This morning the Irish Banking Federation (IBF), which represents more than 95% of mortgage lending in the State, released mortgage lending date for quarter two of 2011 – the data is here and the press release is here. Although the figures continue to paint a picture of a property market that has seized, there is an improvement on the historically low figures published for quarter one.
Overall €624m was advanced during Q2, 2011 which is 8% more than the €577m advanced in Q1, 2011. Most of the increase is attributable to First Time Buyers (up 13% or €31m) and remortgages (up 65% or €26m). Movers, Buy to Let buyers were both up 5%. Mortgage top-ups went against the trend and were down 31% or €22m.
So quarter on quarter was encouraging, though the value of all categories is still down 50% on a year ago in Q2, 2010. And values are down 90%+ from the peak of €10bn a quarter in 2005 and 2006. It should be said that there appears to be some seasonality to mortgage lending and in each of the past six years (2005-2010 inclusive) there has been an increase from Q1 to Q2, though in the past three years that quarterly increase has not prevented the downward trend in lending.
In terms of volumes, some 3,551 mortgages were advanced during the quarter, up 9% or 292 from the 3,259 advanced in Q1, 2011. Again First Time Buyers (up 16% or 202) and Remortgages (up 70% or 182) accounted for most of the increase. There were 2,643 mortgages advanced for the purchase of property, the remaining 908 were remortgages or mortgage top-ups.
The average value of mortgages continues to decline, down 1% in the quarter from an average of €177k to €176k. First Time Buyers are now taking out average mortgages of €180k, down 2% from €184k in Q1. Movers are taking out mortgages of an average of €218k which is 7% down from the €234k in Q1. Buy to Letters buck the trend and are now taking out average mortgages of €149k compared with €144k in Q1. Mortgage top-ups and remortgages are more or less unchanged. Remember you can’t tell a great deal about the value of property from these averages because they may represent different loan to values (LTVs) eg at the peak mortgages with LTVs of 100% were not uncommon, today mortgages are typically 70-90%.
Q2 was the quarter in the immediate aftermath of the bank stress tests in March 2011, which at the time were held out to have engendered more confidence in Irish banking. However Q2 was a period of intense turbulence in the EuroZone with Greece to seek a second bailout. The two pillar Irish banks are supposed to be lending €10bn to the economy each year but unlike the UK where the Project Merlin initiative keeps track of new lending, Ireland seems to have an objective with little practical measurement. Lastly commenting on the data this morning, IBF Chief Executive, Pat Farrell, said “current mortgage market activity reflects the general macroeconomic environment. In these challenging times manageable borrowing and prudent lending are to be expected.”
The analysis of the Q1, 2011 statistics is available here.
[The above statistics tables are extracted from a spreadsheet which is accessible here]
NAMA Wine Lake 
Quick, question – in table 1 (or any of them) how are you calculating your peak to now figure?
Example: in Q3 2006 we have 10,962m (peak in that table anyway) and now it is 624m. i,e, not a 92% fall.
Are you measuring total credit outstanding in this instance rather than flows?
Disregard please,
Amazing you can spend 10 minutes looking at somthing and only realise the siliness of what you ask seconds after you ask it.
The annual decline in the number of mortgages for the first quarter 2011 over the first quarter 2010 was 53.1%, the annual decline for second quarter 2011 over the same quarter in 2010 was 54.6%.
The value decline was 52.7% for the first quarter and 52.1% for the second quarter.
Looking at the annual figures there is no improvement in the overall market at all, rather just the normal increase that naturally occurs in the second quarter.
Sales at this level are hardly scratching at the number of houses on the market. I am in particular intrigued at the Executor market. There must be an incredible number of houses waiting to be sold from this source alone.
The fact that fully one quarter of all lending was remortgages or mortgage top ups tells its own tale. IMHO, most of this lending would reflect distressed loans that the banks had to restructure. Just the beginning… the not-so-small spring that will become a river.
It does indeed tell a tale WSTT – in recent years that figure has been closer to 30%…
@NWL
Excellent information.
Visually adding your figures I am estimating that approx €100 billion in mortgages were handed out in the period 2005-2011.
As repayments of capital are very low in the first years of a mortgage and allowing10 % for these capital repayments, we can approximate that €90 billion of these mortgages are still outstanding in 2011.
But I understand that there are only €116 billion in mortgages outstandiing in March 2011.
And I understand that the covered banks stress test provision for the ‘Irish’? mortgages is approx €9.5 billion.
But hang on.
Are we really suggesting that of the €90 billion outstanding in mortgages issued since Jan 2005, only €10 billion will not be paid? (Albeit the €10 bilion is the stress test amount for the next three years).
Based on the figures you have produced, I would have to question very seriously the adequacy of a €10 billion reserve of the total mortgage book of €116 billion. I would do so on the basis that the value of mortgages is very much skewed to recently issued (since 2005) mortgages and that the net incomes of the mortgagees would have been greatly reduced in the past few years.
In adddition I would say that dividing the value of total mortgages by the total number of mortgages outstanding to get an average vale, could produce a result that would not reflect full nature of the problem.
It would be better to use pre-2005 and post 2005 figures to get a better picture of the problem.
@ Joseph
I think you’re getting a couple of figures mixed up here.
The €116 billion mortgage figure from the end of March 2011 (per the Financial Regulators mortgage arrears data) only includes owner-occupied mortgages. Buy-to-let mortgages are additional again.
Of this €116 billion about two-thirds, or €75 billion, are in the covered banks. Other banks such as Ulster Bank, National Irish Bank, Bank of Scotland (Ireland) account for the other third.
The covered banks also had a buy-to-let loan book of around €24 billion at the time of the stress tests, to give a total mortgage book of around €100 billion.
Was any of this securitised so that someone else is carrying the risk?
Anyone, of this €100 billion mortgage loan book, the BlackRock adverse scenario peojects nearly €17 billion of lifetime losses. The Central Bank’s “three-year projected losses” means that €10 billion was provided to cover the losses.
Of these €17 billion of losses, €10.5 billion was on the €75 billion of owner-occupied loans (14%) and €6.5 was on the €24 billion of buy-to-let loans (26%),
There are currently €9.5 billion of owner-occupied mortgages in arrears of 90 days or more. We don’t know what proportion of these are in the covered banks. If it is in the same proportion of the overall amount than something around €6 billion are in arrears in the covered banks. Nearly three-quarters of mortgages in arrears are more than 180 days in arrears. Updated data from the Financial Regulator is due shortly.
We cannot use the figures in the IBF data to suggest that €90 billion of outstanding mortgages are as a result of borrowing since 2005. Lots of mortgages are taken out to repay existing mortgages.
Table 5.1 of the Central Bank’s Banking Statistics shows that banks operating in Ireland has €74 billion of loans for house purchase to Households on their books in January 2005. This series peaked at €127 billion in May 2008. After that it is hard to make comparisons as banks left the Irish market and hence left the Banking Statistics.
There is no doubt that mortgage debt is skewed towards the post-2005 period but it is not a 22/78 split as you suggest. It might be closer to 40/60 but I couldn’t be sure.
I think a €10 billion provision over the next three years for a €100 billion loan book is plenty. If we assume that the house re-possessed is equal to 40% of the value of the loan than there would have be around €17 billion of mortgage defaults to consume the full provision. If the average balance defaulted on is €300,000 there would have to be nearly 60,000 defaults. These figures are perhaps conservative and it is possible to suggest that 80,000 or more defaults have been allowed for.
@Seamus, many thanks for that.
Morgan Kelly was in action again yesterday in Dublin at the Irish Society of New Economists (ISNE) conference
http://www.isne2011.com/
His presentation is not available yet though the ISNE site has a list of his past work
http://econpapers.repec.org/RAS/pke135.htm
The Irish Times today reports on Morgan’s defence of his 10,000 mortgages of €1m+
http://www.irishtimes.com/newspaper/ireland/2011/0819/1224302708417.html?via=rel
As well as a report on Morgan’s call for mortgage debt forgiveness
http://www.irishtimes.com/newspaper/frontpage/2011/0819/1224302709429.html
@NWL
I have read those reports. His numbers seem even more erratic!
He claims there is around €55 billion of owner-occupied mortgages and uses this to come up with his €5-€6 billion cost for a debt-forgiveness scheme. There is more than twice as much such mortgage debt in Ireland at €116 billion!
I can’t believe he is still sticking to his guns on the 10,000 mortgages. He has changed his tune a little and no claims they are investment mortgages. I still can’t see there being 10,000 mortgages of more than €1 million out there if you combine owner-occupied and buy-to-let mortgages and by adding interest-only and repayment mortgages.
The level of debt isn’t large enough to suggest that the tail is that long. He says he has done some econometric work on this but I assume he means statistical work.
@ WSTM In Q2 2008, 52.5% of mortgages by number and 38.5% by value were top ups or re-mortgages. The Q2 2011 figures are tiny in comparison. The total value of top ups & re-mortgages were €2,910M then versus just €115M now. Re-mortgages would include people coming off fixed rate loans and have moved to a new provider. It may not involve borrowing any additional money.
@ Joseph – We do not have the pre 2005 figures because the Central bank never bothered to collect them. We only have these figures courtesy of the IBF.
The problem I would suggest is that some people re-mortgaged or topped up on a number of occasions, extracting cash as the nominal value of their house rose. The average size of top up would suggest that.
In relation to re-mortgages, the new mortgage would include the outstanding balance of the previous loan, e.g. I had a mortgage of €150,000 outstanding from PTSB, but got new mortgage from NIB for €250,000. I of course used €150,000 to pay off the existing loan and used the additional €100,000 as I wished. Because of the degree of re-mortgaging there may not be many pre 2005 loans out there. These of course are the least likely to be in trouble as they did not extract cash.
In one paper Dermot O’Leary of Goodbodys produced I remember he estimated that the average mortgage length had gone to around 37 years. on that basis, you are heavily over estimating the level of repayment.
I seasonally adjusted this series via RATS and there does appear to be a strong seasonal element.
On a seasonally adjusted basis Q2 records a decline, while the figures for Q1 are not as pronounced in their fall. Overall, the numbers are slightly lower than the actual figures, except for the average value of mortgages, which are slightly higher.
@Patrick, interesting, have you any workings available? Or can you link workings in a spreadsheet eg on Google docs?
Sure, I can give you a link to the Excel file with the results. I’ve not put up a file on Google Documents before, so let me know if it works.
https://docs.google.com/leaf?id=0B-y6zWYIRVV4ZWE4MWE3ZDEtYTZhZS00NGQxLWFmZGMtYjBlZWM4ZTE1ZWMy&hl=en_US
@Patrick, that works fine thanks. The seasonally adjusted figures are actual figures rather than formulae. Could you explain how you arrived at these, having started with the raw unadjusted mortgage figures?
It’s all done through RATS, I don’t have the time in work to do it manually. I just wrote a program to use a multiplicative method (only works for figures that have all positive values) of seasonal adjustment when adjusting these figures.
If you really want to kill yourself, I’m sure if you look into a RATS manual they’ll explain how they’re adjusted with exact formulas! Although RATS can be absolutely infuriating at times, it’s probably the best stats program out there for handling economic data. The results it provides are usually quite similar to seasonally adjusted figures from national databases.
Oh, the full name of the program is WinRATS if you’re interested in looking into it.
I’ve heard some people suggest the Irish government should attract foreign mortgage lenders to come here. Among these is Derek Brawn on Ivan Yate’s newstalk programme this morning
Even if foreign lenders were ok with taking borrower default risk, there’s still significant risks(/unknowns) on making recoveries. Of course’ high among these are future house prices (and the sizeable overhang of ‘to-be-foreclosed’ doesn’t help); but it’s not limited to this. Unless potential entrants know what the (future) rules are to enforce a mortgage contract, it’s difficult to see anyone take the plunge.
@Ahura, why would you consider there to be a problem with enforcing a mortgage contract. I am aware of the recent High Court ruling which I believe is being appealed about the new procedure to be adopted after December 2009 but as far as I can see lenders still have the same rights as previously, they just need enforce their security in a slightly different way.
@NWL,
I wasn’t really thinking of that particular quirk. More along the lines of future political/judicial interference with existing codes. Factors that could increase the work-out costs (legal fees) and interest carry costs.
If I’m a potential entrant, I need to know how long it takes from 1st missed payment to completion of work-out process. For example, in certain Italian regions it can take up to 10 years (a nasty side effect is the house tends to be in rag order at this point). In the Netherlands, it’s about six months. The main thing is I need to know what the duration is. Will politicians change the rules and force an additional 2 yrs interest accrual on me? Equally, if politicians make protecting the family home their priority, work-out costs could rocket or worse. What happens if you can’t repossess where the borrower makes a token payment every year. Or if judges start declaring reckless lending on minor grounds etc. Then there are issues surrounding recourse. What-if BTL investors get protection of primary residence or all mortgages are deemed non-recourse. Should I assume non-recourse when evaluating the Irish mortgage market? These are the types of things I’m thinking about regarding enforcement. It’s all the more pressing right now as there’s a huge stock of ‘waiting-to-be-foreclosed’ mortgages hanging around adding to the political pressure.
To date existing non-guaranteed lenders haven’t been too impacted – meddling has taken the form of guidelines. The only problem is that this has only served to increase the size of overhang, which in turn increases the risk of legislative changes that have consequences for all market participants.
@NWL
I have read those reports. His numbers seem even more erratic!
He claims there is around €55 billion of owner-occupied mortgages and uses this to come up with his €5-€6 billion cost for a debt-forgiveness scheme. There is more than twice as much such mortgage debt in Ireland at €116 billion!
I can’t believe he is still sticking to his guns on the 10,000 mortgages. He has changed his tune a little and no claims they are investment mortgages. I still can’t see there being 10,000 mortgages of more than €1 million out there if you combine owner-occupied and buy-to-let mortgages and by adding interest-only and repayment mortgages.
The level of debt isn’t large enough to suggest that the tail is that long. He says he has done some econometric work on this but I assume he means statistical work.
Excellent forum.
It is interesting to step back for a minute and see that the mortgage problem which gets so much media attention is actually a relatively manageable EUR 10 /- billion problem.
Whereas the budget deficit problem is a much bigger EUR 75 Bn problem (5 yrs * 15 Bn);
And of course the disastrous casino/Anglo/aib/developer bailout and crazy bailout of bondholders (albeit with Trichet’s ECB gun to the head) was also a similar sized problem (EUR 50 – 100Bn /-).
In summary a group of perhaps less than 500 have wrought massive destruction on a nation, aided and abetted by idiot politicians and an arrogant ECB. But we are fed a media diet of “we all got carried away” which I think is nonsense but a nice easy out to spread blame.
The only (and perhaps fair) way to resolve this is for the ECB to warehouse north of EUR 100 Bn at 1% for 40 years – and then let inflation do it’s work (a relatively low cost solution as our central bank can create money). A similar solution for Greece and Portugal should have been done long ago…then core Europe would not be in the bind of it’s own making that it finds itself.