18 Jan 2010

CONSUMERS will no longer be able to “cherry pick” lower mortgages rates, a top financial expert said today.
Oliver Gilvarry of Dolmen stockbrokers said lending institutions are to “move at pretty much the same time” when applying expected mortgage rate hikes.
“So the ability to cherry pick to a lower mortgage rate won’t be there at all,” he added.
Mr Gilvarry pointed out that many borrowers never even received the full benefit of the interest rate reductions from the European Central Bank (ECB).
“We can see with the foreign-owned banks here that have been operating mortgages — a number of them never passed on a lot of the rate cuts that were given through from the ECB last year, so you don’t have that option either,” he said.
It emerged today that almost 70,000 Permanent TSB mortgage customers face a rate hike of as much as 0.5pc over the coming weeks — adding €15 a month to average monthly repayments.
The bank already added 0.5pc to its standard variable rate last July, bringing it to 3.19pc.
Other banks, including AIB and Bank of Ireland, were thought to have been preparing to hike their rates at the time but held back following criticism of Permanent TSB.
Kevin Murphy, head of the bank’s parent group, Irish Life & Permanent, indicated last November that the lender would be looking at its interest rates again in January.
It is believed the hike is now on the verge of being implemented.
The bank’s remaining 120,000 home borrowers, who have either fixed-rate or tracker mortgages, which move in line with ECB rates, will not be affected by the move.
Earlier this month, Karl Deeter of Irish Mortgage Brokers warned lenders will push up standard variable rates by as much as 1pc this year, and another 0.5pc next year.

30 Nov 2009

We know that there is a planned scheme for distressed mortgage holders – internal Green Party memos have been shown ­– but there is no current working solution or blueprint, so what must be done?

We rapidly need answers that are fair to all participants. Currently there are three groups at the table – the lender, the borrower and the taxpayer. Taxpayers have already done more than their share and should not be called upon to remedy further issues, leaving the banks and the borrowers to find a middle ground whereby neither party is the ultimate loser.

Industry and consumer bodies must be engaged as soon as possible and the state needs to stay out of this other than as a facilitator or enforcer. If the government gets involved then the taxpayer gets involved and in principle taxpayers hold no further debt to irresponsible borrowers or lenders.

This knocks out ideas such as debt forgiveness – this oft vaunted solution is no more than a direct transfer from people who didn’t make mistakes to those who did. They tried it in Taiwan for credit card debt in 2005/06 and it was a disaster. Look at a Taiwanese bank balance sheet during this period and it is almost exclusively built up of credit-card debt. While compassion is prerequisite, bad solutions are not.

The changes long-term must come in the very footing of our debt laws, the ability to declare bankruptcy rather than have it imposed upon you is a first step. An end to the ruling whereby you can be chased for 12 years is paramount – this should be revised to five years or less.

Mortgages that are non-recourse beyond the property itself would be a great idea as banks would make more prudent choices. It would also deter rapid property price inflation as increased access to credit would have larger deposit requirements (independent of credit pricing). Currently you can get a 92% mortgage and at the same time access the cheapest rates available – this business model is flawed; higher LTVs must price risk

Short sales where a person in negative equity can sell their property for less than the mortgage and carry out an unsecured loan for the difference would be a further by-product.

If a bank’s only hope for recourse was the property it would compel them to accept alternative solutions.

Allowing a person to sell their actual mortgage would help – it’s called ‘moving paper’. A person with some arrears may have more luck in selling if the buyer can take on (for instance) their tracker mortgage with the deal and clear the arrears in the process. That way the bank get a performing loan and the buyer gets a good deal on the finance.

The banks made a mistake in forwarding credit but equally the borrower made an mistake in obtaining it. The issue is debt mixed with high unemployment and deflation so the only option may be one that allows both bank and borrower to give something up.

The best we can hope for is a long-term moratorium for those who cannot pay, but rather than piling up interest which would just create deeper unrecoverable negative equity, the banks would instead take a comparable percentage ownership in the property in question and then hold a portion of the actual asset the loan is secured upon as well as the loan.

It is better to have this solution in place than one where the bank repossess a property when the market is at a nadir, remove the tenants who want to stay put, and then both borrower and bank crystallise all losses at a low point. The actual costing of such a scheme, if the figure of 35,000 borrowers in arrears is broadly correct, would be less than €800m. The exit strategy will be tricky but it beats the alternative.

Unfortunately, residential arrears tend to lag commercial arrears so it is likely that we have not seen the worst of what the residential market has to offer.

The whole system, from Nama to mortgages or employment hinges on one factor: recovery. If we don’t get recovery it all ends in tears, if we do then the key is to get sufficient forbearance to allow all parties enough breathing room in the interim so that we can fix issues over time when conditions are more favourable.

Sadly, we didn’t opt for market solutions which would have seen much of this solved already, so in the coming months the government needs to flex with the banks, not posture, but push, and our Central Bank needs to stop barking and bite if lenders try to avoid the remedy.

We can, and will get out of the hole we nationally dug ourselves into, but we cannot let the prudent take further punishment for the profligate, and the question really comes down to what condition we hope to come out the other side in.

23 Nov 2009

LENDERS are now evaluating the strength of a person’s employer when they apply for a loan as approvals tighten significantly.

Property related incomes, builders and architects are all experiencing above average difficulty in trying to secure a mortgage, according to the Irish Brokers Association.

It said other retail sectors are also being examined very closely.

Irish Brokers Association chief executive Ciaran Phelan said: “Criteria for lending approval have tightened particularly when it comes to employment and salary.”

He said as a rule candidates in permanent employment are only being considered and contract income does not qualify.

He said there is very little recognition for overtime, bonus and commission income of applicants.

“This in particular is having a significant impact on many mortgage seekers. Unfortunately for some, certain sectors of employment are almost completely excluded.”

Meanwhile, James Maguire, associate director of Financial Engineering, said another noticeable trend is that more and more people are beginning to be able to afford to move back to areas that the really wanted to live in.

“An example of this is a client who sold a five bed house in a satellite town of Dublin to move back to a three-bed semi in north county Dublin.

“The main reason they could do this is that the price of the house has dropped in both areas but they can now afford the mortgage on the new house whereas a few years ago they would not have been able to get this amount of money,” he said.

10 Nov 2009 

THOUSANDS of homeowners got a welcome reprieve this morning after the country’s 10 biggest mortgage lenders promised to give homeowners more time to tackle arrears before taking legal action.

The pledge came as it emerged that 1,000 mortgage holders a month are turning to the Government to help pay their mortgages.

The Irish Banking Federation has now said customers who cannot maintain mortgage repayments will be offered arrangements on a six month basis, with no legal threat during this time.

Under the code of conduct, lenders must wait six months from the time the arrears first arise before beginning legal action for repossession.

In the case of the two recapitalised banks, AIB and the Bank of Ireland, the moratorium is for 12 months.

Meanwhile, the Government expects to spend €60m this year helping homeowners to pay their mortgages — double the amount spent last year.

About 400 households are now getting an average of €367.40 every four weeks from the State to help them cover part of their repayments.

11 Nov 2009 

New figures show that the number of new mortgages given out in the third quarter of this year fell again.

A mortgage market profile - compiled by the Irish Banking Federation and PwC - showed that 12,189 new mortgages worth just over €2 billion were issued in the three months.

The number of mortgages was down 56.4% from the same period last year, and also down almost 4% from the second quarter of this year. The value of the mortgages was more than 62% lower than in the same period last year.

AdvertisementBut the figures showed that the number of mortgages issued to first-time buyers - while still well down from a year earlier - rose for the second quarter in a row. First-time buyers now account for almost 30% of the mortgage market.

Mortgages for investment continue to decline, and now account for 5.7% of the market

New figures show that the number of new mortgages given out in the third quarter of this year fell again.
A mortgage market profile - compiled by the Irish Banking Federation and PwC - showed that 12,189 new mortgages worth just over €2 billion were issued in the three months.

The number of mortgages was down 56.4% from the same period last year, and also down almost 4% from the second quarter of this year. The value of the mortgages was more than 62% lower than in the same period last year.

AdvertisementBut the figures showed that the number of mortgages issued to first-time buyers - while still well down from a year earlier - rose for the second quarter in a row. First-time buyers now account for almost 30% of the mortgage market.

Mortgages for investment continue to decline, and now account for 5.7% of the market

12 Nov 2009 

MORTGAGE lending dropped again during the third quarter of this year, but the quarterly rate of decline has slowed significantly since last year, prompting hope that the market may soon pick up.

The latest quarterly Mortgage Market Profile – jointly published by the Irish Banking Federation (IBF) and PricewaterhouseCoopers (PwC) – shows that 12,189 new mortgages were issued between the beginning of July and the end of September, with a combined worth of €2.14 billion.

In volume terms, this represented a 3.9% quarter-by-quarter decline and a 56.4% year-on-year decline, while value was down by 1.3% on the previous quarter and dropped by 62.2% on a year-on-year basis.

The volume of mortgages granted had fallen from just under 28,000 in the third quarter of last year to just under 11,000 by the first quarter of this year, before picking up in the second quarter of this year.

Of significance in the latest figures was the growth in lending to first-time buyers for the second consecutive quarter. The first-time-buyers’ share of the Irish mortgage market has now gone from 19.1% to just shy of 29% in the past two years.

IBF chief executive Pat Farrell said that available credit is still greater than consumer demand but that the slowdown in lending decline – while a move in the right direction, would need to be judged on the back of a number of quarterly timeframes before proof of any real upturn could be gauged.

“While the overall level of mortgage lending in the third quarter shows little change from the previous quarter, the rate of decline in activity that has been so evident over recent quarters now appears to be moderating.

“Significantly, we have seen an increase of nearly 500 over the previous quarter in the number of mortgages issued to first-time buyers and this important segment continues to build market share,” he added.

However, the Professional Insurance Brokers Association (PIBA) reacted strongly to yesterday’s figures, saying that they represented “bank propaganda” and glossed over reality.

“There is a freeze on mortgage and other lending that is preventing any element of normality returning to the market,” said PIBA Mortgage Services director Rachel Doyle.

08 Oct 2009 

THREE out of four mortgage holders have a variable rate mortgage, making them dangerously vulnerable to a rise in eurozone rates.

A new survey by the Central Bank shows that 80pc of homeowners with a mortgage either have a tracker or a standard variable rate loan.

Both of these types of variable mortgages are liable to hikes.

As soon as the European Central Bank (ECB) moves rates above their record low of 1pc, those with trackers will face a rise in repayments.

But people with standard variable rate home loans are vulnerable to rises irrespective of what the ECB does.

This is because lenders can increase standard variables whenever they want.

Permanent TSB has already upped its standard rate for existing customers, with other lenders indicating that they will follow suit.

The Central Bank study shows that 80pc of those with a mortgage have either a tracker or a standard rate mortgage.

This is up from 50pc in 1999, and Irish people have one of the highest proportions of variable mortgages in Europe, the paper by Central Bank economist Nicola Doyle entitled ‘Housing Finance Developments in Ireland’ indicates.

“There are 200,000 mortgage holders right now who are open to price rises at the whim of their lender,” mortgage broker Karl Deeter warned.

“Permanent TSB’s actions have already demonstrated that’s a real threat.

“As if negative equity and collapsing property values were not enough to contend with, they may also be forced to absorb higher profit margins which the banks want to charge in order to remedy their errors of the past.”

Mr Deeter said that most of the people in this situation were not aware of the threat and will not realise the risk until its too late.

However, there is no immediate threat of a rise in ECB interest rates, and economists believe they will be kept at 1pc until the third quarter of 2010.

The data is likely to add to European Central Bank caution not to withdraw its monetary stimulus prematurely when the ECB meets to decide interest rates today.

Economists believe the ECB will keep rates at a record low 1pc until the third quarter of 2010 despite signs the eurozone may have returned to growth in the third quarter of 2009.
Figures out yesterday show that the eurozone’s economy shrank more than previously thought in the second quarter of 2009.

This was because contributions from household demand and trade turned out to be smaller than initially estimated.

Gross domestic product in the 16-country area shrank by 0.2pc in the April-June period quarter-on-quarter and by 4.8pc in annual terms, compared with the previously reported falls of 0.1pc and 4.7pc, Eurostat said.

Irish Independent

29 Oct 2009

IRISH banks continued to turn the screws on borrowers in the third quarter as they tightened lending conditions for mortgages and loans to businesses.

The five Irish banks who took part in the euro banking survey said they would leave the criteria for commercial lending unchanged for the last quarter.

As the banks tightened their lending policies, demand for credit fell further, the Bank Lending Survey (BLS), done on a quarterly basis, found.

Lending policy for non-mortgages over the period was left unchanged.

In the three months to end September demand for loans from households decreased across both categories examined during the third quarter of 2009.

Demand is expected to remain unchanged during the final quarter of 2009. The survey also found that for the Irish banks access to wholesale funding remained “challenging” during the quarter.

In its comments on the other eurozone banks the European Central Bank said “fewer” banks in Europe were setting tougher loan standards, implying that banks are becoming more willing to lend as the credit crisis eases.

Banks continued to tighten their policies on lending in the quarter but less than they did in the previous quarter, but the lifting of restrictions favours businesses more than consumers, the survey said.

That change “further confirms the indications of a turning point in the tightening trend observed at the time of the April 2009 survey,” the ECB said.

“At the same time, it needs to be kept in mind that the cumulated net tightening during the financial turmoil has not yet started to reverse itself and remains very substantial,” it added.

For the fourth quarter more banks are expected to loosen credit standards to businesses than to tighten them.

The degree of net tightening for business credit at 8% was the lowest since banks began toughening their terms two years ago when the financial crisis broke.

The survey did not signal the credit cycle had turned — a key factor for the ECB in deciding when to start tightening its generous liquidity supply and record low interest rates.

While the results are going in the right direction they did not signal the end of tough credit conditions in Europe, analysts said.

27 Aug 2009

ANALYSIS: IRISH LIFE & Permanent (IL&P) signalled that there was some light at the end of the tunnel when it said mortgage arrears and loan losses would peak this year, writes SIMON CARSWELL

Kevin Murphy, in his first results presentation since taking over as chief executive in June, said that arrears on mortgages doubled in the six months to June 2009, but that the pace of increase had fallen as job losses had slowed.

Mr Murphy’s second-in-command, finance director David McCarthy, said he expected arrears to peak at the end of this year, following the same trend for IL&P’s UK buy-to-let mortgages on which arrears have peaked.

While the group raised its long-term forecast for bad debts, the market responded positively, with IL&P’s stock climbing 2 per cent as the results showed there was an end in sight to loan losses.

“It’s positive in that it’s no worse than expected and the capital position looks pretty resilient,” said Sebastian Orsi at Merrion Capital. “The funding environment is improving, but it’s still tough.”

Permanent TSB’s decision to raise its standard variable rate by a half-point last month helped bring the bank’s interest margin above 0.9 per cent, up from 0.87 per cent in June, but still below 1.05 per cent last December.

The battle for deposits and wholesale funding remains costly.

The haemorrhaging of corporate deposits in the first quarter has not been covered by rising retail deposits, driving the key loans-to-deposits ratio above an alarming 300 per cent.

Mr Murphy said that IL&P had been making enquiries with the Government about whether inter-group deposits were covered by the State bank guarantee. If they are, the company may seek to put on deposit at Permanent TSB some of the cash pile of up to €2 billion that is held by Irish Life.

Mr McCarthy said that, as a standalone entity, Permanent TSB would have a core tier one capital ratio of 5 to 6 per cent, assuming that it bought back some bonds from investors at a discount.

This year will be tough for banking, Mr Murphy said, while the life business will be “subdued” and the investment market will not return to normal until 2010.

Some 6,122 of IL&P’s 188,000 mortgages are in arrears of 90 days or more. About 25,000 mortgages, worth in the region of €500 million, or 12 per cent of loans, are in negative equity where the loan is higher than the property’s value.

On its involvement in any restructuring of the sector, IL&P must play a waiting game. It will not be partaking in Nama because it has no development loans to sell to the State body.

Any restructuring that will take place, said Mr Murphy, will occur post-Nama in the latter half of 2010 after the loans with a book value of €90 billion are moved.

Only then will the size of the balance sheets of Irish Nationwide and EBS building society, potential partners of Permanent TSB, be known and how a larger banking group might be created.

In the meantime, IL&P will “look after itself”, according to Mr Murphy. It will continue to seek to grow its deposits and will, during the final quarter of the year, ask shareholders to approve the creation of a new holding company separating Permanent TSB and Irish Life.

Given the drag that the loss-making bank has been on the profitable life business, this will pave the way for a possible off-loading of Permanent TSB and the chance to park the bank in a larger group following the Nama purge of toxic assets across the banking sector.

This in turn will realise some long-awaited value for Irish Life.

26 Aug 2009

The Irish Nationwide Building Society is preparing to launch a range of home loans, putting into effect its plans to move away from commercial lending in favour of growing its residential mortgage business.

Among the products being developed is a number of high loan-to-value mortgages for first-time buyers to grow its share of this market, as the building society attempts to concentrate on expanding the home loan side of its business.

The building society is also planning to recruit a new head of commercial lending for Ireland and Britain in the coming weeks.

The executive, who is expected to be appointed in the coming weeks, will play a key role in liaising with the Government’s toxic loans agency, Nama, which is estimated to acquire up to 75 per cent of the society’s €10 billion loan book.

The building society grew its commercial loan book aggressively during the property boom, particularly in lending to developers.

About 80 per cent of Irish Nationwide’s €10 billion loan book relates to commercial property, with just €2 billion outstanding from residential mortgage borrowers.

Irish Nationwide’s new mortgage products are currently being developed. A staff meeting has been scheduled for later this week at which employees are expected to be briefed on the products, although sources close to the building society said that the launch of the new loans was not imminent.

A spokesman for Irish Nationwide declined to comment when contacted yesterday evening.

Irish Nationwide chairman Danny Kitchen told members at the annual meeting last May that the building society planned to reduce commercial property loans to about 50 per cent of its overall loan book by 2013, and that the lender would try to “prudently expand its home mortgage business”.

The building society this week sold an additional €500 million of Government-guaranteed bonds, bringing to €1.75 billion the amount Irish Nationwide has raised using the support of the State bank guarantee, which expires in 13 months’ time.