This morning, the Financial Regulator Matthew Elderfield has finally released data on mortgage arrears, repossessions and restructured mortgages for the second quarter of 2011; the press release is here, the statistics are here. The data paints a disturbing picture of the deteriorating state of mortgage arrears. Total mortgages in arrears for more than 90 days are 55,763, up 12.4% or 6,154 from Q1, 2011 and up 53% or 19,325 from Q2, 2010, a year ago.
The total arrears are divided between those 90-180 days in arrears and those over 180 days in arrears. The latter category is widely considered to be so underwater that default of some sort is likely. The number of mortgages in arrears over 180 days rose to 40,040 in Q2, 2011, up 4,699 or 13.3% from Q1, 2011 and up 61.5% or 15,243 from Q2, 2010, a year ago.
Repossessions are also climbing are were 173 for the quarter, up from 140 in Q2, and up from the general average of less than 100 since records began.
You might be interested in the comparison between the condition and treatment of Irish and UK mortgages here on Saturday. There is a review of the previous quarter’s data, Q1 2011, here.
Analysis and comment here later today.
[The above table is taken from this Google docs spreadsheet which also shows a comparison of the condition and treatment of Irish and UK mortgages]
UPDATE: 29th August, 2011. Repossessions are up 73% year on year, this despite there being what is considered a moratorium on repossessions through the introduction of a new code on mortgage arrears.
Arrears are increasing, and increasing at a faster rate –illustrated here.
Oddly enough, the rate of increase is below that recorded at the start of 2010, which could indicate strategic default, that is, people deliberately going into arrears to take advantage of any imminent debt forgiveness program. Although that is a possibility, I think the rate of increase is more to do with cuts to income, be that employers cutting gross salaries, or cutting back overtime, or putting employees on short time. The overall unemployment rate remains elevated but has remained more or less flat in the past twelve months, though there is some evidence (eg through the quarterly national household survey) that emigration might be taking some of the strain. Borrowers might have been using savings/redundancy payments to service the mortgage and these are now exhausted. As a society that traditionally frowns on indebtedness and bad debts, it’s perhaps the case that opinions are changing as the reporting of the scale of indebtedness and difficulties with repaying debt, becomes so commonplace.
Despite the gloom and doom surrounding these figures today, it is still the case that the vast majority of mortgage payers are repaying their mortgages as agreed each month. As pointed out by Seamus Coffey on irisheconomy.ie, some €5bn of principal is expected to be repaid on €116bn of mortgages this year and perhaps a similar amount of interest. So the repayment of mortgage debt in Ireland has not stopped by any means, but there are very obvious difficulties.
Trends should depend on
(a) unemployment – currently at 14.3%, the recent trend is as follows
Most forecasters see a slight easing in the rate this year. For example Ulster Bank this morning indicated that the rate will average 14.1% for 2011 which would indicate an end of year rate of below 14%. However, the Government is set to reduce employment in the public sector as part of its €3.6bn – possibly more – budget adjustment in 2012. It may also cut capital programmes which results in further unemployment, particularly in the construction sector.
(b) house prices – currently 42.5% below peak, the trend is downwards. Most commentators had been predicting a bottoming of prices in 2012, but it is unclear when predictions are suggesting prices would rise again.
(c) disposable income – set to be reduced with new taxes (for example,the €100 property tax) and in all likelihood the reduction in income tax bands and the elimination of some tax reliefs. The outlook for inflation is not at all good which is surprising given the collapse in incomes and the fact that in Ireland, an apparently representative basket of goods and services is still 18% more expensive than the European average. Energy is set to rise by 15% in September 2011, and standard variable interest rates continue to trend upwards. Even food basics are increasing by 1.1% per annum, and inflation overall is presently running at nearly 3% per annum.
So will the rate of arrears rise? Difficult to say, but none of the underlying influences would appear to have a positive outlook in the short term.
NAMA Wine Lake 
[…] « New protest banner unveiled above Boyzone star’s former place of work Arrears and repossessions data for Q2, 2011 confirm dreadful state of Irish mortgages […]
In their December 2010 report on the reform of personal insolvency laws, not only did the LRC set out their recommendations for new rules, but they also drafted a bill to put their amendments to the current regime into effect.
Both Fine Gael and Labour had reform of the personal insolvency laws as one of the cornerstones on which they were elected. The EU/IMF deal memorandum has as an obligation of the State, the reform of the rules on personal insolvency.
What the hell is going on here? Not only has no-one come out to set out the way such reform is going to look, but you still have the usual talking heads chucking their uninformed tuppence into the debate, masking the issue with irrelevancies.
At this time it should be obvious that we are likely to follow the UK model, with a mechanism for individual voluntary arrangements between creditors and debtors. The reality is that if we do not, like those seeking abortions, we will export our bankrupts to the UK.
This country needs leadership on this point. We need politicians who are prepared to make decisions on this issue that are cogent and make sense. Todays statistics show that thie is a problem that is going to get worse an awful lot sooner than it gets better. Having been run by a band of fools over the past 14 years we deserve better than that and this is one topic on which we are not getting what we deserve.
Look at those repossession numbers! People are piling up into the >90 days in arrears category but no-one is coming out the other end. If you go into arrears in this country, is anyone actually going to take the house off you?
And what does it signal if the number of people in >180 days arrears (~40,000) is almost three times the number of people in 91-180 day arrears (~15,000).
By the way, what are the figures for the total number of mortgages in arrears? Or over 30 days, say? 100,000? I think that figure may be of considerable interest, but I cannot find it in either the press release or the linked data,
@OMF, I don’t believe arrears >0 days are counted in Ireland, nor in the UK and I base that on a recent exchange with the Council of Mortgage Lenders in researching the comparison between the UK and Ireland.
I’m surprised you haven’t factored interest rates into your trends…. standard variable rates have increased by approximately 1% since early 2010 adding a couple of hundred per month to average mortgage…. so you have the ridiculous situation of the banks extending forebearance then hiking rates, so any agreement made in early 2010 is jeopardised over subsequent months due to rate creep and increased payments.
@David, interest rates are difficult because of mixed messages coming from the ECB (remember that 400k of the 777k mortgages are trackers, 113k are fixed rate and 263k are standard variable rate). Some in the ECB have signalled that rates will remain the same until the end of 2012. Others like Juergen Starke seem to support higher rates. And there are arguments that given the fragility of the recovery that rates should be reduced.
But you are right, the 263k on svr and those on fixed coming to an end of the fixing are likely to face interest rates with upward pressure.
Not to steal Seamus Coffey’s thunder – but we do need to keep the above in perspective – using his Independent article -http://www.independent.ie/opinion/analysis/mortgage-crisis-a-reality-check-only-3pc-of-households-are-in-arrears-2860469.html
And remember these stats in particular
There are 777,000 mortgages in Ireland; 7.2 percent of them are in mortgage arrears.
There are 1,700,000 households in Ireland; 3.3 percent of them are in mortgage arrears.
Not every household has a mortgage.
In fact, around 450,000 households own their home outright, with no mortgage. There are around 250,000 households in the rental sector. Local authorities and the voluntary sector provide for about 200,000 households. The arrears problem is bad but it’s not everywhere bad. Some perspective is needed.
Seven out of every eight mortgages are still being repaid on time. Irish households are making capital repayments of around €5bn a year. Those we can repay, are repaying.
Any talks of debt forgiveness has the possibility of discouraging those who are making sacrifices, and although there are some extreme hard luck stories it is both the job of the government to protect the vulnerable, but also be equitable to all its citizens, especially those in the rental and/or owner occupied with no mortgage.
The press does have an obligation to keep things in perspective.
@jj, from the above blogpost
“Despite the gloom and doom surrounding these figures today, it is still the case that the vast majority of mortgage payers are repaying their mortgages as agreed each month. As pointed out by Seamus Coffey on irisheconomy.ie, some €5bn of principal is expected to be repaid on €116bn of mortgages this year and perhaps a similar amount of interest. So the repayment of mortgage debt inIreland has stopped by any means, but there are very obvious difficulties.”
But 55k mortgages in arrears plus 30k restructured plus a possible 17k in receipt of mortgage assistance is a major, major problem. It represents about 250,000 people in our country and needs attention.
@namawinelake
“But 55k mortgages in arrears plus 30k restructured plus a possible 17k in receipt of mortgage assistance is a major, major problem.”
Forgive me if i get mixed up in the numbers, but is it possible you are double counting the 17k? The 17k presumably includes those who have restructured and/or are possibly in arrears?
@Sarah, there may be some element of double counting but remember the 17k are those in receipt of mortgage interest assistance, typically because a mortgage payer has lost their job. As I understand it these payments from the social welfare budget cover interest only. The unemployed person may be repaying capital, may be on an interest only mortgage OR MAY have restructured – It may well be that someone in receipt of mortgage interest assistance is not in arrears (55k), and has not restructured (30k).
By the way, I am taking there to be 2.5 people whose lives revolve around a single mortgage as our average household is 2.7, and that’s where the 250,000 comes from.
I don’t deny it needs attention but it shouldn’t be blown out of proportion. There are several people who are only making the minimum payments because they believe there will be some debt forgiveness and wish to participate in it.
I personally think it won’t happen without abandoning the property – i.e. debt forgiveness after a period of 18-36 months if you have left and sold your property but I don’t think there is an ability to do debt forgiveness for people still residing in the property. The free rider effect is huge.
But looking at the headlines today in both UK and Ireland you would think everyone is not making their repayments.
Not sure I agree with scaling up by 2.7x – 1.7m households in Ireland, of which just over 100k are in arrears which is 6%.
No one is suggesting we abandon these 6% (a country is defined by how it looks after its vulnerable) but they don’t need to be looked after by having home ownership maintained.
There are alternatives – am reluctant to move people but partial state ownership, state ownership outright where the individuals becomes council tenants, garnishing a higher proportion of wages for a period of 18-36 months.
The point I was making that 94% of the people in the state are not in arrears
@jj, I understand where you’re coming from. But it reminds me of that line from Father Ted where he says that not all priests are paedophiles, so that if there are 200m priests in the world and only 5% are paedophiles that’s “only” 10m paedophile priests!
I think the point is that some statistics are more important than others. Yes 85% of people are in work but the scourge of unemployment on society as well as the economy means that the 15% unemployed occupy a lot of resources and time in solving their problems.
And the same with the 7% in arrears (or ~12% having some sort of repayment difficulty). Although they represent just 3% of households, you pay a lot of attention to them because of the effect they have on society and the economy.
@jj
“The point I was making that 94% of the people in the state are not in arrears.”
I accept your point but the residual 6% is growing and is going to become a huge problem unless assisted. They are becoming the weakest link in the socio-economic chain and potentially the tiny fuse that could trigger a chain reaction with very adverse consequences right along the chain.
@Brian, indeed and to express statistics in another way – and with no offence intended to a serious subject – 99.99% of people in this country DON’T commit suicide each year. How does that make us feel about the 400 that do?
@Brian/@namawinelake,
OK so we agree there is a problem and we agree it must be dealt with. But please do not exaggerate the extend of the problem and over promise the solutions. This is of no help to no one.
The overall tone of reporting is defeatist and frankly dis-respectful to those who have made sacrifices (like cutting mainline phone lines, cutting transport costs, cutting holidays) to meet their obligations.
I admit there are those who can’t make any more sacrifices and are still incapable of meeting their obligations, but there are still loads of people who are living beyond their means.
Responsibility starts at home.
@jj
“But please do not exaggerate the extend of the problem and over promise the solutions.”
The problem is big now but if it is not addressed quickly it could become huge and unsoluable. It is very hard for those making sacrifices (as you describe) to close their eyes to a substantial minority who are milking the system and have been absolved from any moral hazard. I’m thinking of (some) politicans, bankers, professionals, senior public sector administrators, mega developers etc. etc. as as ex-politicians, ex-bankers and so on. They may not perceive that they are still making hay while their sun shines (because “they are worth it”) and completely ignore the fact that the country is in receivership and that a growing proportion of the population face liquidation (in the financial sense).
This is the exaggeration that I am referring to – country is not in receivership and although a growing proportion of the population is just a phrase that leads to hyperbole.
And in relation to those who are making sacrifices to close their eyes to those milking the system – you left out the biggest component – those on social welfare, the biggest component of the states resources.
The continuation to blame all bankers, all professionals, all politicians – reminds me of the the previous mentioned Father Ted joke, or to extreme, some Irish were terrorists, therefore all Irish are terrorists. The blanket pigeon hole assumptions………
If last year was one and this year is two, it is a 100% increase and a growing proportion of the population. See I can twist statistics too!
@jj
If the Irish Exchequer were a business, its debt/equity ratio would be c.110% (and possibly growing), its sales would be €30 billion and its costs €50 billion or so. It is hard to see how it could avoid receivership or even liquidation. Maybe I should have said that the country is in examinership courtesy of IMF/EU/ECB. Ignoring the social issues, any solution must address all three dimensions in parallel – write off some debts, raise taxes and reduce costs. If I undertand current political thinking, the focus will be mainly on the latter.
Don’t agree with your analogy but you do have the common sense to move on the conversation from the loop we/I had got us in.
I want to state I am not against debt forgiveness and acknowledge the bankruptcy laws need to be addressed and updated.
Help should also be extended to those vulnerable in society by either further mortgage relief or a movement to council/state housing (and that can be in the same house).
And I am not against tightening up some of the loop holes for tax relief in this country and (not and/or) and increase in the top rate (but only marginally, I do think marginal tax rates above 60-65% are counter-productive.
As you say costs need to be addressed also.
However,
I do get annoyed at blanket assumption that all bankers, politicians, civil servants are all “on the take”. I do think politicians have made wrong choices but only a small amount of them were corrupt – incompetence is not a criminal offence. Some bankers work in fund management, credit cards, advisory, regulatory etc and vast majority had nothing to do with credit boom.
Secondly, I don’t think the whole debt forgiveness has been fleshed out and the consequences and/or the mechanics have been debated and are understood.
I disagree about the country been in receivership and/or bankrupt. I don’t really want to take the debate that direction to be fair – I have my beliefs and have invested in the Irish bond market accordingly (both as a guy looking really stupid, and subsequently very smart).
But I agree with the last and overall point – progress needs to be made on all three points. But honest debate is required, and I would hope an early Budget would give some clarity to the public.
@jj
We have a fair measure of agreement – same hynm book but different page.
Agree that 60-65% is the maximum realistic marginal tax rate. However, attention needs to be given to effective tax rates which are much lower. I’d be happy with a high marginal rate if my effective rate was reasonable especially as my income is likely to decline.
You might be interested in the following chart which illustrates effective tax rates for a range of incomes. It shows that a tax case would need to have a taxable income in excess of a million for the effective rate to approach the top marginal rate. Instead of raising rates or changing credits, I think the forthcoming budget should eliminate tax loopholes etc. and ensure that the present top rate applies without exception.
Click to access 2011_tax_comparison.pdf
Click to access 2010-10-18%20-%20Kenmare%20paper%20Collins%20Walsh%20Final.pdf
An old paper on cost of tax relief – unfortunately a lot of the costlier tax relief is by definition available to majority of people and will create political difficulties to get rid of – similar debate to the “narrowing of the tax base”
@jj
Thanks. Will study tonite.
Lads Up to date tax costings were provided for various reliefs in a series of Dáil questions put down in the names of Eric Byrne. Links to the questions are below. There are questions relating to other issues mixed in
Pearse Doherty: http://www.kildarestreet.com/search/?s=pearse+doherty&phrase=&exclude=&from=21%2F07%2F11&to=21%2F07%2F11§ion=wrans
Eric Byrne: http://www.kildarestreet.com/search/?s=eric+byrne&phrase=&exclude=&from=&to=§ion=wrans
There is a certain irony in Mary Walsh’s current position considering her career after leaving the Revenue Commissioners for Coopers & Lybrand and subsequently PWC was spent in the international tax avoidance industry. She was of course tax advisor to AIB and had a supporting role during the PAC hearings
I think there is a few ironic facts here.
Bad behaviour is normally discouraged by heavy harsh penalties.
When perusing the section on mortgages on most banks websites there is a little line which states..”Your home is at risk of repossession if you fail to keep up repayments”.
Only now does the public realise its not just your home that is at risk, but your family, your marriage, your livelihood, your dignity, even your sanity.
In some cases Irish bankruptcy laws can persue a person even after they are dead. Depends on the estate etc.
If Irish Bankruptcy laws are made too easy, then the state will only encourage a much bigger problem to develop in the future.
“Ah sure go on, you deserve it, borrow the money to buy that big BMW / Mercedes, and sure if you can’t pay it back don’t worry, the state will pick up the tab”
I think it is ironic that Ireland despite having severe bankruptcy laws still allowed a huge credit / property bubble to develop.
Ultimately it depends at what level of the spectrum the problem resides. If the entire population is facing eviction, some program of forgiveness will be enacted. But if it’s just a few thousand, or even 50K, I can’t see much action to be taken.
I would not have much sympathy for those people who were heavily speculating and got caught out with numerous properties on their hands.
However for the 30 something couple who thought they were doing the right thing by getting on the ladder to prepare a nest for starting a family. I do have sympathy for this class of bankruptee.
Perhaps a distinction can / is being made in the courts.
You might all be interested in this 2-year old IMF research paper on debt forgiveness which explores initiatives and principles. There are no easy solutions but the paper progresses the debate I think.
Click to access spn0915.pdf
It is obvious at this point that the media frenzy regarding debt “forgiveness” will increase the mortgage delinquency rate. Anyone with any grey matter between their two ears will by now have grasped the point that it is in their best interest to stop paying their mortgage if they are in negative equity.
The next 3 and 6 month figures will open the eyes of our bankers and politicians. Action needs to be taken immediately. We cannot afford the usual “scenic route” of a report at the end of the month and a think tank for the next twelve months leading to action sometime in 2013. We need an acceptable plan and we need to implement it quickly. So, as paul quigley would say, my tuppence worth below:
Mortgage interventions traditionally been for moratoria and I have written here previously about the use of Debt for Equity Swaps as a tool in the residential context. It is a tool that has been used extensively in the commercial property sector but rarely in the residential area.
What I am suggesting is that where property values have fallen by 40 percent or more (pretty much everywhere), borrowers would have the right to require lenders to swap a write-down of this deprecation off the loan in exchange for, say, a major equity stake in any appreciation.
To maintain constitutional integrity, it may be critical that reforms aimed at promoting loan restructuring do not mandate that lenders’ collateral be impaired below the present value of the asset.
It is important to note that the surrender of most of the equity is a serious disincentive for those who do not need restructuring but would be tempted to join any program that requires givebacks only from lenders.
In a “debt-for-equity” swap, both parties to the contract offer consideration for the benefits they receive from restructuring.
Because it is a par-value swap against the principal private residence, the technique would avoid the Revenue treating write-downs as income to homeowners and creating a potential tax liability
There is also the possibility of a “rent-with-option” plan.
The plan would require lenders to offer (say) a five-year, market-rate lease to homeowners who surrender their deed in lieu of foreclosure. After five years, the homeowner would have first option to repurchase the house from the bank at market price.
The mandate for market rent would likely result in a much lower monthly payment than a mortgage repayment.
I can see lenders resisting this particular plan, but if they do some analysis and assume some rise in the market over the next five years; they (the lenders) would be properly compensated for receiving market rents, by the increased capital value of the property over the period, rather than taking back the keys with all the associated ancillary costs of a resale now.
Another suggestion would be to create a Pool of distressed mortgages and refinance the banks out of them by Unitisation (IPBS is already trying to sell some of its loanbooks on the market at a discount):
Stage One: transfer the properties to the Custodian (say Nama Residential or Anglo Distressbank ).
Stage Two: agree affordable rentals and index link them to an agreed measure of inflation;
Stage Three: divide the resulting pool of rentals into proportional Units (or n’ths);
Stage Four: allocate a proportion of rentals for maintenance / management and sell the balance of Units to investors.
For the occupier, this is a new form of Rent to Buy – since any amount paid in excess of rental will redeem Units.
For the Investor, Units provide a reasonable, index-linked, secure revenue stream, ideal for risk averse long term investors such as pension funds.
For Banks holding portfolios of distressed mortgage loans such Unitisation will enable what may be described as a new form of Debt/Equity swap, allowing them to exit the loans.
Moreover, the restructuring into new debt will be seen by many banks as a better option than one that simply leaves intact an obligation to repay unsustainable capital repayments.
Outcome: the outcome could be a debt/equity swap on a massive scale into a simple but radical new form of REIT Unit (which we don’t have yet) or a Limited Liability Parnership.
The mountains of un-payable debt would be exchanged for Units carrying a reasonable and index-linked rental, and the risk of non-repayment of debt would become simply the risk that no buyer for equity could be found. This is a low risk since even if no investor wishes to buy, the fact that Units are redeemable for the right to occupy property would mean that demand from property occupiers would underpin the market price; as they could be redeemable by the occupiers at any time simply by refinancing their proportional Units with a new mortgage.
@WSTT, thanks for that and what seem like feasible solutions that might dovetail with the conservative approach to debt in this country. It is not inspiring to see the Government pleading sympathy on this issue but not able to suggest solutions until a 10-member “expert group” reports at the end of September 2011. I have tried to get the terms of reference for this group, the resourcing available to it (legal, economic, financial and administrative mostly, I’d expect), the identity and experience of the members, and even when the “expert group” was set up. No information has been forthcoming, and for all intents and purposes, it seems as if this expert group is being used as a shield to deflect focus from the debt forgiveness debate re-ignited by Professor Morgan Kelly two weeks ago.
According to the Irish Times, the expert group is chaired by “Declan Keane, an accountant seconded from KPMG to the Department of Finance, and includes officials from several departments and the Central Bank as well as expertise from the banking sector”
http://www.irishtimes.com/newspaper/frontpage/2011/0831/1224303239117.html
There’s no doubt that the issue is on the minds of politicians but it seems the days of kicking an issue into the long grass in this country have not died. If the government is serious about this issue and its expert group, it will publish
(1) The terms of reference
(2) Details of setting up, appointment and key milestones
(3) Date for reporting, and detail of what is to be reported
(4) Members, their names and relevant experience
(5) The resourcing, financial and human capital, provided to the group
If the above isn’t forthcoming, then you’ll have a fair idea that “expert group” = “shield to deflect focus”
I have an idea on what could be done quite quickly and without the “Moral Hazard” that everyone is so afraid of.
There seems to be c.750k Mortgages in the country of which c.400k of them are tracker mortgages. Some economists have calculated that in order to give up a tracker mortgage the bank would have to reduce the principal by between 30-50% depending on the margin and term left on the loan. These Mortgages are loss making for the bank and banking sector as a whole and I think that collectively could be used as a bargaining tool for the whole 750K mortgages.
What I would propose is that every residential mortgage be marked down ( preferably to market price, but the 110% of market price that Iceland have could work too, a token writedown for small mortgages ) , in exchange for this everyone should come off their tracker and all mortgagees should be offered a long term fixed rate mortgage at a rate comparable to those in France or Germany. This would allow the banks to change their large loss making books to smaller profitable books which could be sold off at a later point if necessary.
I would see the following immediate benefits:
1. Individuals would have the principal written down removing the negative equity issue and making people more mobile with a greater propensity to spend.
2. If everyone is then on Fixed Rates, No more would people be at the mercy of ECB and Bank own interest hikes.
3. With everyone on the new fixed rate, it would provide an opportunity for foreign lenders to enter the market and undercut this new fixed rate.
The state should also introduce a capital gains tax on any gains achieved from the written down mortgage ( This could have a sliding scale element, Sell it in 2 years pay 50% CGT, keep it for 20 years pay nothing )
The solutions that are being talked about now, writing down some peoples loans will only temporarily fix things as as soon as rates start to move higher, a new wave of people in difficulty will bubble to the surface…
The above would need to be done in conjunction with new Bankruptcy laws and non-recourse lending as even with the above a lot of people still won’t be able to keep their property and lifestyle.
There is probably a million holes in the above and the numbers need to be worked through, but I don’t think enough is being said about the Tracker Books in the Banks which are unprofitable and will discourage competition ( How could a bank ever compete for my business when I have a rate of .9 over ECB etc.. ) .
There is a problem with this proposal and that is assuming that all the 400k tracker mortgages are under water. They are not although a higher proportion are. Are you proposing those that are not under water remain on their tracker or not.
It still doesn’t get rid of the problem that those who have been sensible and had low level of borrowings (or none at all because they rent) are subsidising those who weren’t so lucky/ or was reckless).
I would still go down the route of underwater mortgage holders been able to vacate their property and remaining negative equity been written off after a period of time (18-36 months). This method would should some moral hazard and would encourage those who are close to the brink to keep making sacrifices to remain in their properties.
Question then is where do those families go when they vacate their properties – into the rental market – the housing stock will remain the same and the banks who repossess the properties can either sell them to investors/state can purchase to provide council rents.
This is my preferred route.
Very rough way of looking at this – 55k houses in arrears with mortgages of €10.8bn. Double it, as I am aware that there are a lot on the edge of despair (but still paying). so roughly 100k people with €20bn of mortgages.
Assume the houses were all purchased with 100% mortgages and are now worth 55% (just to keep the numbers simple).
The bank losses will total €9.5bn, and the social welfare bill would be 7% of €10.5bn (i.e. rental for these individuals, assuming they have no resources at all). That is a running bill of €735m p.a.
The €9.5bn of bank losses are likely to be met from the recapitalisation, but a further 100k houses for sale will put severe pressure on the housing market.
I don’t think the government will have the resources to purchase these houses (flaw in my preferential route) but it should be acknowledged it is a purchase of an asset.
But these are the shocking numbers – (granted the houses are unlikely to be all 45% under water)
I should add the overall loss in the PCAR calculations was 6.1% – which is a total of €7bn (versus my loss on the above 100k mortgages to be €9.5bn.
No I’m not assuming that the 400k tracker mortgages are under water, but I am assuming that they are unprofitable for the banks, and while they are living on overnight money from the ECB they work, but as soon as that stops, they will be a massive problem for the Banks, Just look at PTSBs losses.
People would have the option of coming off their tracker in exchange for a lower mortgage with a higher interest rate. The repayments and total amount repaid should be roughly the same if the mortgage is held to completion.
At the moment the large Tracker book while is great for the homeowner at the moment, does not allow them to move house as they would loose it regardless of if they are in negitive equity or not. e.g Moving to a house of similar value could cost you as much as 70% more if you come off a tracker.
This would not be a bail-out so Joe Public who was sensible and rented would not be out of pocket as if there was any gains in the future the individual would be taxed on them.
One last point, that the Mortgage situation as bad as it is now will get a whole lot worse in 2-3 years when rates raise and the tax wedge increases here.
While the rest of the world is still in a difficult situation if we can get our house in order and release the engine of the economy ( all those who have bought houses etc.. ) we have a chance.
And also offer an environment where foreign banks are willing to enter the market, because apart from entering on the savings site, with this debt overhand noone will enter on the lending site, and our two pillars/pillocks can’t support a thriving economy.
Yes – I agree with that – crystalising the value of the trackers (which can only be used for debt paydown) has lots of advantages. It does create immediate losses for the banks but I would argue it would create a cleaner go-forward P&L and thus easier to demonstrate value in the banking market in Ireland.
I would agree with that.
Everyone including people with Fixed/ Variable and Sub-prime mortgages should be offered the same deal, if after they can’t make repayments they loose the house and walk away.
Someone smarter than me can work out the numbers.