Dan White: Our long-term mortgage debt could strangle house recovery
THE apparent stabilisation of the housing market in 2012 is threatened by the huge number of houses and apartments (almost 60,000) on which the mortgages are now more than a year overdue. Only if the banks start lending again can this timebomb be defused without triggering a fresh property price collapse.
According to the latest CSO figures, house prices fell by 5.7 per cent in the year to the end of November 2012. On current trends, 2012 is shaping up to be the best year for the property market since 2007. With prices having risen in four of the past five months, there are now clear indications that, after falling by at least 50 per cent from their peak levels, house prices have finally bottomed out.
After more than five years of unremitting bad news, let us be grateful there are finally some grounds for cautious optimism on house prices. However, we still have a long way to go before we can crack open the bubbly.
Threatening to spoil the party is the worsening mortgage arrears crisis. Central Bank figures from last month show almost 180,000 owner-occupier mortgages and a further 51,000 buy-to-let mortgages were either in arrears and/ or had been restructured by the end of September 2012 – one-quarter of the country's 910,000 outstanding mortgages. The total value of mortgages either in arrears and/or restructured now stands at over €45bn, almost 22 per cent of the combined €142bn of owner-occupier and buy-to-let mortgages outstanding.
But there are mortgage arrears and mortgage arrears. There is a world of difference between a homeowner in temporary financial difficulties who is two or three months behind on his or her repayments, and a wannabe property tycoon who is years in arrears on a couple of buy-to-let properties. It is the extremely high level of chronic, long-term arrears that we should be really worried about.
The latest Central Bank statistics break down the level of mortgage arrears by the length of time they remained unpaid (the first time such information has been made available). And it's not a pretty picture.
As of the end of last September, €9.1bn worth of owner-occupier mortgages were more than a year in arrears, of which €4.2bn were more than two years in arrears, while €4.6bn of buy-to-let mortgages are more than a year in arrears, of which €2.1bn were more than two years in arrears.
Add it all up and the mortgages on more than 44,000 owner-occupied homes and almost 15,000 buy-to-let properties are at least a year in arrears.
Whatever about those mortgages a couple of months in arrears, there isn't a snowball's chance in hell of those mortgages more than a year behind on their repayments being repaid in full.
Far more likely is that, with the Government's new personal insolvency legislation due to come into force early this year and the legal obstacle to repossessions represented by the Dunne judgement about to be removed, the number of repossessions will soar this year.
Indeed, a resolution of the problem of long-term mortgage arrears is a vital precondition to fixing our broken property market.
But (and unfortunately it's a very big "but") fixing the problem of mortgage arrears has the potential to strangle any recovery in the property market. In 2011, just over 17,600 houses and apartments were sold in Ireland, says the Property Services Regulatory Authority (PSRA). While the PSRA has yet to publish 2012 figures, a continuation of the six per cent increase recorded up to September would bring the total number of transactions to about 18,600 for 2012. In 2006, over 200,000 mortgages – admittedly not quite the same figure – were drawn down by homebuyers and investors.
This means that the number of properties whose mortgages are more than a year in arrears is the equivalent of more than three times the number of homes sold last year. Quite clearly, if all of these properties were repossessed and immediately sold off, prices would go into a further tailspin.
So how can the problem of long-term arrears be dealt with without inflicting even further damage on the property market in the short term? Total mortgage drawdowns for the first nine months of 2012 were just €1.63bn. Most analysts expect the full-year total to be even lower than the €2.4bn recorded for 2011, which was already down almost 95 per cent on the €40bn of mortgages advanced in 2006.
The key to addressing the problem of unrepayable, long-term mortgage arrears is for the banks to start lending again. It is only when they are prepared to give mortgages in reasonable numbers that the market will be able to absorb the number of reposed properties coming on to the market.
If they don't, then our property market recovery will be over before it has even properly started and the banks will be even deeper in the merde than we already feared.
Sunday Indo Business