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Payment breaks source of temporary relief at time of extraordinary financial stress – Central Bank

The Central Bank has published an analysis of payment breaks taken by mortgage holders and firms which shows the overwhelming majority of borrowers had no problem servicing their loans prior to the Covid-19 pandemic.  

The analysis of payment breaks on mortgages is based on data at the end of May from the five main banks. 

At that stage, there were 67,000 payment breaks covering €9.5 billion in loan balances which represented 9.7% of private dwelling homes (PDH). 

According to the Central Bank’s own internal estimates, just over half of these breaks remained in place at the end of last month. 

Mortgage accounts which already had a history of forbearance before Covid were twice as likely to have a payment break, the Central Bank found. 

Borrowers working in sectors worst affected by the fallout from the pandemic were also more likely to avail of payment breaks, it added. 

An analysis of the geographical spread of the payment breaks shows a higher than average take up in the Dublin commuter belt but also in Kerry, Donegal and Wexford.

The Central Bank’s analysis suggests this may be explained by a higher percentage of borrowers in these locations working in food service and accommodation. 

A proportion of borrowers who originally took out their mortgages in the boom years took breaks, compared to those who borrowed in the early part of the last decade.

53% of all payment breaks are on mortgages taken out between 2004 and 2008. Just 7% of breaks were on mortgages taken out in 2012 and 2013, the Central Bank figures show. 

In a separate study, the Central Bank examined the types of companies that availed of payment breaks. 

It found that more small and medium sized firms (SMEs) than large corporates availed of the breaks and the sector in which the company traded was the best predictor of what firms took the break.  

The study also found that the “overwhelming majority of borrowers” showed “no explicit signs of vulnerability prior to the shock”. 

It found that just over 20% of the balances for SME loans were subject to a break while just 6.5% of large corporate loans were.

The highest incidence of loan breaks was amongst SMEs in the accommodation and food sector with 59% taking a break. 48% of SMEs in the Arts, Entertainment and Recreation sector participated and 19.4% of manufacturing companies also took part. 

The Central Bank concluded that the payment breaks gave companies valuable relief at a time of “severe deterioration in trading conditions due to the pandemic”.  

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