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Strategic, unaffordability and dual-trigger default in the Irish mortgage market

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  • Connor, Gregory
  • Flavin, Thomas

Abstract

A mortgage holder whose property is worth less than the repayment value of the mortgage may decide to strategically default, i.e., renege on the cash flow liability of the mortgage loan and surrender the property to the mortgage issuer. In other circumstances a mortgage holder may default due to personal income decline which makes payment infeasible (unaffordability default) or for a combination of strategic and affordability causes (dual-trigger default). This paper utilizes a database of troubled Irish mortgages to model the default decisions of Irish mortgage holders. We include both affordability-related and strategic-related explanatory variables. We find that both types of explanatory variables play a role in the explosive growth in Irish mortgage default after the Irish banking crisis and temporary legal prohibition of property repossession. We find that a dual-trigger model of default best fits the Irish data. Given the unusual features of the Irish market, our findings both complement and strengthen existing empirical findings from other national mortgage markets.

Suggested Citation

  • Connor, Gregory & Flavin, Thomas, 2015. "Strategic, unaffordability and dual-trigger default in the Irish mortgage market," Journal of Housing Economics, Elsevier, vol. 28(C), pages 59-75.
    • Handle: RePEc:eee:jhouse:v:28:y:2015:i:c:p:59-75
    DOI: 10.1016/j.jhe.2014.12.003
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    References listed on IDEAS

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    7. Gregory Connor & Thomas Flavin, 2014. "Unpublished Appendix:Ancillary Results and Robustness Checks on a Probit Model of Irish Mortgage Defaults," Economics Department Working Paper Series n253-14.pdf, Department of Economics, National University of Ireland - Maynooth.
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    15. Michael J. Seiler & Vicky L. Seiler & Mark A. Lane & David M. Harrison, 2012. "Fear, Shame and Guilt: Economic and Behavioral Motivations for Strategic Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40, pages 199-233, December.
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    Cited by:

    1. Savvas Antoniou & Ioanna Evangelou & Theodosis Kallenos & Nektarios A. Michail, 2022. "Estimating the Mortgage Default Probability in Cyprus: Evidence using micro data," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 16(1), pages 37-49, June.
    2. Alin Marius Andries & Anca Copaciu & Radu Popa & Razvan Vlahu, 2021. "Recourse and (strategic) mortgage defaults: Evidence from changes in housing market laws," Working Papers 727, DNB.
    3. Kelly, Robert & McCann, Fergal, 2015. "Households in long-term mortgage arrears:lessons from economic research," Economic Letters 11/EL/15, Central Bank of Ireland.
    4. Merike Kukk, 2019. "Debt repayment problems: short-term and long-term implications for spending," Review of Economics of the Household, Springer, vol. 17(2), pages 715-740, June.
    5. O’Toole, Conor & Slaymaker, Rachel, 2021. "Repayment capacity, debt service ratios and mortgage default: An exploration in crisis and non-crisis periods," Journal of Banking & Finance, Elsevier, vol. 133(C).
    6. Reinders, Henk Jan & Schoenmaker, Dirk & van Dijk, Mathijs, 2023. "A finance approach to climate stress testing," Journal of International Money and Finance, Elsevier, vol. 131(C).
    7. Gregory Connor & Thomas Flavin, 2014. "Unpublished Appendix:Ancillary Results and Robustness Checks on a Probit Model of Irish Mortgage Defaults," Economics Department Working Paper Series n253-14.pdf, Department of Economics, National University of Ireland - Maynooth.

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    More about this item

    Keywords

    Strategic default; Irish mortgage market; Negative equity;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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