underlining the increasing difficulties, mortgage brokers are reporting a fairly significant increase in the number of borrowers seeking professional advice about their finances as we head into a winter of discontent. The dilemma facing many borrowers with limited disposable income revolves around who should be paid first – the building society or the credit card company.

Unsecured creditors, like Visa and American Express, are always more vulnerable and to keep potential losses to a minimum they invariably pursue an aggressive policy to ensure they collect debts. This can often undermine the position of other creditors, particularly mortgage lenders, who then have to compete directly with the credit card companies for the scarce funds at the disposal of the unfortunate customer. The experts advise borrowers to prioritise how they pay their debts. Secured and priority creditors should be looked after first and, if there is anything left in the jam jar, it should then go to the unsecured creditors. Failure to pay institutional creditors can have a damaging knock-on effect on personal credit worthiness but, worse still, in the case of a mortgage provider it can lead to the loss of a home.

Frank Conway of the Irish Mortgage Corporation (IMC) advises customers finding it hard to make ends meet to talk to their creditors. “I would advise them to make some payment, even if it is a little short of the full amount. That way, the borrower will have a track record of attempting to make some payment. It is important to engage with the lender, especially if finances are tight.”

Other industry observers are warning that when interest rates start moving up in the early part of next year, it could send mortgage defaults soaring. In the past week we have seen some central banks move up their base rates so it seems only a matter of time before mortgages start climbing. Even a quarter point rise in interest rates can bump up mortgage payments by 3 per cent or more. Once the cheap mortgages come to an end, borrowers will have to rely on budgeting rather than borrowing to keep the show on the road.

In the meantime there has been no fall off in the number of first-time buyers looking for mortgage approval – not surprising given the availability of an attractive range of one-year fixed rates starting as low as 2.35 per cent. Considering the events of the past two years, no one expected the Irish Nationwide to announce a highly competitive three-year fixed mortgage rate of 3.15 per cent (APR 2.9 per cent). True, it is only available to borrowers who can run with a 70 per cent loan-to-value rate, but it still puts down a marker for the society before the Government pursues its plan for a “third force” in banking.

In the meantime, key players like the IMC are getting approval in principle for about 72 per cent of their mortgage applicants. Nice work, you might think, but the reality is that many of those who go through this exercise do not proceed to make a purchase. It can’t be that they are unable to find a suitable home in the desired location. The choice of homes and locations was hardly ever as extensive as at present, so one can only presume that they are holding back in the expectation of further price reductions.

The confusion about market trends has not been helped in recent months by some of the base data used in the Permanent TSB/ESRI index which often gets undue attention in the newspapers. The reality is that the Permanent TSB has largely curtailed its mortgage lending and is not, therefore, in a position to give a broad view of the emerging trends. This role rightly belongs to one of the semi-state housing quangos set up by the Government in the last few years. To be of any value, a statistics bureau would have to provide accurate and prompt data on house prices and lending trends. Not every quarter, but within two weeks of the end of each month.