Dan White: Auction protests spell trouble for home repossessions
The last thing the banks want or need is to be cast in the role of latter-day absentee landlords.
Published 07/07/2013 | 05:00
THE abandonment of last week's Allsop auction of repossessed properties provided a timely reminder that the banks will find it extremely difficult to secure possession of family homes against which mortgages have been "secured".
On Thursday, auctioneers Allsop was forced to abandon an auction of repossessed properties in Dublin after the proceedings were disrupted by groups of protesters seeking to dissuade bidders. Although the gardai were called, it quickly became clear that the show could not go on and it was announced that the auction had been "postponed" until further notice.
Thursday's auction was to have been the 12th Allsop auction. The Allsop auctions have been taking place at regular intervals since June 2011 and have been used by many lenders, particularly the foreign-owned banks, to offload repossessed properties.
Over the past two years, thousands of properties, including pubs, hotels, shops, industrial units, office buildings, houses and apartments, have been snapped up at rock-bottom prices by bargain-hunting buyers. However, following Thursday's contretemps, it is difficult to see another Allsop auction taking place any time soon.
In reality, the only surprise about last Thursday's events is that anyone was surprised. Despite their undoubted popularity with many buyers, the Allsop auctions flew in the face of the deep-seated hostility in Irish culture to acquiring repossessed property. After leading a charmed life for the past two years, it would seem that the Allsop auctions have finally fallen victim to this taboo.
This potentially has major implications for any plans which the banks may have to speed up the pace of repossessions of the homes of borrowers who have fallen behind on their repayments. Despite the passage of the new Personal Insolvency Act and the increasingly strident urgings of the Troika and the Central Bank that they "do something" about the problem, the banks have been remarkably reluctant to put delinquent mortgage borrowers out of their homes.
In the first quarter of this year, a mere 166 owner-occupier homes were taken into possession by the banks. Of these, no fewer than 117 were voluntarily surrendered by the borrowers. Over the same period, the banks were granted 105 repossession orders by the courts. This compares with the more than 95,000 owner-occupier mortgages that are three months or more in arrears.
It was a similar story with buy-to-let mortgages with a mere 77 properties being taken into possession in the first quarter of which 47 had been surrendered by the borrower, an infinitesimal proportion of the 29,000-plus buy-to-let mortgages more than three months in arrears.
So why have the banks been so tardy in tackling mortgage arrears? After all, wasn't the 2011 State- funded bank recapitalisation, which cost taxpayers €24bn, supposed to give the banks the capital cushion necessary to absorb mortgage losses? This was followed up by the Personal Insolvency Act, which made it easier for the banks to secure a repossession order.
So with their balance sheets fixed, the legal difficulties sorted out and the exhortations of the Troika and the Central Bank ringing in their ears, it should have been a simple matter for the banks to press ahead with repossessions. This, or so the theory went, would remove the uncertainty hovering over the housing market and everyone, well at least everyone whose home wasn't being repossessed, would live happily ever after.
So why have things not worked out as planned?
The banks' reluctance to crystallise huge losses on their mortgage books provides a partial answer. The mortgage arrears crisis is so awful that writedowns on the scale required would result in losses on a scale requiring yet another bailout. For the banks and the Government, this is an outcome to be avoided at all costs.
There is, however, another explanation for the banks' reluctance to get tough on mortgage arrears and sanction a large increase in repossessions.
As the presence of Independent TDs Mattie McGrath and Michael Healy Rae at Thursday's protest at the Dublin auction demonstrated, home repossessions have the potential to become a red-hot political issue.
With the banks having already sunk to rock-bottom in the esteem of the public, being cast in the role of latter-day absentee landlords is the last thing they need. Just in case the banks hadn't already figured this out for themselves, some of Thursday's protesters helpfully drew the analogy with 19th century land agitation.
While it is still early days, a number of conclusions can already be drawn from Thursday's events.
Firstly, the banks will still be extremely reluctant to push the nuclear button of repossession, and even when they do, the courts will stretch every sinew to avoid granting them a repossession order. Secondly, the value of repossessed properties, both residential and non-residential, has been further depressed. The prospect of being labelled a "grabber" will deter many potential buyers of repossessed properties.
All of which means that we can forget about any quick solutions to the mortgage crisis. This one is going to run and run, perhaps for almost as long as the 19th century land agitation, which dragged on for almost 25 years.