Mortgage Arrears Update

The Central Bank have published the Q4 2011 update of the mortgage arrears series with the data for the full year also available.  The update shows that 9.2% of mortgage accounts, and more importantly 12.3% of mortgages by value, are in arrears of 90 days or more.

The total amount of owner-occupied mortgages in Ireland is now €113.5 billion, down from €118.7 billion when this series began in September 2009.  This reflects the very slow uptake of new mortgages and also the continued repayments on many mortgages which are not in arrears.

In fact, in the final three months of the year the stock of mortgages fell from €114.4 billion to €113.5 billion, for a reduction of €935 million.  Since September 2009, the amount of arrears owing on mortgages more than 3 monthly payments in arrears has increased from €354 million to €1,117 million. 

At the end of 2010 the Central Bank estimated that about 50% of the arrears were in the covered banks, 40% in the non-covered banks and 10% in other or sub-prime lenders.  It is not clear what has happened to these proportions over the last 12 months.

The rate at which mortgages are falling into arrears does not appear to be slowing.  Any slowdown would first be seen in the 90 to 180 day category but there is no sign of this. The continued entries into this category would be offset by the 6,700 who moved into the 180 day plus category (and a small number who may have exited arrears) but there was still have an increase of 1,200.

70 replies on “Mortgage Arrears Update”


Just so I’m clear on this – does that figure of 9.2% of mortgage accounts being in arrears of 90 days or more exclude mortgages that have been ‘restructured’ in some way (e.g. may have been previously in arrears but some deal has been struck, may be paying interest only until they find a new job, have negotiated a lower payment ‘for now’, etc.) because they couldn’t keep up their original mortgage payment…. and do we know how many of those there are so that we can quantify how many ‘distressed’ mortgages there actually are out there?

Also, do we know how many may currently be in 30-89 days arrears?

I usually find with the financial services industry and statistics that ‘hard’ rules like 90 days in arrears often don’t tell the whole story. I would hate to think these figures are being massaged in any way to make a worse situation simply look bad.

The rate at which people are falling into arrears is not slowing down. That is worrying.

p.s. Can you please remind me. Is there still some moratorium/official forebearance on house repo’s in Ireland for those in arrears and how long will it likely last?

@ Seamus Coffey

Thanks for those figures. Looking at the numbers in the round there are not as bad as one would expect with nearly 15% unemployment and a drop of up to 60%+ in residential property values since 2007. I reckon around 13.5% of the total in value terms are some way in arrears or impaired. I understand that the number of mortgage accounts 768,000 does not necessarily equate to the number of properties mortgaged in that some properties have more than one mortgage loan. Therefore, the number of residential units mortgaged might be be of the order of 550,000 – 600,000 out of a total housing stock of c 1.8 million. It will be interesting to see at the end of 2012 if workable Personal Insovency Arrangements are put in place will the figures change downwards or remain much the same because the Banks will stymy the process.

@ PR

excludes restructures that are still paying good, but includes restructures that are in arrears. Total of arrears plus good restructures is 14%.

I really don t know why anyone pays for bin charges or mortgages when its clear reneiging on them is almost encouraged by the government, it makes fools out of those who do pay rent and mortgages. The table in the link below is a comparison of mortgages in arrears to repossesions in the UK and Ireland and explains the immature and irresponsible dead hand of Irish society. No one can make a tough decision for fear of being unpopular

Our head in the sand approach will further reduce the living standards for all while not dealing with those that own an asset they cannot afford

So reducing wages, reducing benefits, laying off workers and reducing government spending isn’t improving people’s ability to pay their mortgages?

Seriously, who expected this situation to improve? Who expects it to improve in the next two years? Even people with jobs are using their savings to survive this recession. Those will run out eventually.


Perhaps I misunderstand the current dynamic of the economic environment, but no one is reducing wages, or laying people off or reducing gov spending. These are not choices that are being made but a fact of the economic environment. where is the choice here? If someone deiceds to spend their savings on a house they cannot afford who is responsible?


Seeing as you’re drifting into the blame game the actual blame rests with the banks who mispriced Irish housing for the best part of a decade and still expects the normal Joe to cough up 100% of that pricing error as long as air is in his / her lungs. I don’t think so.

The problem in these numbers is that they are too black and white meaning either your stressed/restructured or you’re not.

The real pain is for the 40% or so of mortgage holders who lie beneath the surface whereby the majority of their income is used servicing an over priced asset with little of no room left for anything else. As and when the Croke Park deal is renegotiated and wages and salaries for the PS are benchmarked lower will the true extent of this disaster actually unfold given the significantly higher prepensity of PS to hold mortgages based on the ‘job for life’ bank lending model which allowed the banks lending comfort in the first instance despite the daft rental yield multiples houses were financed for.

The car market is as always very interesting
So lets look at the Jan 2009 figures (the year of the car / credit total collapse)
Y2009 Jan
Class A : 1,118 Class B : 5,339 Class C : 2,277 Class D :1,262 Class E : 578 Class F:140
Class G : 43 unspecified class :170 Total : 10,997 / Total classA & B : 6,457

Y2012 Jan
Class A : 7,482 Class B : 5,860 Class C : 538 Class D :295 Class E :167 Class F :141 Class G : 8 Unspecified class : 16 Total :14,507 / Total class A & B :13,342

Notice the dramatic fall of Class C & beyond
If the Jan figures are anything to go by then class A cars will constitute 50%+ perhaps 60% of the new car market for 2012 !
This contrasts with a 13% share in 2009 !

Thanks Y or B

I think the rationale used to address the overall catastrophe will be critical to the outcome. A solution based on an absolution from responsibility of individual decision makers forms a resolution model that seeks to protect them from the cold reality, this protection comes in the form of an economic torpor holding back the healing process as Irish society bleats foul play and demands a bailout for the little man. If allowed this ‘solution’ will render it impossible to securtise any debt and make lending obsolite leaving only a cash market. which I think is fine as without credit, asset prices will fall and that is a good thing for an economy and for the standard of living, allowing us to afford similar lifestyles (housing) on reduced incomes. Expecting individuals to remain in assets they cannot afford is irresponsible and deluded and will not work – these are unfortunate casualties of an economic war, unlike their analogous army bretheren they were not conscripted but went willingly, many were well educated and knew the risks, if they had an appreciating asset then they would not be expected to share their spoils, now why should we share their loses?

@ All

It may be useful to have a link to Stephen Kinsella’s short and admirably clear note to the recent Oireachtas committee.

The facts are indisputable. However, his conclusion with regard to unorthodox actions by the ECB being extended to take Ireland off the hook for the PN is optimistic, to put it mildly. Were such a step to be conceded, it would set an impossible precedent. However, such is the size of the “third contingent liability” being dealt with on this thread, action of some kind to defuse the situation may be required sooner rather than later.

Capitalism simply cannot cope with gluts – it can only “work” withen a shortage bubble.
There is a massive housing glut – why oh why must we tie our money supply to these Fraudulent dead assets ?
Give mortgage holders the deeds , convert credit deposits to goverment money and clear the market.
This “market” has NO ECONOMIC FUNCTION – indeed its our biggest impediment to real economic development.

Extract Frank Daly’s speech to the Society of Chartered Surveyors April 2011 Valuation
“The crisis in which Ireland now finds itself has, as its source, a banking implosion which was driven ultimately by a property market bubble. It would be remiss of me to appear in front of a gathering of construction and property professionals such as this without raising the question of whether, at least collectively, you could have been more vigilant in drawing attention to the enormous systemic risk which was being created. Many of you must have wondered about the sustainability of the ever-escalating upward price spiral that was developing by the middle of the last decide, a spiral driven by cheap money and by a coterie of bankers and market participants who appeared to lack a basic understanding of the dynamics of a properly-functioning market. You must have questioned whether a fourfold increase in commercial and residential property prices in the decade after 1997 could possibly have been justified given its ever-increasing divergence from the trend of economic growth over the same period.
I expect that the valuation professionals amongst you will claim that your job is to provide the best estimate of the market price of a particular property at a particular point in time. However, there is a widespread external view that your responsibilities are more extensive than that. This applies also to other professions such as accounting and auditing which have been similarly criticised for adopting a narrow interpretation of their responsibilities during the evolution of the banking and property bubbles. At a time when many lay people with no great knowledge of the property business were becoming increasingly alarmed at the disconnection between the prices being paid for properties and the intrinsic long-term economic value of those properties, could the two professional bodies not have signalled some concern at what was taking place?
I expect that I am saying nothing which has not been said by many individual members of the Society over recent years. Given your evident determination to cultivate and maintain the highest professional standards, I would suggest, as an outsider, that a critique of the performance of the profession during the evolution of the property price bubble would be a cathartic exercise for the new Society to initiate and support. The credibility of your profession would be enhanced if you could show that steps were being taken to address the mistakes of the last decade.”

We can absorb this.
Biggest worry remains sovereign debt. There quite simply is no way we can avoid default on the sovereign debt


Total value of mortgages now in arrears= ~14 billion.
Approx 50% covered banks = ~ 7 billion.
Bank recap allocated to mortgages = ? billion.

The point of my comment, while not trying to diminish either the scale or the trauma for those affected, is to try to understand how banks who have been allocated significant amounts in respect of mortgage debts are ‘distributing’ that money.
Is it possible for instance that some of the provisions for mortgage debts have already been used up before calculating the number above.


Re your question:

“If someone deiceds to spend their savings on a house they cannot afford who is responsible?”

Perhaps if you ask yourself the following question you may be able to reach an answer to the question you have posed :

If some bank official decides to authorise a loan in an overpriced mortgage who is responsible?

After you have asked yourself that question the following fact ( I am presuming you are actually genuinely seeking an answer rather than advocating some sort of neo-liberal garbage) may be of some assistance.

“Covering” banks is “uncharted territory” in public administration but the concept of supporting distressed mortagage/lease/rent holders has not been an alien concept to the various combinations of Conservative, Liberal and Social Democrat governments in Ireland, UK and most mature West European democracies for several decades.:)


Thank you for these fugures and your analysis. Particularly interesting are the figures illustrating dramatic fall in outstanding loans for Q4 2011. It appears that there has been a very aggressive (and “accelerated”) “paying down” of personal and private sector loans since last spring.

As the Irish banking sector has been seduced by the (actually unnecessary) need to”spin” and obfuscate facts we, including members of the Government, may have to draw some informed conclusions ourselves about what is actually happening in the Irish banking sector.

One of those conclusions may be that, in additon to developing an “aversion” to banks, individuals and SME`s are developing an aversion to taking out loans thus driving down private sector demand for commercial loans.

In fairness to the residual “banking experts” , as demonstrated by their failure to realise (or care?) that the economy was overheating, in recent years they seem to be incapable of understanding what is happening within the economy and their own institutions until after it has happened.

Some residual “banking experts” also seem to be in shock over the stark reality that despite stupidly overpriced salaries they are not actually immune from Government supervision and are rapidly becoming “surplus to requirements” within their own institutions and the larger economy.

Consequently continued reliance on half decent direct and indirect “spin” (which seems to have been the major occupation in Irish banking for 8 or 9 years prior to 2010) by residual “experts” should be expected for at least another 9 or 10 months while the “purging” works itś way through the system.

It is often popular to imply that the “truth hurts” or “you cannot handle the truth”. However IMHO we are actually proceeding very quickly towards a situation where “the truth” will only really be uncomfortable for “financial experts”, public service technocrats and incompetent public representatives who have been “spiining” for so long that they are rapidly becoming the only ones who believe their “half decent” spin.

Meanwhile the rest of us, together with diligent elected representatives, practical bank executives and flexible public servants will carry on with our lives and make the necessary adjustments.

Even Livonian is considering using her/his own name and becoming increasingly less concerned about who knows it.:)


@john Corcoran

I would like know the number of buildings occupied by government agencies, in the broadest sense, and the annual cost of rent for this year, say, versus 2006. Have you any figures?

People living in fairyland would be astonished by the curious leasing coincidences that seem to occur involving government ministers, their departments, and party supporters who just happen to be in the property game.

Side point: personally I am a bit surprised that farmers leasing land haven’t been caught out and forced to offer very long leases once any building at all is on the leased land.


“Expecting individuals to remain in assets they cannot afford is irresponsible and deluded and will not work – these are unfortunate casualties of an economic war, unlike their analogous army bretheren they were not conscripted but went willinglyExpecting individuals to remain in assets they cannot afford is irresponsible and deluded and will not work – these are unfortunate casualties of an economic war, unlike their analogous army bretheren they were not conscripted but went willingly…”

So by that logic the millions of men who “willingly” signed up to fight on different sides in the WWI (let they be “left behind” or considered not to be brave enough to do wahteveryone else was doing) and subsequently became canon fodder at the whims “experienced” generals deserved to be slaughtered.

As you may have heard Europe Western Europe changed an awful lot between 1914 and 1949 and one of the countries which was the first to change was Ireland.

I strongly suspect (and seriously hope) you do not believe your own arguments. However whether you do or not I do not wish to debate with you.:-)

@Rich: “- these are unfortunate casualties of an economic war…”

Pity you did not stop there. Did you ever see a real war casualty? I hope not. Tends to leave a permanent mental scar on the observer.

The ‘economic war’ you mention is a carefully crafted and publicised figment. Psychological displacement. It was just plain incompetence by real persons, allied with political corruption. Lots of folk are unemployed and impoverished as a consequence. Reality is like that; plain, brutal and truthful. Ask any ‘casualty’.

Significant numbers of properties on trackers will be dumped as soon as those trackers move upwards. There are inherent dangers being stitched into the system by ECB chief Mario Monti. Firstly, he is expanding the money supply hand over fist, with backdoor QE which is a subsidy to banks that is going to be paid for by lower growth prospects across the EZ.

Secondly, the low interest rates means bank profits are restricted, consequently they will need even more 1% money. Remember, another 600 or so billion on the way. Depends on his mood! Meanwhile, the circle cannot be squared with policies which are impair its own balance sheet and expand it at the same time. Then the ‘black swan’ of changing seniority which means banks will find it more difficult to wean itself off the flood of ECB easy money.

As soon as these matters play out we are going to have inflation which they will lead to interest rate hikes. Sooner or later trackers will increase or he may even be fooled by his own belief that he has actually “solved” the problem, into increasing rates. America brought certainty be declaring interest rates would remain static for another 2 years. The ECB would actually like to raise rates despite its forbearance at the moment. ECB always has a bias towards increasing rates and time and again they have done so only to be forced into reversing engines. The main point is, 60% of our mortgages are trackers and these are allowing people to hide behind historically low interest rates.

Ireland’s property market has some interesting characteristics.

A planning corruption tribunal has been sitting since 1997, mainly investigating payments of small sum bribes that had big consequences and public contract lawyers have become multimillionaires making more
in a day than the payments they have been investigating – – one dysfunctional system investigating another.

Has the system that spawned the corruption been reformed? Why have people tolerated the building of some of the worst standard of housing in Western Europe, in a country with a low level of urbanisation?

Also in Western Europe Ireland has a high level of owner-occupied homes without a mortgage at above 40% compared with for example the Netherlands at below 10% and Denmark and Sweden at low single digits.

With a high level of empty dwellings and the severe recession, it’s strange that rents remain so high that the Government has to provide as much as half a billion euros annually in rent supplement to 97,000 people.

Maybe we need another investigation on Ballymagash planning at 88 planning authorities and that strange concept known as conflict of interest?

As to culpability, there are surely different levels.

Robert Frank of Cornell University has argued that conventional economic models ignore social context and he has claimed that growing inequality in the US triggered spending cascades through the economy.

He says the median size of a newly constructed single-family house, which stood at 1,600 square feet in 1980, had grown to more than 2,300 square feet by 2007.

Since the median wage was essentially stagnant during this period, this growth cannot be explained by growth in income. Middle-income families felt they had to spend more on housing because other families like them were spending more. And those families were spending more because of an expenditure cascade launched by higher spending at the top. Failure to keep pace meant sending one’s children to inferior schools, a step few middle-income parents were willing to take.

It is thus clear that being influenced by community consumption standards need not imply myopia. On the contrary, it may be a perfectly rational response on the part of consumers in pursuit of widely recognized goals.

On the other hand, there is considerable evidence that myopia is a salient feature of human psychology. The pain of enduring lower relative living standards today can be experienced directly. In contrast, the pain of enduring lower relative standards in the future can only be imagined. So even though expenditure cascades can exist in the absence of myopia, they are undoubtedly strengthened by it.

The banks are doing what banks do

On the face of it, some of these demands are only reasonable – if you are living beyond your means then cut your cloth etc. as any sensible person would do (though telling you were to buy your bread is probably stretching it a bit).

However, I believe that what’s good for goose is good for the gander and I think we should have a similar 12 page financial ‘fessing up by the banks so that we can see what ‘luxuries’ a number of their staff, particularly senior ones, are availing of (and I know for a fact they are) and what fat can be cut in their straitened times.

Share the pain anyone? Give up that gym/golf/tennis club membership as a starting point? The dinners at top restaurants? The subsidised loans? The free full benefits, most expensive, all singing healthcare package you are telling your customers to drop (handy they don’t sell that product either)? And the rest……..

On the 15th November 2011 the Grafton Street tenants notified the Directorate-General for Competition of the European Union(ref no.2011/121371) and the Irish government,of a cartel in the Irish commercial property market.
This cartel had imposed on all Irish commercial tenants,the most anti-tenant commercial lease law in the world i.e.upward-only rent reviews(UORRs) tied to long leases. Tenants bought into these leases which implied commercial rents would be set by independent parties. This process was arbitrary,not capable of objective justification,did not comply with data protection laws and was clearly anti-competitive as organised by a cartel. Our government either colluded with the cartel or was criminally negligent by signing these ruinous leases,and wasting its citizens money. No other member country of the eurozone tolerates this ruinous lease law. Reckless Irish banks lent tens of billions against these ruinous leases not against the properties. In 2008 Grafton Street became the fifth highest rented street in the world.

@ John Corcoran

Thanks for pointing out the elephant in the room. We have economic dinosaurs still wandering around this little island. The biggest one is Rentosaurus Propertarii, which you have correctly identified. We have also have R Energii which Paul Hunt and Dork have studied.

There are number of others, including R Legalii, R Medicinii and other ‘self-regulators’. Their prefered habitiat is the public-private sector interface which provides plenty of cover for opportunisitc kills.

The rich growth of FDI and IFSC on the island has had the effect of obscuring the devastation wreaked by the Rentosaurs, but the devastation will eventually become apparent as the habitat shrinks.

1. Arrears should be less than half current numbers if banks had done the jobs and foreclosed on defaulted mortgages.
2. Banks have not been given money for debt forgiveness. Although much of the media seen to think so, this is simply not the case. They seem to think that taxpayer recap money has been spent. Well it hasn’t and bank’s have a duty to preserve capital.
3. Moral hazard. There are many families struggling, it sucks but that’s the way it is. I wonder how many can save €1000 a month after living expenses. So if there is a prospect to wipe 100-200k off their mortgage, they’d be mad not to take it. Many years worth of savings could be had (100k might be 10yrs worth of rating).
4. As alluded to above – equal treatment for all. At present there are various moratoriums to give mortgagees a chance to get back on track. Such protection isn’t available to renters. Should the state discriminate on residential status?


It is incredibly hard to discern any hint from your posts that the tenants might have been reckless in signing these leases in the first place. What was the rationale. Is it perhaps the fact that retail margins in Ireland were among the highest in Europe? Were these tenants engaged in a bit of rent seeking themselves at the expense of the consumers.


How much has retail sales beaten inflation by in the last twenty years.? How much has retail rents beaten inflation by in the last twenty years?.

There is a MABS-supported publication on mortgage arrears, the background to the present crisis – 1 in 14 mortgages being more than six months in arrears is a “crisis” – potential solutions and recommended solutions here

It’s 130 pages in length and there is some interesting new perspectives, mostly though it draws together existing information. The publication is noteworthy for having a human angle with published comments from interviews with a large number of households.

In the end of the day the winners of any conflict will always find a way to blame the losers.
Joan Burton got it right.

Banks have been adequately recapitalized to absorb this loss (probably up to 15/20%) so this isn’t too bad.

@PR Guy

I just read that Independent story on the web. Banks tell thousands to cut health insurance. Many may deem this perfectly reasonable, but I am looking forward to the day I read a headline ‘Thousands tell banks to discount loans and government listens’.

The fact is that many small businesses and people are thoroughly submerged under water, and that figure is running into tens of thousands, and will never be able to repay their loans/mortgages in their entirety. The only outcomes are either mass repossessions by banks or mass dispossession of homes in favour of other agencies, such as housing associations – the latter being unlikely. There is a huge denial, in my opinion, across the political spectrum about the likely complexion of Irish society in a few years times.

One of the great disappoints of the ‘action plan for jobs’ is its failure to sketch out even one, or several, means for connecting workfare programs (would people be happier with the more acceptable term ‘internships?) with mortgage distress relief.

Maybe the economists can spell out how a high wage economy (or high wage expectation economy) can become a low wage economy, which is where Ireland needs to go, and deal with high levels of personal debt. Because as a simple minded creature, I cannot see a solution without government intervention on the debt discounting front. I have long given up expecting the government to do something sensible on legal fees when I read what NAM and the Central Bank are spending.

I have glanced through this and in summary it appears another extend, pretend and pray document listing medium term viable mortgages as those that are likely to be sustainable in ‘5-7’ years and in the mean time we suspend payments, defer interest etc. These loans will essentially be non performing reducing credit availability to society through the banks and loading someone elses bad aset purchase decision on to the rest of society. This is farcical as is the concept of mortgage to rent. No advantage should acrue to an irresponsible asset purchaser taking on a loan they couldn’t afford (poor risk assessment at time of purchase) such that they can expect to have a size, location and quality of house subsidised by me and you when such an asset could be recycled into the system to achieve some offset on the loses to the countries balance sheet (ie banks BS). At the same time a more modest less well located domicile would be sufficient ie in all those longford ghost estates

Its sentimental suicide and its time for it to stop


These high rents were imposed on Irish commercial tenants at rent review /arbitration. It wasn’t voluntary. The reviewed rents bore no relationship with the original contracted rent. By way of example when I signed my lease on our Grafton Street premises the rent was 140K p.a. Two rent reviews later i.e. ten years later it increased to 445K p.a.

@john corcoran

I have a son working in your neck of the woods. The weekly rent on the shop is 15k. The floor is hardly big enough to hold 80 bullocks.

Grafton Street among the most expensive retail streets in the world always seemed a bit odd but then there are international rent levels for main shopping streets/locations such as Orchard Road, Singapore, KLCC by the Petronas Twin Towers in Kuala Lumpur and also the Pavilion Shopping Centre in KL.

These streets/shopping malls are in effect showcases for the world’s luxury brands.

What is more relevant to this thread are the short rent leases in Ireland for residential accommodation which prompts people to consider buying houses compared with for example in Germany.

@The Alchemist: “I cannot see a solution without government intervention …”

You won’t either. The gov will do as they are instructed – unless a few senior ministers in both FG and ILP have a “Come to Jesus” moment. Possible, but improbable.

Are they mini-bullocks? 80 bullocks produce a lot of s**t! 😎

@Rich: The ‘pig is in the tunnel’ on this one. If it exits – its ‘game over’ time!

@ John Corcoran

Many thanks for the winelake link showing total state rents of the order of €129m in 2010.

Govt reform program refers to re-negotiation of these leases to seek voluntary reductions to reflect current market realities. However, no actual evidence that this has been done or that landlords have spontaneoulsly offered rent reductions to the blue chip state tenant.

A very simple and enlightening exercise would be for Brian Hayes to write an open published letter to all the state’s landlords asking politely for a reduction of 30% in annual rents with immediate effect from 1 Jan 2012.

The Minister could publish the replies/non-replies and for the cost of a few stamps we would all see just who is prepared to put on the “green jersey” when it hurts their own pocket.

This tactic would represent an intelligent use of the state’s purchasing power which could have knock-on downward pressure on commercial rents generally. Of course it will never happen as the whole idea of transparency and competition in the Irish commercial property market is anathema to both politicians and property interests. Seems we are doomed to have the rent millstone around our necks for another generation at least.

Good luck with your campaign and action via the EU.

The individual leases on government buildings must be constantly come up for renewal, a clear focus on terms and conditions would allow for pressure to come on before the lease expires ie if you wish to keep us (the gov) as tenants reduce our rents by x now and we will extend our lease, if you do not then you will not be considered in future tenders – simples!

@Uaitear gan Phingin
The government was the best covenent in the state,and by ageeing these ruinous leases copperfastened them for all commercial tenants. No other european government would ever sign a feudal lease like these. The cartel needed the government onside otherwise the cartel couldn’t have operated.

I have never understood, at ine level, why the government prefers to lease rather than purchase. Its business isn’t commercial and therefore purchase costwise must represent a more sensible use of taxpayer funds.

The whole system is ripe for, and with, corruption. But don’t worry oceans of tribunal reports later, and abundant evidence from numerous Dail committees and investigations that conflicts of interest have seriously compromised and damaged the economic future, political inertia still flourishes.

@ Jophn Corcoran

‘The government was the best covenent in the state,and by agreeing these ruinous leases copperfastened them for all commercial tenants. No other european government would ever sign a feudal lease like these’

That’s the core of it. No other northern European governement would be so deeply and chronically penetrated by sectoral interests. Irish government is almost an oxymoron.

As the saying goes, ‘It’s coming off a broad back’. The state was a cow to be milked by all and sundry, with property interests firmly glued to the front tit. It is sad to say, but it’s hard to see the whole circus ending in any way except debt deflation, PS breakup and hard default.

@Michael Hennigan
Perhaps residential tenants might consider 35-year ratchet upward-only rent review leases with no break clauses. If any tenant in a similar property agrees a world record rent ,all tenants must pay this rent.
That is what Irish retail tenants have to endure, the most anti-tenant commercial lease law in the world. Reckless Irish banks and ruinous Irish commercial lease law destroyed our country.

Yes but you could negotiate a rebate form the landlord which would negate all of the legal supposed impediments

Like all the real issues in our country if there was a real will to resolve these issues from a society point of view rather individual special interests hogging the limelight by pulling on heart strings then we could start to resolve the problems rather than watching them deteriorate

I don’t understand why any rational individual would sign such a lease. Were you forced at gunpoint. Or were the margins/ profits so good in the boom times that you were compensated for rent inflation.
Also, given business is down, why not go to the landlord and negotiate. After all if you go bust he has no rent.

@ Tull
I’m not a communist. In fact I’m pretty right of center on a lot of things. But I do think the socialists were sort of onto something. It seems there is a productive class and a parasite class in every society.
Some landlords (not all) belong to the parasite class. The banks are in it too. They’re basically people who extract money from others for no work. Strange how all that Marxist stuff actually had something in it – they just went too extreme.

@ John Corcoran

The Grafton and other leases became a scrip currency of their own against which the banks lent the 10s of billions you mentioned in your IT letter.

“Scrip” a substitute for currency which is not legal tender. So, our banks were accepting scrip as collateral for their loans, small wonder they went broke!

My landlord is Canada Life/Great West Life ,who manage 500 Billion in funds. I looked for a rent reduction but their reply was and I quote “now that we have you over-rented we are going to teach you a lesson and we have the support of all other Dublin landlords” The cartel blamed me on the government banning upward-only rent reviews in all future commercial leases. This forms part of our sworn affidavitt at the High Court. Canada Life are suing my company for rent arrears. The cartel have awesome power.

@Uaitar gan Phingin

That document is just the tip of the iceberg. All the quangos, government financed bodies etc etc etc signed these ruinous leases and squandered our mone . The political class are covering up for them because the landlords are their own family members, political donors, cronies etc etc.

Valuation –The Irish Society of Chartered Surveyors.

An asset/property has only two values, the price you can get for it,or the net present value of it’s future cash flows. If somebody auctioneed a I euro note on Grafton Street and it was bidded up to 5 euro, then a surveyor would value all 1 euro notes as 5 euro notes. Now we all know the net present value of 1 euro is 1 euro. Likewise if some person paid 5 million euro for a house whose net present value was 1 million euro ,then a surveyor would value all other similar houses in that estate at 5 million euro.

The commercial property market was similar. If one tenant on Grafton Street paid a world record rent for shop A , the other hundred shops would be obliged to pay this rent also and surveyors would value all shops on Grafton Street accordingly.

Almost all of the banks reckless lending was done using surveyors/auctioneers valuations. These valuations were as good as money.

@Amac & Tull

Sadly by your tone you fall into the class of folk who believe the oft quoted Pat Kenny line – ‘sure a house is only worth what someone is willing to pay for it’

Wrong, wrong and wrong again.

This is the highest form of nauseating simplistic claptrap that I read and hear every day of the working week and your comments suggest you’re of a similar view.

I lent money for bank into property deals for the best part of 10 years and let me be crystal on the issue – banks price property, in leveraged driven deals they always have they most likely always will.

In 98% of Irish residential property transactions the deals simply don’t happen (in a ‘normal’ market) without the aid of a 3rd party lending bank, repeat the deals simply DO NOT HAPPEN unless a 3rd party lending banks allows it so.

The banks call the tune in any leverage driven asset market such as property, they dictate the terms and they say if the deal happens at a price or it doesn’t. Ordinary folk believe they bought a house for X or Y – indeed the price may be the one at which they agreed but ultimately a 3rd party lending bank says yah or nay to 98% of residential property deals. The banks dictate the terms and the leading term is the price.

In a leverage market and in Ireland where the average LTV over the past 15 years or so was c85% to 90% it seems actually sort of quaint for the average Joe to suggest a house deal went through for x or y price – with 85% + of the finance for said deal coming from a third party perhaps he/she should think again – the deal happened because the bank allowed it so and the bank by their action were implying they were comfortable with the price.

Think about this – particularly in the case of a new development. The developer buys the land (with bank finance) and provides an outline of costs to bring a project to fruition and units are priced to cover these costs and deliver a profit to the developer. The average profit yield for housing developers has varied widely over the years but on average net margins between 5% to 12% were the norm. Working back from these known costs and using such margins out falls the projected unit price. Now if that price (as it was for most projects between 2002 to 2007) was a million miles off average long run local rent multiples – what happens?

Well I can tell you the bank will insist on the price which covers the cost of funds and covers the project costs i.e. the bank will determine the unit price – nothing to do with the consumer but all to do with the bank. So in a easy credit world who really determines the price of said houses/apartments?

Such a price it must be noted, is not a cash price its a leverage dependant price – a normal asset market is where cash transactions determine pricing – in property, leverage levels determine pricing. The cash price in the property market is – you may have heard of it – yes you guessed it – RENT.

Normal consumers don’t borrow to pay for their rent – they finance it out of ongoing earnings and hence rent (under short lease terms ) represents the true price of housing – using a long run rental multiple established over many years is the only true way to price housing i.e. off the cash price being rents in the market.

Banks normally don’t determine rentals – consumers do, now if banks in the past used rents times a long run average multiple to establish house prices then we wouldn’t be having this conversation. Sadly banks didn’t do this. Banks lending models work off an affordability metric – they approve a mortgage based on affordability scenarios and the consumer with this leverage driven purchasing power buys his/her house – the price of the house not being based on the cash based price of a long run local rental multiple but primarily based on the size of the leverage available to would be house buyers.

So please the next time you consider a housing market and its prices consider the credit availability in the market – and ultimately that (sadly) will most likely determine pricing and thats a banks call.

@ Yields or Bust

I’ve been following your posts with interest. I still have you down for a 75% fall by 2015.

Is the converse of your argument true now that house prices are falling? That is, are house prices now going down in a tough credit environment because of what banks are willing to lend, rather than say, unsure buyers are sitting out until they feel confidence in their own circumstances and/or prices have hit the ‘bottom’?


A bit of both.

The latest rental survey for q4 2011 has the average rental yield in the market at 5.1%. This yield is simply too low. It is below the long run average of 7% net yield and importantly it is based on rents surveyed before the effects of the rent allowance adjustments announced in the Budget in early December.

The 5.1% yield is an asking yield. Ronan Lyons has recently surveyed the adjustment between asking and contracted has has concluded that a discount of about 7% is the average in the market. So using these numbers adjust as follows:

5.1% * 0.93 = 4.78%

Now these are gross yields and the standard adjustment back to net yields is 11/12 of the gross i.e. one month rent to cover for vacancy, upkeep, Govt Charges etc. Given the recent plethora of Govt charges the 11/12 ajustment may be slightly overstating the real net picture but for the purposes of this exercise lets run with it. Therfore the model net yield at q4 2011 is.

4.78% * 11/12 = 4.34%.

Now 4.34% compares with a long run average net yield of 7% (7% based on Govts own numbers from the Depts website) – it must be noted that the 7% number includes the past decade where average yields have essentially being wrong – an boy we’re learning every day of the week how were badly wrong they really were – a more appropriate net yield for the early 1970s (start of date set) to 2001 was between 8% to 9%. Some would argue this is simply a function of higher interest rates over that period but that argument doesn’t actually stand up under scrutiny because in the late 1970s early 1980s when lending rates were averaging 12% to 15% net yields never got beyond 11%. So lending rates are not the sole cause of the most recent reduction in yields, there is something else at work in the system, most notably shockingly bad bank lending models.

Anyhow the point being that 7% whilst the long run ‘average’ is somewhat understating the more realistic long run net average during times when supply demand dynamics in the housing market were more in tune. We clearly don’t have that today in most parts of the country so it’s fair to assume that until the supply demand dynamic reasserts itself as balanced, yields will likely creep at least beyond their more realistic long run averge of between 8% to 9% and potentially beyond that number. The recent Allsops auction results are suggesting that this is exactly what is happening in the market. So where does that get us ?

Current model net yield is 4.34% and long run ‘average’ is c8.5% so from here these numbers would suggest an additional fall of about 49% (8.5-4.34/8.5)to get to the sort of yield that makes sense in a longer term analysis of the market. Repeat from here we require and additional c50% fall in house prices.

From the peak: peak yields were 3.1% in June 2007.

Adjustments to net:

3.1% * 0.93% = 2.88% (Asking to contracted)

2.88% *11/12 = 2.64% (Gross to net)

So therefore at the top actual net yields were 2.64% (which of itself is an incredible number relative to ‘risk’ free alternatives available in the market at the time) and we know from the surveys in the interim that nominal/cash rents have fallen by 24.8% from the top to q4 2011 so basing cash yields on peak prices would have peak yields today at:

2.64% * (100%-24.8%) = 1.98%.

As suggested above the 1.98% should read c8.5% in a normalised housing market so the PTT pricing adjustment required is:

(8.5-1.98)/8.5 = 76.7% ~ 77%. (on the very BIG assumption that nominal rents remain static from here – to me this looks optimistic, be that as it may the 77% number stands).

In summary from the top a 77% adjustment required and from today c50%.

In relation to the credit availability issue – buyers confidence is a fickle issue, generally easier credit terms lifts confidence. History tells us that this should in fact be a very worringing development but human nature as it is dances to a different economic tune – so market confidence (insert your own defintion here) to my mind returns when credit availability returns in a meaningful way. I don’t believe however that it effects the numbers above as the banks lending models are adjusting to a yield based rental multiple model which should in theory avoid the errors of the past. In theory.

It is worth monitoring the Allsops auction results in detail. Over the past year the yields on the agreed sales have been rising as the number of cash only buyers has been falling. This tells me that two very important things 1. We’re slowly running out of cash only buyers who want to take a punt on Irish property and 2. As the cash only buyers are being replaced with those who have secured mortgage finance the yields are rising – suggesting as it should, that the risks inherent in a deal with leverage versus cash only are rising and investors are looking to be compensated for this additional risk by way of lower house prices (higher yields). Watch this space.

@Yields or Bust

You maybe incorrect to suggest low interest rates were responsible for the bubble. Low interests rates were available all across the eurozone. I suggest the reasons were , a misallocation of resoures by all our banks, unwise incentives to bank lending staff, inferior risk managenment by our banks and light or no regulation. We have had low interest rates in the past without property bubbles.

@John Corcoran

On the contrary – what I’m suggesting is that interest rates are in fact a pretty poor lead indicator of where rental yields should in fact trend to. In the late 1970s early 1980s higher lending rates did not lead automatically lead to higher rental yields because supply and demand for housing were pretty much in balance and long run yield dynamics held relatively steady.

With lending rates falling to very low levels in the EU during the noughties it shouldn’t have automatically meant yields dropping to the levels as noted above – you are correct crazy banking practices here and elsewhere allowed this to happen. As ‘ability to repay’ lending models morphed into a valuation model of choice for banks rather than the fundamental rental multiple approach – the result being that as incomes grew ability to repay grew as lending rates fell and the size of loans (approvals) grew in lockstep and all the while cash rents remained static in real terms from about 2002 to 2007. And the rest as they say, is history.

The pricing error here rests 100% full square with the lending banks as they always had to choice to say no. Had they continued to lend based on rental multiples rather than worrying if borrowers had the ability to continually earn ever higher bubble bonues to support daft loans we would all be significantly better off today.

@Yields or Bust

The commercial property was similar, but we were alone in the eurozone in having feudal lease law i.e. upward-only rent reviews tied to long leases. This inflated the valuation model and incentivised the over-renting of tenants and ultimate destruction. They lent long, with high LTVs on long leases. They would not have been as reckless with short european leases.

This excellent article identifies that the surveyors/auctioneers held the power over the broadsheet media to ensure the property propaganda never was stopped. The broadsheet media needed the revenue from the property adds for their business model.

Estate agents stage online revolt. Mark Keenan Sunday Times 2011

Twenty years ago,Irelands’s estate agents fumed because just two
commercial media outlets controlled the property advertising market. To
gain true nationwide exposure,your home had to be advertised in the
property pages of either the Irish Independent or The Irish Times,then
Ireland’s only two nationwide property supplements. But pagination
restrictions meant a limited supply of space in both. This led to a high
demand and high prices(16,000 a page) that many agencies believed were
So when the internet arrived,the bigger estate agency networks banded
together to create,then the result was not only a cheaper
marketing platform for agents and their customers.with unlimited
access,but one that the agents themselves controlled. They sold it at
the top of the bubble to the Irish Times for 40 million in what proved
to be an inspired profit decision but one that lost them control of
their own marketing platform. Meanwhile, the successful
lettings portal,entered the home-sales market and now there were two
dominant portals.

Once again the marketing of Irish homes was dominated by two platforms
owned by two media companies to which agencies are paying 6,000 to
10,000 per annum to access today. Complaints about these costs at the
latest annual meeting of the Irish Professionals Auctioneers and
Valuers(IPAV),which represents largely rural-based independent agents
but also a significent number of independent in Dublin, led to this
week’s launch of the, a portal that will be free to IPAV
agents and their clients. IPAV says it will contain 35,000 homes by
early next month. But to have any hope of dominating the portal
market,, would have to link up with the Society of Chartered
Surveyors(SCS), the larger and rival estate agent’s representative
association. Both organisations combined represent about 95% of the
property being sold in Ireland at any time. IPAV w’ont rule out such an
approach to the SCS and one member added:”if we could become the
dominant website by using our combined property pool,then overnight it
would be goodbye to paysites,such as and, and hello to
free portal access”
Interestingly, last month also marked the expiry of the five -year
cooling-off period imposed on Ireland’s three largest estate agency
networks when they sold and which prevented them throwing
their weight behind another portal during that period. Their support
would also be a requirement for a free property portal revolution and
the largest of the three,Sherry Fitzgerald, is flush at thr moment
having banked 62m from the sale of its UK operation,Marsh&Parsons.
But running a successful portal also involves sustained and meticulous
content management and proper marketing,something that both membership
organisations have failed at in at least four last attempts. So 20 years
on,the big question is this:is a property portal a property business ot
is it a media business? The comong year should answer this once and for all.

An asset/property has two values, the price you can get for it,or the net present value of it’s future cash flows. If somebody auctioneed a 5 euro note on Grafton Street and an unwise person bidded it up to 20 euro, then a surveyor would value all 5 euro notes as 20 euro notes. Now we know the net present value of a 5 euro note is 5 euro. Likewise if an unwise person paid 2 million euro for a house whose net present value was 0.5 million euro ,then a surveyor would value all other similar houses in that housing estate at 2 million euro.

The commercial property market was similar. If an unwise tenant on Grafton Street paid a world record rent for a shop, then all the other shops on the street would be obliged to pay this rent, and surveyors would value all shops on Grafton Street accordingly.

Almost all of the Irish banks reckless lending was done using surveyors/auctioneers valuations. These valuations were as good as money. This is the valuation error than created the property bubble and bankrupted the country.
John Corcoran
M.Sc. Economics London School of Economics and Political Science.

Why did the sovereign sign these ruinous commercial leases i.e.upward-only rent reviews tied to long leases,and waste hundreds and hundreds of millions of it’s citizens money?

No other sovereign in the world would have signed these leases.

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