Year: 2012

One discussion point from the Financial Regulator’s mortgage arrears statistics is the performance of loans in the state-owned banks (AIB/EBS, PTSB & INBS) which between them have about 50% of the owner-occupier residential mortgage market in Ireland.

There is a small additional group of mortgages controlled by the state and these are local authority mortgages which are provided to eligible people who may not be able to get a mortgage from a bank.  These mortgages are are not included in the FR’s arrears statistics.

At the end of 2011 there was €1,425 million outstanding on these loans which is around 1.25% of the total (see page 64 of the 2011 HFA Annual Report).   A breakdown of the amount by local authority at the end of 2010 is in Appendix Six on page 39 of this audit report.

There are around 22,550 local authority mortgages giving an average balance of around €60,000.  The interest rate charged on these loans is currently 2.75%.

At the end of Q2 2012, 6,280 (28%) of these loans were in arrears of 90 days or more.  This compares to 11% for mortgages in financial institutions.  The pattern of local authority mortgage arrears in 2010 and 2011 can be seen here.

The aggregate balance on the loans in arrears was €204 million in Q3 2011. In 2011, the amount collected at the end of the year as a percentage of the amount due was 71% (see slide 13) but this includes accrued arrears at the start of the year. Excluding accrued arrears, there was a shortfall of around €9.3 million on the repayments of around €100 million due in 2011.

At the end of 2011 the total arrears owing on local authority mortgages was around €33 million.  The shortfall has to be made up by the local authorities to meet their repayment commitments to the Housing Finance Agency who provide the finance for the loans.  Appendix Five on page 37 shows the collection rates of housing loan repayments by local authority in 2010.

The Department of the Environment has produced A Guide of Local Authorities – Dealing With Mortgage Arrears which outlines the steps that should be taken when a mortgage falls into arrears.  Page 15 has a definition of an “unsustainable mortgage”.

A loan may be deemed unsustainable if the full interest is not serviceable on a long term basis.  Short term arrangements may allow for partial payments on loans, even where the full interest is not being met, for a period of up to 36 months cumulatively. If the  balance on the loan is increasing rather than remaining static or decreasing, after a period of incremental short term extensions exceeding 36 months, then the loan appears to be underperforming and might be considered unsustainable.

This is put in terms of the balance increasing which is a better measure of mortgage distress than account arrears.

The past week or so has seen a bit of a bounce in debt issuing from Ireland.   The NTMA’s 3-month Treasury Bill programme has almost become routine.  The results of last week’s auction saw a bid-to-cover ratio of more than four and a yield of 0.55%.

The semi-state utilities engaged in longer-term issues with bids for ESB’s 7-year bond covering the €500 million offered last week 12 times while Bord Gais’s €500 million 5-year bond issued today was covered 13 times.

Also last week, Bank of Ireland issued a €1 billion covered bond on offers of €2.5 billion after initially announcing that they would be seeking €0.5 billion.  The bond was given a Baa3 rating by Moody’s, one notch above the Ba1 non-investment-grade rating assigned by Moody’s to the bonds of the Irish government.

Both Moody’s and Fitch issued statements about Irish government bonds last week (covered here) with the only minor change being a change in outlook by Fitch from negative to stable.  Today, there were some largish price moves in Irish government bonds, particularly at the long end. 

The daily report from the Irish Stock Exchange (archived copy) shows that the price of all bar one of the bonds from 2017 on rose by at least 0.8%, with both the 2020 bonds rising by more than 1.0%.  The yield curve has a fairly standard shape and all the yields out to 2025 are below 5%.  The five-year yield from the October 2017 bond is around 3.1%.

Interpret these issues as you wish.

The 1.783 million people working in Ireland can be crudely broken into the following three categories:

• Private-sector employees (1,112,000)
• Self-employed (290,000)
• Public-sector (including semi-states) employees (381,000)

Of the self-employed, 88,000 have employees (who are included in the first category).  Within the public sector, there are 330,000 employees in the public service and 51,000 employees in the semi-state bodies.  A breakdown of employees by category which are full-time and part-time would be useful but is not available.

These figures are taken from the most recent release of Quarterly National Household Survey (QNHS) , though the employee figures used in Table A3 of the release are actually based on the results of the Earnings and Labour Costs Survey (ELCS).

Graphs showing the trend of the three categories since 2008 (the start of the ELCS dataset) are below the fold.

Daniel Gros compares Ireland and Nevada here.