Banks making progress on mortgage arrears

About 11 per cent of "permanently modified" mortgages that are in default are "consistently" making no repayment after the terms of the loan have been changed by their financial institution, according to new figures from the Central Bank today. Another 29 per cent were making only partial payments, the study showed.

The figures also show that the percentage of borrowers in its sample that are making full payments on their modified mortgage amount increased to 55 per cent at the end of December 2013 from 28 per cent in the first quarter of 2011.

This data suggest that the process of addressing mortgage arrears is improving.

“However, given that 55 per cent of the stock of permanently modified defaulted loans made a full repayment in December 2013, more needs to be done before the arrears issue is resolved,” the Central Bank’s paper states.

The figures are published in a letter authored by Anne McGuinness of the Central Bank. It analyses the performance of permanently modified mortgage loans for owner occupiers, of which there were 38,086 in the domestic Irish banks at the end of 2013. It did not deal with buy-to-let mortgages.

The data relates to AIB, Bank of Ireland and Permanent TSB, who accounted for €89.9 billion or two-thirds of the total Irish residential mortgage lending in the fourth quarter of 2013.

McGuinness said the stock of permanently modified loans is growing faster than the stock of loans in default, suggesting that institutions are making progress in addressing the arrears problem.

Separately, there was continued momentum in the mortgage market in June, with the number of mortgages approved up by 41.5 per cent on a year-on-year basis. The value of these mortgages was up by 49.3 per cent on a value basis, reflecting the increase in property prices over the past year.

According to figures from the Irish Banking Federation, a total of 2,268 mortgages were approved per month, on average, in the three months ending June, with an average monthly value of € 406 million, up from €358 million in the previous month, and from €272 million in June 2013.

In volume and value terms, mortgage approvals in Q2 2014 were at their highest level since the series began in January 2011, with the value of mortgages exceeding €400 million for the first time since the series began.

Dermot O’Leary, chief economist with Goodbody Stockbrokers, says mortgage lending, which totalled €2.5 billion in 2013, remains well short of a “normal” level of about €8 billion. However, he forecasts growth of more than 30 per cent this year, “which will go some way towards returning new lending to these normal levels”.

Meanwhile, the Society of Chartered Surveyors Ireland (SCSI) has published a 10-step housing strategy document that it says will help deal with the supply shortage in Dublin and other urban areas.

The measures include the introduction of a Builders Finance Fund, a reduction on VAT for new home construction, the establishment of a Revolving Infrastructure Fund (RIF) and a reduction in development contributions to local authorities for a period of two years.

The society also believes that the construction of more European-style family friendly apartments and the introduction of a Local Property Tax exemption for people trading down would help to reduce supply pressures.

Only 8,301 new houses were built in Ireland last year while demand is estimated to be of the order of approximately 16,000 a year, with half of those required in Dublin.

Simon Stokes, chairman of the residential group of the SCSI, says that the creation of a RIF could help boost supply.

“RIFs are not grants or subsidies but a smart way of providing financing for developments. Once they’ve been repaid the money can be reinvested to pay for infrastructure on further projects,” he said.