Property price drop of up to 12% this year a ‘reasonable’ assumption – McDonagh

Bank of Ireland chief executive Francesca McDonagh has said a fall in Irish property prices of between five and 12 per cent this year "seems [a] reasonable" assumption.

In an interview with Inside Business, an Irish Times podcast, Ms McDonagh said: “The general consensus in terms of residential pricing in 2020 is that prices may drop by between 5 and 12 per cent, it depends on how things will recover. The consensus view ... seems reasonable. [But] there are so many variables.”

Bank of Ireland held a 26 per cent share of residential mortgage lending here before the Covid-19 restrictions were imposed in March, and was getting 1,000 requests a day for payment breaks in the early days of the lockdown.

“We would expect that the appetite for new mortgages and consumer borrowing to be very impacted in the second and third quarters,” Ms McDonagh said, adding that 33,000 payment breaks have so far been agreed for customers in the State.

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This includes 18,000 home loans, which is about 10 per cent of the number of residential mortgage borrowers on its books.

Ms McDonagh said it was “difficult to be prescriptive” about how many customers will be able to return to their normal payment schedule at the end of the six-month break period, and how many would require a forbearance solution, which would put them in default and affect their credit rating.

Ms McDonagh said that any mortgages approved before the lockdown “stay approved” unless a borrower’s financial circumstances have been “adversely impacted”.

Valuations

She said property valuations would remain valid for mortgage drawdowns if they are within four months of the date of the valuation. “We have not yet to date seen any evidence of material changes in property valuations that would undermine valuations that we saw going into Covid,” she said. “It is no-one’s interest to draw down a mortgage that is not sustainable.”

Ms McDonagh said the past 10 weeks have been “exceptionally challenging” for the bank.

It booked a charge of €250 million in the first quarter of this year to deal with the financial hit on its business from the Covid-19 lockdown restrictions, and last month chose not to renew the contracts of more than 100 workers at call centres in Kilkenny and Tallaght, Dublin.

In spite of these challenges, Ms McDonagh said pay cuts were not on the agenda. “That isn’t something that we’re looking to do right now ... and not planning to do currently.”