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Fitch questions reliability of civil servants to repay mortgage debt

For the first time, ratings agencies have started to question how reliable civil servants are as mortgage borrowers to the Irish banks.

Fitch, one of the three big global agencies, has highlighted the pay cuts suffered by public servants in recent budgets and queried whether they are as reliable as borrowers as in the past.

Fitch has made the comments in relation to mortgages held by EBS subsidiary Haven Mortgages.

Haven has a pool of mortgages where 15.5pc of the portfolio is lent out to civil servants, who usually have lifetime job security.

Fitch notes in research on the mortgages: "Historically, civil servants were considered relatively low-risk borrowers as they tend to have stable employment and income.

"Considering the recent budget cuts in 2009/2010, civil servants have suffered pay cuts and increased pension contribution obligations,'' the agency added.

It said it could no longer simply regard civil servants as having no default risk at all.

The action by Fitch has not been publicly replicated so far by other agencies, but the three main global agencies often have similar ratings methodologies.

The agency also expressed concern about first-time buyers and their presence in the securitised pool of mortgages.

It said these borrowers tended to be a bigger risk because of having less of a track record in meeting payments. Many of them also bought houses with high loan-to-value ratios, meaning they put down a small deposit, or in some cases no deposit, for their house purchase.

Around 71pc of the portfolio, known as Mespil 1, was originated between 2006 and 2008 and these mortgages can be risky because they were extended at the peak of the housing market.

"Fitch's analysis of vintage arrears data from the originators and the rest of the Irish market show that the 2006 to 2008 vintages have the highest level of arrears compared to other vintages,'' the agency pointed out.

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