Archive for May 21st, 2010

The Irish Banking Federation (IBF), in conjunction with PwC, yesterday released its quarterly statistics on lending by IBF members, who according to the IBF are estimated to comprise 95% of the mortgage market in the State.

Just 6,954 mortgages were drawn down during the quarter for a total of €1.2bn. This is down by almost 90% by volume and value since the overall peak in Q4, 2006.

Q1, 2010 was down nearly 40% from Q1, 2009 by both volume and value. However Q1,2010 was down by 30% by volume and value from Q4,2009. The pace at which new mortgage lending is plummeting is accelerating. Q1 traditionally has the lowest mortgage figures for the year and Q3 the highest. There is no significant change to the drop off in activity even if top-ups and remortgages are excluded ie mortgage transactions reflecting property transactions have also fallen by the figures shown.

Average mortgage values have fared less badly with the average mortgage in Q1, 2010 the same as Q1, 2009 and down just 1% from Q3, 2009. And indeed the fall from peak has been only 16%. The fall from peak average values is distorted by RIL and remortgages which are down 30-40% offset by movers who are only down 12%. We do not know how average Loan-to-Value %s have moved since the peak but given there are no longer 100% mortgages available and LTVs are lower, the implication is that there has been little movement in the average price of a property bought with a mortgage – that is curious given the general acceptance that property prices are generally accepted to have dropped 30-50%.

In Q1, 2010 there were draw downs on just 4,224 mortgages by First Time Buyers, Movers and Residential Investment Letting borrowers. Given that the Permanent TSB/ESRI has an estimated 20% of the mortgage market, this would imply that the recent Quarterly Permanent TSB/ESRI house price index may have relied on less than 1,000 transactions.

First Time Buyers. Given their particular significance to the property market, the following is a closer look at First Time Buyers.  2,327 mortgages with a value of €469m were drawn down by First Time Buyers during the quarter. Below are the graphs of volume of lending and average value relating to First Time Buyers back to Q1, 2005 (when the present series started).

Numbers of FTB mortgages (volume)

FTB – Average value of loans (€k). Note the LTVs are not available.

The full spreadsheed of data going back to Q1, 2005 is available from the IBF here.

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Moody’s yesterday released its periodic Irish Prime RMBS Indices report for March 2010 – the full report is only available to Moody’s clients but one reported finding in today’s Irish Times is that Irish residential property is predicted to fall by a further 18%  (UPDATE: Although the methodoly remains unclear, the actual report states “House prices have fallen by 33.1% from the peak reached in March 2007. The contracting economy and negative credit growth point towards further declining demand for housing and further drops in house prices. Moody’sEconomy.com expects house prices to fall another 18% before resuming growth in Q2 2013”) – Moody’s methodology for making this prediction is unclear and the company has a mixed record in forecasting and rating. However the prediction should be taken seriously and would tend to make the Minister for Finance, who oftentimes refers to Ireland’s ratings and seems to have a high regard for ratings agencies, uncomfortable in his statements at the start of April 2010 that current residential prices were realistic and buyers could buy with confidence. If the 18% fall is actualised, then it will place a further burden on NAMA who have used a valuation date of 30th November, 2010 for acquiring €81bn of property-backed loans.

The report also says that 4% of mortgages are more than 90 days impaired. Although based on 1/3rd of total mortgage lending that figure does show a small absolute (though relatively significant) increase from the 2.5% over-90 day impaired loans shown in the Financial Regulator, Mathew Elderfield’s last report on mortgage lending in the State for the quarter ending 31 December 2009. These figures exclude the estimated 30,000 mortgages that have been restructured.

If another 18% comes off existing property values that would bring us to over 45% off peak and according to NCB Stockbrokers that would mean that 300,000 of the 800,000 mortgages would be in negative equity with average negative equity of over €50,000. Ireland presently has precious little repossessions (<500 per annum). Is there a tipping point when that drip would become a torrent (cf Nevada, 2.7m population, -56% from peak property values, 70% negative equity and 180,000 annual foreclosures).

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