Take a look at the above table which compares residential mortgages in Ireland and the UK. Arrears over 90 days in the UK are less than one third the level ofIreland, and yet the repossession rate in the UK is nearly six times that of Ireland. What an incredible difference between two neighbouring countries whose housing and banking sectors have traditionally displayed much similarity to each other.
We were expecting figures from the Financial Regulator, Matthew Elderfield, last week on mortgage arrears, repossessions and restructuring in respect of the second quarter of 2011. Perhaps because of the intense debate on mortgage forgiveness, re-ignited by Professor Morgan Kelly in his presentation to the Irish Society of New Economists on 18th August, the Financial Regulator thought the figures would inflame what is already a vexed issue.
This present Financial Regulator is responsible for having introduced the quarterly reports on the condition of residential mortgages. But he is also the Financial Regulator who has played a pivotal role in the present approach towards mortgage arrears, as he has overseen the introduction of a new code of practice by lenders. The code, available here, was seen by some as kicking the can down the road by allowing some in mortgage distress to delay foreclosure for up to four years. It is also seen as a protocol which is increasingly causing misery as unemployment remains elevated, inflation is increasing – fuel prices are set to increase by 15% from next month, for example – and take-home pay is reducing and there are new taxes in prospect. On the other hand, the protocol was seen by others as a humane way to avoid large-scale repossessions by increasing forbearance whilst the housing and credit markets are still distressed.
In the UK, there will be an estimated 40,000 repossessions in 2011. There were 75,500 repossessions in the UK at the depth of their housing bust in 1991. There are currently 11.3m mortgages in the UK worth GBP 1.2tn, according to theUK’s Council of Mortgage Lenders, so in theUK there are approximately 354 repossessions per 100,000 mortgages. InIreland our repossession rate is approximately 64 per 100,000 mortgages. Figures specially provided by the CML to this bog show that there were at the end of Q2, 2011 234,400 mortgages in arrears of more than three months (they don’t do days in theUK but three months is approximately 90 days) which compares with 55,763 at the end of Q2, 2011 in Ireland. So the UK arrears rate per 100,000 mortgages is just 2,069 whereas in Ireland at the end of Q2, 2011 it was 7,177.
Unemployment and negative equity are the two most important drivers to repossession (that is, not being able to pay the mortgage and not being able to sell the property to repay the mortgage). Ireland’s unemployment rate is 14.3%; the UK’s is 7.7%. Our residential property has dropped 42% from peak according to the CSO. In the UK their property is down 9.3% from peak according to the Nationwide Building Society. Unless the UK is a particularly uncaring or economic illiterate state, then it seems obvious that we are deferring a major problem in Ireland. Whilst none of us has a crystal ball, the recent trend in house prices suggests that further falls are in prospect and we know there are new taxes looming, so the present arrears code may need urgent reform (by the way the position on here is that we reform personal bankruptcy laws before creating some novel innovation to deal specifically with mortgage arrears).
Oh, and why is Matthew Elderfield like Buzz Lightyear?
[The above blogpost has been updated to reflect the Q2, 2011 arrears and repossession data released by the Financial Regulator and analysed in this blogpost]
NAMA Wine Lake 
All that kicking the can down the road does is compound the problem and allow it to grow. In the meantime we suffer the worst market in the world and a stagnant economy. In reality we have no market at all. As Samuel Beckett wrote “That’s how it is on this bitch of an earth”.
He also said that: “Just under the surface I shall be, all together at first, then separate and drift, through all the earth and perhaps in the end through a cliff into the sea, something of me. A ton of worms in an acre, that is a wonderful thought, a ton of worms, I believe it.”
I think that he foresaw our current predicament and economic demise.
The current doom and gloom reminds me of the title “States of Fear” documentary. I accept economics and abuse are two very different things, however I am very pessismistic about the future of the economy.
Accepting tax rises and cuts to services for the next 3 to 4 years is one thing, however if the knight in silver armour of Growth does not turn up then another 4 years of cuts / tax increases will occur. It just does not bear thinking about. I just cannot imagine what Ireland would be like after 11 years of cuts and tax rises.
This country urgently requires solutions, futher to my thoughts about renting out apartments to other nations displaced citizens to encourage money to come into the country I read recently about Israel which has a severe problem with the cost of living / housing.
Could it be feasible to invite other nations citizens in to live in our empty apartment blocks on a temporary basis, say 5 year visa’s etc.
It would ease the situation in the other country, Ireland would benefit from renting out empty apartment blocks and state subsidies from the foreign country would be spent in Ireland. There would also be spin offs to the local economy etc.
As for what these people would do? Well with a good broadband network could they not work from Ireland for their company in Israel or other nation. In addition we have a lot of airports which could cope with increased traffic etc.
@Sporthog, I don’t think it’s all doom and gloom. There should some growth this year (0.8% is the official GDP estimate) and next year might get back to a more respectable level (2.5% is the official estimate). However even with growth there will be a €3.6bn adjustment next year, €3.1bn the following year (on top of the €3.6bn in 2012) and €3bn in the 2014-5. So in 2015 there will be a cumulative adjustment of nearly €10bn compared with today (€3.6bn + €3.1bn + €3bn). So there is a major adjustment to be made even with forecast growth in GDP. And the government has a colossal challenge to make the adjustment without killing off the economy or the society.
PS I think Israel has a policy of growing its population, and wouldn’t take kindly to offers to relocate citizens.
It seems to me Sporthog is right though that what we need is much more thinking outside the box of conventional solutions. This kind of experimental thinking should be encouraged. Offhand I can’t think of anything that would be more to Ireland’s benefit than a closer commercial & cultural alliance with Israel. We certainly have as much in common with the Israelis as we have with the Germans or French. Ireland’s involvement with mainland Europe confuses geographical proximity with cultural proximity. In an increasingly globalized world this confusion can only become more evident.
There’s a difference between “doom and gloom” and simply stating the facts. I’m sick of the naivety of Irish commentators who speak to the public as though they were speaking to a small child–afraid that if they are too blunt the child will shatter asunder. Sometimes I think a lot of commentators subconsciously think they themselves will shatter.
The figure above show conclusively that Ireland collectively is refusing to face up to its mortgage arrears problem. The country has its head collectively in the sand and is mentally running away from any and all difficulties. This has been a characteristic response right throughout this crisis.
It would be a pity in the Financial Regulator had “gone native” on this particular issue. The country is in desperate need of straight talkers and decisive actions, not more equivocation and can-kicking.
@ wstt
Great quote. The native genius is about crafting high art from a pile of junk, and as Keynes said ‘In the long run we are all dead’.
.
@NWL
In defence of Elderfield, I would say he has produced some data on martgages. He has also put a code in place to prevent the more rabid right wing types in banks from gouging people in arrears.
But he cannot introduce legislation in relation to write-off. That is the job of government, is it not.
Perhaps he could introduce a definitive procedure in relation to write-offs or decisions ‘not to pursue’. If he does not do this quickly nod-nod, wink-wink, and ‘who-do-you know’ write offs will start to happen. As this is Ireland they probably have started already. But is that his job or is it the job of government or the banks themselves?
I agree the repo figures for Ireland (and bankruptcies) are a joke. Head. In. Sand. I guess there’s going to be a general tax on everyone to cover this nonsense – not for years, but for decades, with the economy stumbling through serial recessions. Might as well default and get it out of the way.
Not sure the Irish protocol is much different from the one used in England & Wales. I only read your linked synopsis, but seems to me English banks have to follow similar rules. Ireland does have an extraordinary 12 month hiatus before legal action begins, but surely that has fed through by now?
By nama’s figures there have been 428 repossessions (or is that repossession claims – can’t say off the top of my head if the corresponding CML figure of 40,000 relates to “orders claimed” or “orders granted”). Anyway, a small UK city like Southampton will easily get through 428 in a year, and has been doing it every year since 2005. And yet the BoE recently criticised their banks for excessive forbearance! By comparison, the forbearance of Irish “banks” is not just off the charts, it’s through the looking glass.
The English rules for the banks are MCOB, and the litigation protocol is here:
http://www.justice.gov.uk/guidance/courts-and-tribunals/courts/procedure-rules/civil/contents/protocols/prot_mha.htm
repo tsnuami ahoy!
10k repossessions per year seems possible
For every distressed sale there is a happy purchaser.
It’s not all bad news.
@Kirsten, possibly a tsunami of repossessions lies ahead. But if we introduce a proper bankruptcy regime (the present device is too expensive and draconian to be called a proper bankruptcy regime) then banks might be more incentivised to cut deals, particularly as the short term outlook for residential property is not good, taxes and cuts are imminent in the next Budget 2012, unemployment is figured to remain elevated for some time though hopefully it won’t rise much further than the current 14.3%, growth is anaemic – Ulster Bank this morning forecast 0.3% this year and 1.5% next year (official estimate is 0.8% and 2.5% – both refer to real GDP, either is pretty weak). And what would the bank do with the repossesed house, sell it at 42% on average off peak, or 70% in a distressed firesale? Whilst there is still such oversupply, and it takes about 5% of a repossessed property’s value to maintain and insure it each year.
Bring forward a proper bankruptcy regime and many of the problems being confronted today will be resolved.
People having difficult paying their mortgage can restructure and seek mortgage welfare while retaining their houses. The rest will face repo and possible bankruptcy under a new regime (Is the IMF not asking for this?)
@Kirsten, the IMF is demanding it but the demand is not very specific, and remember there was a new Act at the tail of the last Dail term which might have the effect of reducing the bankruptcy term from 12 years to five. In my view, the Act still places bankruptcy beyond the many who face a hopeless situation with assets worth less than liabilities and income incapable of servicing debt.
Click to access a2311.pdf
(Section 30 deals with bankruptcy)
@Kirsten;
We have a different culture here. Unless there is acceptance by the person from whom the house has been repossessed, I cannot see happy purchasers. That is not our culture. Ireland invented the “boycott” during the land wars.
Late last year a 67-acre farm in Crossakiel, in County Meath, which had been repossessed by ACC bank, was up for sale. Despite a reasonable attendance by local farmers at the auction, there was only one derisory bid of €1.
There was, according to some present, ‘‘an atmosphere’’ in the room, and the auctioneer later told the Irish Times that ‘‘there was no question but that people weren’t bidding because it was being sold by the bank’’.
At one stage, one person present questioned whether the land was being sold with the goodwill of the owner – and was told that the bank had the authority to sell the land.
The farm remains unsold.
Did you ever read “The Field”?
@Kirsten/WSTT, from last week’s Irish Independent:
“Indeed, receivers generally advise that there is no point in trying to sell a repossessed farm at an auction because nothing more than €1 is likely to be offered where there is hostility and bad feeling about what has happened to the land owners.”
http://www.independent.ie/national-news/fields-of-dreams-but-now-spuds-grow-on-the-bertie-bowl-site-2859557.html
Very interesting.
I wonder how much general economic distress there would need to be before such social solidarity broke down.
I haven’t read ‘The Field’ although I have heard that it’s a story about rural intransigence. I presume it;s a tragedy.
The Crossakiel farm has now been sold.
http://search.savills.ie/Properties/Residental/Second-hand-Homes/0000Country/SOLD/67-Acres,Herbertstown.aspx
I doubt there will be pitchforks outside repo’d ranelagh Victorians.
Hi Kirsten,
I thought that we were speaking of a tsunami…. a veritable deluge that would bring a smile to Noah?
We are indeed acting out a tragicomedy, one that will inevitably result in massive civil unrest if your prediction is correct. The Dail and its occupants will be irrelevant.
PS. It would be interesting to hear from any local from Kells (or even anyone from Savills) in relation to the sale of the farm and who actually ended up with it.
If the banks can’t liquidate they will be on life support permanently. And it’s working people who pay for it through high taxes, which themselves will condemn the country to rolling recessions for decades.
Just default. Ireland has a great opportunity. Get it over with.
The IMF target is Q1 2012 for a new ‘personal debt regime’ … ‘lowering the cost and increase the speed and efficiency of proceedings while at the same time mitigating moral hazard and maintaining credit discipline.’