RATINGS AGENCY Moody’s yesterday pointed to further signs of deterioration in the Irish mortgage market. It noted that the number of mortgages it monitors that were in arrears of 90 days or more had reached a “new peak” in the three months from October 2011 to January 2012.

The rating agency, along with Davy Stockbrokers, is also predicting that house prices will continue to fall in 2012, with Davy pointing to the potential for prices to over-shoot on the way down.

Based on indices tracking the performance of Irish prime residential mortgage-backed securities (RMBS), Moody’s noted that the proportion of mortgages in these portfolios which are in arrears of 90 days or more increased from 10.14 per cent to a new high of 11.98 per cent, during this period.

Moreover, the number of loans in default increased from 3.42 per cent to 4.23 per cent of the outstanding portfolios, while the annualised redemption rate fell back to 3.2 per cent in January 2012 from 4.17 per cent in January 2011.

Overall, Moody’s outlook for the Irish mortgage market is negative, “reflecting rising unemployment levels, which are pushing borrowers into arrears”.

It expects unemployment to rise to 14.7 per cent this year, and fears the new Personal Insolvency Bill, which is due to come into force in 2013, will result in significant debt forgiveness. It estimates that a quarter of all Irish mortgage debt is susceptible to a writedown under the proposal.

Moody’s also predicts further house price falls in 2012, increasing the scale of losses on defaulted mortgages.

The rating agency is not alone in this pronouncement, which follows a similar prediction from Davy Stockbrokers yesterday.

Citing “uncertainty, risk aversion and expectations of capital losses in the short term”, as well as credit constraints, Davy says house prices will fall until they reach a peak-to-trough decline of between 65 and 70 per cent.

While the Central Statistics Office estimates that house prices have fallen by 48 per cent to date, Davy’s view is that prices have already fallen by about 55 per cent as the CSO figure excludes cash purchases and lags developments in the property market by several months.

Earlier in the week Goodbody Stockbrokers expressed the view that prices have already fallen by 68 per cent, based on sale prices achieved at Allsop Space auctions.

According to Davy, they still have some way to fall.

“Our view is that uncertainty, oversupply in the housing market, expectations of future price falls and constrained credit supply will limit demand for housing,” the stockbroker said, adding that prices may over-shoot on the way down, with a period below “the long-term equilibrium” appearing likely.

Falling house prices are leading to increasing affordability, however, with Davy noting that levels are now back at those of the mid-1990s, and that, relative to average household incomes, Irish house prices appear closer to sustainable levels than those in the UK market.