Friday, November 18, 2011

18/11/2011: Mortgages Arrears for Q3 2011

Data for Irish Mortgages defaults for Q3 2011 was released today by the Central Bank and is already causing some commotions. That is because by the broader metric I deployed recently, including in last week's Sunday Times article (see here), we are now beyond 100K number when it comes to mortgages at risk.

let me un through the figures. Note that the CB has changed methodology for reporting back in Q3 2010, expanding reporting. So I estimated some of the sub-series back to Q3 2009 when the narrower reporting was first introduced. Thus, caution should be applied to taking Q3 2009-Q2 2010 data. Also, note that 2011 figure - corresponding to Q4 2011 - is a forecast based on mortgages arrears dynamics by each subcategory of mortgages.

  • In Q3 2011 there were 773,420 mortgages outstanding in Ireland a decline of 3,901 on Q2 2011 (-0.5% qoq) and 15,325 yoy (-1.94%). This represents a drop of 2.7% or 21,189 mortgages on Q3 2009.
  • The outstanding value of mortgages has declined €676,166 or 0.59% qoq to €114.41bn down from €115.09bn in Q2 2011 and €117.40bn in Q3 2010. Note that in Q2 2011 Irish household deposits were €87.00bn which implies that Mortgages to Deposits ratio in Ireland is at 131.5% well ahead of the LTDs mandated for the irish banks for all loans at 125.5%.
Of the above mortgages:
  • In Q3 2011 there were 62,970 mortgages in arrears 91 days and over with the balance of €12.37bn. This represents an increase of 7,207 mortgages qoq (+12.92%) and 22,498 mortgages yoy (+55.59%). Compared to Q3 2009, the number of mortgages in this category is estimated to have risen by 36,699 mortgages or 139.7%. In terms of value of the mortgages in arrears, the value rose 14.13% qoq and 58.7% yoy. I mentioned in the previous articles on the subject that we can expect faster increases in mortgages in arrears values, rather than numbers as arrears primarily hit most those households that tended to borrow more in the years around the peak of the property markets.
  • Repossessions also rose from 809 in Q2 2011 to 884 in Q3 2011 (+75 or 9.27% qoq). Repossessions are now up 69.7% yoy (+363) and are estimated to have risen 501% on Q3 2009 (+737).
  • Restructured loans that are no in arrears are down from 39,395 in Q2 2011 (value of these loans was €6.66bn) to 36,376 (€5.93bn) - a decline of 3,019 mortgages qoq or 7.7%. Year on year these mortgages are up 9.7% or 3,212.
Based on the above we can define mortgages at risk and defaulted to include all mortgages that are currently in arrears, all mortgages that are restructured, but are not in arrears and mortgages that went through the repossessions. 
  • In Q3 2011 total mortgages at risk or defaulted stood at 100,230 with the total value of €18.3bn, up 4,263 mortgages (+4.4%) qoq and 26,073 mortgages (+35.2%) on Q3 2010. Since Q3 2009 these mortgages rose in number some estimated 125.9%. In value, mortgages at risk or defaulted have risen €803mln qoq (+4.6%) and €10.5bn yoy (+134.7%).

As chart above summarizes, percentage of mortgages at risk relative to overall number of mortgages has risen in Q3 2011 to 12.96% from 12.35% in Q2 2011. The value of mortgages at risk has increased from 15.2% of all mortgages value to 15.99%.

It is worth noting that Q3 dynamics represent a marked slowdown on the rates of increases in mortgages at risk in previous quarters. This decrease is accounted for as follows:

  • Total number of mortgages outstanding paydown slowed from -0.65% in Q2 2011 relative to Q1 2011 to -0.50% in Q3 2011 relative to Q2 2011. This means that the base decline was slower, pushing down the percentage change in the relative share of mortgages at risk.
  • Number of mortgages in arrears rose +12.9% in Q2 2011 relative to Q1 2011 and this rate was +12.4% in Q3 2011 relative to Q2 2011 - hardly a marked slowdown here.
  • Number of mortgages restructured but not in arrears rose +7.5% in Q2 2011 relative to Q1 2011 and declined -7.7% in Q3 2011 relative to Q2 2011 - this is the core driver of mortgages at risk growth slowdown. Unfortunately we do not know if this decline was driven by these mortgages exiting the restructuring arrangement by going into arrears, or returning back to performing mortgages (for how long can these be expected to remain there is another question), or going into new renegotiations for further restructuring.

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