Fitch Report: Property Markets Remain Soft, Irish Borrowers on Strike

This post was written by Gregory Connor

Namawinelake has a link to the new Fitch report on global property markets, including Ireland which gets considerable attention in the report. The Irish picture is mixed with some positive signals (affordability ratios have become more normal) and other negative signals (continued bank distress limits future mortgage lending).

Fitch also highlights the unusual behaviour of Irish arrears, and connects this to the Irish policy framework.

Irish Borrowers on Strike: Despite economic stabilisation, Irish arrears continue to trend upwards. Fitch believes this to be partially driven by policy framework changes. Lenders are constrained from large-scale repossessions, dis-incentivising borrowers from paying their mortgages. In addition, borrowers in arrears are also likely to benefit from significant debt write-offs when personal insolvency legislation becomes effective.”

33 Responses to “Fitch Report: Property Markets Remain Soft, Irish Borrowers on Strike”

  1. seafóid Says:

    http://namawinelake.files.wordpress.com/2012/06/predictionsprojectionsjun2012.jpg

  2. seafóid Says:

    “Lenders are constrained from large-scale repossessions, dis-incentivising borrowers from paying their mortgages

    Is there any evidence of this ?

  3. Gtfaway Says:

    The disincentivisation issue is a cultural incomprehension.

  4. Jag Singh Says:

    Banks have been harping on about strategic defaulting for well over a year eg National Irish Bank’s management statement and interim accounts for Q3, 2011

  5. Jag Singh Says:

    Who knows if Fitch (or Moody’s which has an identical forecast) will turn out to be right, but when added to say Bill Clinton’s assessment of the mortgage crisis as the single greatest challenge facing the Irish economy, and with independent ratings agencies making similar points, you can’t just dismiss the views as those of organisations that cocked up before and during the 2007- financial crisis.

  6. John Gallaher Says:

    Lite: Put your seatbelt on, boy. I don’t ride with anybody ‘less they wear their seatbelt. It’s one of my rules.
    Repo Man.

    “Banks issued the Sheriff’s Office a total of 67 court orders – but demanded evictions in just 10 cases.”
    http://www.independent.ie/national-news/number-of-evictions-plummets-as-banks-fear-getting-stuck-with-rows-of-empty-houses-3342634.html

  7. seafóid Says:

    I suppose there may not be many people chez Fitch who understand the cultcha in suvan oirland.

  8. Paul Ferguson Says:

    I think it’s important to realise that banks create the money they lend. Yet they only create the prinicpal of the loan while the economy owes the principal plus interest. This is why it’s impossible for all loans to be repaid.

    The graph at the following link shows that we owe more than exists and you have to bear in mind we we compound interest on the all the bank debt shown in the graph:
    http://sensiblemoney.ie/data/documents/Total=20Money=20Supply=20v=20Debt_March2012.pdf

    We also have to acknowledge that banks delete the vast majority of money they receive as payment of the loan and this is why reducing our debts makes it even harder for all other outstanding debt to be repaid.

    Would it not be better to have a public source of debt-free digital money such that it would be made possible for all loans to go according to plan?

  9. zhou_enlai Says:

    “Irish Borrowers on Strike”???

    I find this hard to believe. Many Irish borrowers are insolvent but that is a different matter.

    At the same time, the Dept of Justice has had a total stinker firstly in creating the land registry loop-hole re enforcement of mortgages and second in not rectifying it the minute it arose.

    However, approx 40% of properties were not subject to this loophole as they were registered in the rRegistry of Deeds.

    The truth of the matter is that many Irish borrowers are insolvent and cannot pay rather than being on strike. In any other country they would have availaed of humane insolvency laws and the mortgage would be foreclosed or restructured.

    Fitch have missed the point.

  10. Peter Stapleton Says:

    Funny that there’s been no mention here to recent developments in Irish bond markets.

  11. Michael Hennigan - Finfacts Says:

    In recent months, mortgage approvals have risen to the 1972 level (the population in 1970 was 2.9m) from the mid-1960s earlier in the year.

    http://www.finfacts.ie/irishfinancenews/article_1025420.shtml

    In Western Europe at over 40%, Ireland has a high rate of owner-occupied houses without mortgages compared with 12% in Sweden and 10% in the Netherlands.

    @ Peter Stapleton

    Mario Draghi possibly deserves some credit - - and the low rate interest regimes is making the hunt for yield interesting.

    The biggest plunge in industrial production since 1980 (drugs’ patent cliff) may take some gloss off the GDP story for international consumption.

  12. John Gallaher Says:

    @Seafoid what “culture” would that be now,the bourgeoisie,champagne socialists with their faux empathy for the poor wretched sods getting turfed out by the capricious lenders/landlords ?
    It’s the overleaveraged professional and middle classes,farmers,journalists and many media commentators with skin in the game that fear the repo man.
    More than enough low hanging fruit in the B to L sector to keep the repo men and the courts busy.

  13. seafóid Says:

    I dunno JG. Why don’t AIB bring in the heavies ?
    Why does repo have such a low tolerance rate in Ireland? Any ideas?

    http://www.independent.ie/national-news/courts/farmer-who-told-repo-men-to-strip-and-get-in-with-boar-is-found-guilty-3333123.html

    The two men were heard pleading to be let go and promised Donal Connaughton that they would never return to the premises, but he said he wanted to “teach them a lesson”.
    The two men were told to strip naked and they would be allowed walk out of the yard and when they refused Donal Connaughton made them get down on their knees and say the ‘Our Father’ before they were let go, leaving their truck behind.
    The two repo men had arrived at the farm to repossess a generator and two power-washers.

  14. John Gallaher Says:

    @seafoid nice non sequitur,what’s the “culture” you referencing,a pig farmer who was convicted….

    “Donal Connaughton (54), from Elfeet, Newtowncashel, Co Longford, was found guilty of two counts of false imprisonment, two charges of threatening to cause serious harm, one count of assault and two of criminal damage.”

  15. John Corcoran Says:

    Property has two prices;
    http://www.independent.ie/opinion/letters/bubble-values-3034584.html

  16. John Gallaher Says:

    Anyway it’s moot,you don’t think Goldman Sachs backed Pepper Homes,buying GE’s Irish book w/o expecting the legal lacuna to be fixed now do you….the law will get changed their will be reposessions and possibly evictions.

    But GS is quite astute with their incredibly low basis should be able to restructure the book to the benefit of the borrowers and avoid repos/evictions.

    “Goldman Sachs, the international investment bank has reportedly joined forces with Australian mortgage company Pepper Home Loans to buy a €600m Irish residential loan book from GE capital. It is reported that the book was once valued at €600m but that Goldman Sachs and Pepper bought it at a steep discount, believed to be in the region of 60%.”
    http://www.williamfry.ie/publication-article/recent_deals.aspx

  17. Rory Says:

    @ Michael,

    What do you think of Davy’s analysis of the expired pharma patents?

    http://www.davy.ie/LR?id=6712

    They don’t seem too worried…

  18. Kieran Casey Says:

    I’ve heard people (first hand) being advised to re-negotiate some aspect of their mortgage to ensure they were in the running when debt write-off arrived.

    I’m also aware of people not paying their mortgage while still having foreign holidays.

    Although this is not scientific it is happening. I believe some people in this society feel so disillusioned that they will make these kind of choices.

    I feel that we will know the end of this crisis is nigh when the banks do start to repossess or at least create a scenario where people feel that their credit record is important again and so will start to apy according to their means.

  19. What Goes Up... Says:

    There is no mortgage strike.

    The banks broke the economy by inflating a bubble and the government ensured it would stay broken by trying to stop the deflation after the bubble had burst.

    This is classic asset bubble wreckage combined with a crony capitalist bailout.

    Why do you think the IMF and the boys from Frankfurt have their feet under the table in Merrion Street?

  20. John Gallaher Says:

    @WGU this is doing the rounds today….feet under table ok…but coordinating ties…maybe not.
    https://mobile.twitter.com/SpiegelPeter/status/288664918100684800

  21. Brian Woods Says:

    Lets not get carried away here. Its not like the over-enthusiastic borowers shoved a loaded pistol up the lender’s nose and demanded the money. It was the other way around. Very poor originations (maybe even fraudulent). Who knows. Some bad stories.

    You need an income to pay down a mortgage. It is easy to verify whether the income statement provided by the borrower is kosher. A few calls would usually do it. You need cash (like actual notes in your wallet) for the deposit. That’s real easy. You also need cash to pay your transaction fees - like, “Lets see your current bank statement sir/madam”. Child’s play. You also might need some cash to buy some house stuff. “Do you have any other loans outstanding sir/madam”. What have I missed?

    Oh, yeah!. The lender knows all about the market (sells lots of properties). Has access to lot and lots of relevant data and actuarial stats, etc. etc. What else have I missed?

    Oh yeah! The lender can say NO!

    The Irish res property market took off like a Mark I Noonan (+350%) in two phases between 1996 and 2000 and 2002 and 2006. That’s a total of eight years. It should (if the rocket is not re-fuelled with new moolah) return to ground-level by 2018. The lowest part of the dip below ground-level would occur in 2016. That’s about three years from now. Cert par as they say.

    I’d guesstimate a 10% pa reduction in res property prices. So that puts the likely price decline somewhere around -35% of current prices (NOT VALUATIONS!). Do folks know what current prices actually are? Transactions are very, very low! The overall picture is as clear as a smoggy day. Are there details available on how purchasers are actually funding their purchase (cash v credit)?

    However, if interest rates should rise (fortunately there is no sign of this) then its bye-bye time. If incomes decline below their 2007 level then its bye-bye time also. Few other nasties are in the pipeline. When these emerge its bye-bye time again.

    “What we have here folks, is a very dysfunctional market.”

  22. Kevin Lyda Says:

    People need jobs to pay their mortgages.

    They also need the salaries they had when they got their mortgages. Remember when all you brilliant economists were saying people were overpaid? Well, employers remember.

    Oh, and since we can’t raise taxes on the rich or on companies, we’ve raised taxes and fees on the poor and middle class.

    And now we’ve decided these scroungers are doing a mortgage strike.

    No thought to the idea the masters of the universe fucked up, eh?

  23. Michael Hennigan - Finfacts Says:

    @ Rory

    Conall Mac Coille, the author of that Davy report, said on Wed:

    In Q3, the decline in industrial production was sufficient to cause a negative -1 percentage point (pp) reduction in GDP growth. A positive contribution from the services sector pushed up overall GDP growth in Q3 to 0.2%. So, if Irish industrial production falls by close to 8% in Q4, it could take 2pp from GDP growth, perhaps pushing it into negative territory.

    Usually with tradeable services exports (including the fake stuff: diversions of sales revenues from other countries), there is no positive net trade impact as there are offsets for patent and other charges. Most of the big companies have Dec fiscal year ends; Microsoft’s is end June and Apple’s is end Sept.

    @ All

    As to other ‘big ticket items’ (as Gregory Connor’s compatriots would say), data on the average age of cars is revealing.

    Last week it was announced that the average age of an American car was 11 years in 2011, up from 9 in 2000; in 2010, the average age of a European car was 8 years, up from 7.5 in 2004 - - more than a third of cars are over 10 years old.

    Improved quality is a factor but the squeezing of incomes must also be.

    …and in the plutonomy that is the USA, the top 5% of earners now account for almost 40% of consumer outlays.

  24. John Corcoran Says:

    ” Housing prices should not outstrip inflation in the long term because,except for land restricted sites,house prices should tend towards building costs plus normal economic profit” Bob Schiller

  25. Paul W Says:

    @ Rory and MH
    They shoudl be worried. If growth comes off like they say, it will not be good. Having said that, how much of it is “fake stuff”..? in the sense of real versus fake impact?

  26. seafóid Says:

    @ KL

    Well said.

    In an internal devaluation in a fixed currency situation you will tend to get falling salaries.

    The next wave of house buyers, if their salaries are reduced, will not typically be able to support the previous level of house prices.

    And while the currency is fixed the level of prices is not.

    http://www.irishtimes.com/letters/

    • A chara, – The Department of Health and the HSE claim “fairness” and “equity” are two of the core principles underpinning their decision making.
    “New jobs for nursing graduates” and “improved patient care” are part of the latest HSE rhetoric to convince everyone they have their best interests at heart. In truth, the HSE plans to “let go” nurses/midwives currently in temporary jobs and refill those jobs with 2012 nurse/midwife graduates at 20 per cent less pay.
    It will mean newly qualified nurses and midwives will have taken a salary cut of €11,470 since 2009.

  27. zhou_enlai Says:

    @Kieran Casey

    If you are insolvent and have no chance of paying off your debts including your mortgage then you will ultimately get no reward for amounts you pay down now. You may as well be flushing the money down the drain because you will get no return on it.

    In those circumstances, it makes sense for hopelessly insolvent people to apply funds towards foreign holidays ahead of their mortgage!

  28. PR Guy Says:

    Borrowers are insolvent - full stop.

    I know it, banks know it, Gubment knows it. Jobs have been lost, expenditure and taxes keep going up and incomes are going down and down.

    I keep picking things up at work - whispers - about a push to get interest rates going up again this year and also getting the repos going ….. if that happens, a lot of people in Ireland are completely phuqued. If interest rates were at historical norms, half (or more) the mortgage holders in Ireland would have nowhere to turn.

    I re-read Steinbeck’s Grapes Of Wrath the other day. There are a couple of interesting quotes about banks that I had forgotten (look it up).

  29. grumpy Says:

    @Prg

    “Borrowers are insolvent - full stop.

    I know it, banks know it, Gubment knows it. Jobs have been lost, expenditure and taxes keep going up and incomes are going down and down.”

    I take it you wouldn’t have been queueing up to buy those BOI cocos then?

  30. Mickey Hickey Says:

    Ireland’s aversion to repossessions goes back to the Plantation and was further reinforced during and after the famines in the 19th century. Down here in Kerry people talk about families that bought “eviction” property in 1850. The stigma may be faded but it still exists.

    The problem now is compounded by the level of private debt, bank liquidity and shaky collateral. Property price collapses teach hard lessons that are long remembered (25 years or so). In our lifetime we will never again hear that often used mantra of the tiger era “sure property values have never declined in Ireland”.

  31. seafóid Says:

    Unemployment is bad for arrears but economic policy in europe is arfeways

    http://www.guardian.co.uk/society/2013/jan/10/strategy-growth-not-cuts

    The sole argument used by the government for the unalloyed nastiness of its welfare benefits uprating bill (Report, 9 January) was that it was wrong that benefits for the jobless had risen by 20% since the financial crash, while wages for low-paid workers had only risen by 10%. However, what seems to have escaped ministers’ notice is that people don’t buy things in shops with percentages: they buy them with money. And in money terms, 20% of the £71 a week jobseeker’s allowance is £14, while even for the lowest-paid, 10% of the national minimum wage is £23 a week. So even the very lowest paid in work are £9 a week better off than those jobless on benefit.

    The Iain Duncan Smith argument is not only wrong, it’s a perversion of the truth. While in the alleged cause of deficit reduction, JSA claimants are being made worse off by nearly £400 a year, the richest 10% have emerged almost unscathed, the richest 1% on over £3,000 a week are being handed an income tax cut worth £3bn a year, and the 1,000 mega-rich at the top (less than 0.1% of the population) have increased their income and wealth over the last three years according to the Sunday Times Rich List by a staggering £155bn.
    If the government withdrew the cut in the 50% tax rate for the super-rich, there would be no need for benefit cuts at all.

    Better would be a real jobs and growth strategy, since it costs £10bn a year to keep a million people on the dole. How would it be paid for? Any further tranche of quantitative easing could be diverted to a national investment bank to invest directly in manufacturing or construction. Or a capital gains tax levy on the colossal gains of the ultra-rich could raise enough to generate a million jobs in two years. Or £30bn could be borrowed at a cost of just £150m to get a rapid economic turnaround in house-building, energy and transport renewal, and low-carbon technology.

    Michael Meacher MP
    Lab, Oldham West and Royton

  32. John Corcoran Says:

    The greatest property crash in the history of mankind started with one house–Leinster House.

  33. WOOD GNOME Says:

    What is all this bull about Banks not repossessing?
    The media reported that in one three month period
    in 2012 that circa 150 homes had been repossessed.

    Presumably a similar number were repossessed in each
    of the other three quarters of the year, 150 times four
    is six hundred. If repossessing circa six hundred homes
    a year in a Country the size of Ireland constitutes a state
    of ‘non repossession’, then what figure is required before
    the professional private and subsidised semi-state media
    properly investigate and reports on it?

    Ordinary waged worker’s home prices in Drumcondra, Dublin rose from circa €25′000 for a Victorian red brick
    semi, to €860′000 (for the same house without a brick added to it) between 1989 and 2007.

    That’s over 4000%
    inflation. Currently that same house would be valued at
    about €400′000, (still 2000% above it’s original pre Celtic Tiger vlaue.) When launching NAMA, Cowen and Lenehan
    proclaimed that “houses had risen by over 250%!” If that
    was the case that house in Drumcondra would be €70′000,
    not €860′000.

    Suddenly everyone wanted to become a Celtic Tiger landlord, owner of another person’s home, bleeding the lifeblood in rent from workers who were kept off the so called property ladder by the buying frenzy greed of those same landlords. They saw ownership of another person’s home as their own ‘pensions’.

    They ignored the historic tragedy that 800 years of absentee landlordism had inflicted on generations of
    their own families. They disregarded the basic right of a
    family to own and cherish their own humble dwelling. All they could see was thirty years of rack-renting whereby
    ordinary waged workers slaved their lives away to pay
    the Landlord’s mortgage. After that they could fuck off!

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