Irish Property Market 2020 Part 2

Donald Trump wrote: »

Sure Anglo only had a temporary liquidity problem (said tongue-in-cheek)


1 in 25 mortgages were not being paid, but were not counted as being in default because they were on a break. The mortgaged amounts of those on the break would have been slightly higher on average than the average across the portfolio. Some of them could probably have been continued to be paid, but some might not.



The saving grace for the banks this time around, at least initially, compared to the last crash is that the borrower will absorb the first losses from any writedown in values. No 110% mortgages. That in itself might prevent the snowball effect that we saw last time around.

Don't be so sure. Those boom time loans are still impacting on the banks and many still need to be resolved. Especially those interest only loans that are maturing shortly.

"PTSB signalled in February that it was assessing risks associated with thousands of buy-to-let mortgages, amounting to €2.5 billion, that were handed out before the crash and were issued on interest-only terms until the loans matured.

After the transaction, PTSB will continue to have €900 million of interest-only buy-to-let loans on its balance sheet. Mr Crowley said that, unlike the loans being sold, the loans being kept were typically to customers who had other business with the bank."

The question is how do they handle these loans once they mature as none of the capital has been paid off? Probably another sale to some fund but what they get for them (even if performing) will depend on the direction of the property market over the next 12-24 months. They got very very lucky with this weeks sale IMO.

Link to article in Irish Times today: https://www.irishtimes.com/business/financial-services/ptsb-plays-down-ulster-bank-talk-as-it-sells-1-4bn-of-loans-1.4392203

Timing belt wrote: »

When these interest only loans mature then the individuals will need to either take out another mortgage to pay off the loan, Use savings to repay, sell the house to repay or default and then go through the process of reposing the house and selling it. Why would a fund be interested in purchasing something like this? As I have explained to you time and time again the funds are interested in purchasing the debt not the property.

If these loans are not defaulting it is unlikely the bank is losing money on them (although its unlikely that they are highly profitable if tracker based)

These properties are likely worth close to what was paid for them - if the borrower has continued to repay all these years - it is improbable that they will suddenly default 12 plus years after the crash? Presumably a significant proportion will have a clear exit strategy.

These are not borrowers who have been distressed for years

JJJackal wrote: »

If these loans are not defaulting it is unlikely the bank is losing money on them (although its unlikely that they are highly profitable if tracker based)

These properties are likely worth close to what was paid for them - if the borrower has continued to repay all these years - it is improbable that they will suddenly default 12 plus years after the crash? Presumably a significant proportion will have a clear exit strategy.

These are not borrowers who have been distressed for years

The problem is that they are interest-only until maturity. None of the capital has been repaid. They've only being meeting repayments to date as they only had to pay the interest and that was most likely a tracker loan with very low repayments. When they look to remortgage, they won't be able to (IMO) and the fund will take control of the properties. This loan sale is a property play by the buyers and won't work out IMO.

Graham wrote: »

Would it be fair to say you're just guessing and you really have no idea how the banks will approach such cases?

Isn't that the point of a property forum board. Making educated guesses based on the data currently available to us. Just like there would be no need for court cases if everyone knew the outcome before it happened...

My 'educated guess' on how the banks will approach these interest-only buy-to-let loans when they mature is that the borrower may not be able to re-mortgage so they will have to sell them at a loss.

These are Celtic Tiger property plays and the rental payments (should rents fall by 50% over the next 2 years) won't cover the principal and interest repayments if the borrower has no other income to make up the shortfall.

Would you re-mortgage in such a scenario when such a borrower cannot meet the repayments going forward? You would have to take charge of the underlying asset in such a scenario as such a borrower would be defaulting on month one of any re-mortgage term.

PropQueries wrote: »

Isn't that the point of a property forum board. Making educated guesses based on the data currently available to us. Just like there would be no need for court cases if everyone knew the outcome before it happened...

My 'educated guess' on how the banks will approach these interest-only buy-to-let loans when they mature is that the borrower may not be able to re-mortgage so they will have to sell them at a loss.

These are Celtic Tiger property plays and the rental payments (should rents fall by 50% over the next 2 years) won't cover the principal and interest repayments if the borrower has no other income to make up the shortfall.

Would you re-mortgage in such a scenario when such a borrower cannot meet the repayments going forward? You would have to take charge of the underlying asset in such a scenario as such a borrower would be defaulting on month one of any re-mortgage term.

Not very educated why would the bank force someone to sell at a loss when the mortgage has been interest only meaning the bank are still owed the full amount, what you suggest would mean the banks would also have to take a loss. where are you getting a 50% loss in rent over 2 years. They are going down now currently as we have no tourists , no students, no immigration inwards, in 2 years time I would hazard a guess that all three of these will be back along with the influx of foreigners coming to live in the only English speaking country in the EU. So there is only a snowball's chance in hell that rents will be down 50% in 2 years time. Corona will not be impacting us as severely in 2 years time as it is now.

Your guessing at how the borrower is fixed, you don't know if they can or cannot repay the interest + principal. Interest can be written off in tax so if they are getting current or even the current rent minus say 3/4% to allow for further rent reductions they may well be able to pay .. See everyone can make a scenario that suits their point of view. Your scenarios here always seem to have outrageous and unfounded figures for things like 50% drops in rent. Try being a bit more rational

PropQueries wrote: »

From Irish Independent in 2017 when everyone thought house prices and rents were going to keep increasing for the next 20 years. Times have changed since then?: "Day of reckoning looms for those who took out interest-only mortgages in boom era".

Worth a read as you appear to believe all those Celtic Tiger interest-only buy-to-let mortgages are all fine. The situation in the UK is in the first half of the article and then Ireland in the second half.

Link to Irish Independent article here: https://www.independent.ie/business/personal-finance/property-mortgages/day-of-reckoning-looms-for-those-who-took-out-interest-only-mortgages-in-boom-era-35970364.html

Banks would have proactively been managing this for a while explaining to customers the consequences and trying to move them over to a principal and interest mortgage. Any of the BTL should have sufficient money from there rental income to repay.

Yes some will be in difficulty but it is not a total collapse as you predict.

PropQueries wrote: »

Rents have only being rising significantly each year for each of the past 6 years. They also paid tax on that rental income. Many are small business owners who were hoping to rely on these investment properties for their pension. Even if most did save all the rental income (as you appear to believe), they will have to re-mortgage over the next 20 years on a principal and interest basis at probably in excess of 5% and on the property price they paid back in 2006/2007.

You're also expecting rents to keep at todays level for the duration of the new mortgage term. That's very doubtful in my opinion.

If they have been on interest only they have made money on renting the properties. If they were relying on it as a pension then unfortunately it didn’t work out the same as a lot of people that put money into a pension only to find that the March crash wiped 50% of its value.

I am not surprised that you expected rent to drop that would be inline with your thinking that house prices are going to crash and everyone will move to Leitrim to WFH. The glass is never half full

Timing belt wrote: »

If they have been on interest only they have made money on renting the properties. If they were relying on it as a pension then unfortunately it didn’t work out the same as a lot of people that put money into a pension only to find that the March crash wiped 50% of its value.

I am not surprised that you expected rent to drop that would be inline with your thinking that house prices are going to crash and everyone will move to Leitrim to WFH. The glass is never half full

You're assuming the initial rent freeze (2014) and the rent pressure zone legislation (2016) doesn't apply to most of these buy-to-let landlords? Those high rents you see advertised are captured by a relatively small percentage of the buy-to-let market in Dublin.

Ursabear wrote: »

Prime Dublin residential rents down 12% https://www.businessworld.ie/property-news/Prime-Dublin-residential-rents-down-12-since-March-574715.html

Not out of line with what is/was being discussed over in Dublin - Significant reduction in rents coming?

Timing belt wrote: »

Even with that they will have made money as they were only paying interest.

Ok, say they purchased their buy-to-let for c. €500,000 in 2006. Paying 1% interest. They receive rent of c. €1,500 per month and that would be at the high end for many landlords. After tax and paying interest, how much play money have they left?

Will all that savings make much of a dent in their €500,000 mortgage?

PropQueries wrote: »

Ok, say they purchased their buy-to-let for c. €500,000 in 2006. Paying 1% interest. They receive rent of c. €1,500 per month and that would be at the high end for many landlords. After tax and paying interest, how much play money have they left?

Will all that savings make much of a dent in their €500,000 mortgage?

only an idiot would think mortgage holders wouldn't have been forward planning for when the interest only period expires.

Even if they run into arrears, according to some of your genius theories, the government could purchase at market value and use for direct provision. 2 objectives achieved by government.

waste of time reading some of the nonsense the last few pages.

fliball123 wrote: »

Not very educated why would the bank force someone to sell at a loss when the mortgage has been interest only meaning the bank are still owed the full amount, what you suggest would mean the banks would also have to take a loss. where are you getting a 50% loss in rent over 2 years. They are going down now currently as we have no tourists , no students, no immigration inwards, in 2 years time I would hazard a guess that all three of these will be back along with the influx of foreigners coming to live in the only English speaking country in the EU. So there is only a snowball's chance in hell that rents will be down 50% in 2 years time. Corona will not be impacting us as severely in 2 years time as it is now.

Your guessing at how the borrower is fixed, you don't know if they can or cannot repay the interest + principal. Interest can be written off in tax so if they are getting current or even the current rent minus say 3/4% to allow for further rent reductions they may well be able to pay .. See everyone can make a scenario that suits their point of view. Your scenarios here always seem to have outrageous and unfounded figures for things like 50% drops in rent. Try being a bit more rational

The banks don't want to take ownership of assets and go through foreclosure processes and they have little to no appetite to sit on non performing loans and tie up capital against these loans (plus banks models for future expected defaults on a portfolio are based on their observed experience over time). Buy to let's also don't have the press toxicity of making some "poor cratur doing their best" homeless.

They focus on a macro level - a bank may have 1 billion of BTL loans secured on property worth 1 billion but due to capital regimes and prescribed rules they have to hold further capital on top of this to cover expected defaults on the portfolio which could be better deployed elsewhere. That's why they fire out these portfolios out the back door at a haircut. If the initial period of interest only has ended and the capital repayment portion has kicked in, if the borrower is in arrears, this moves to a default state triggering even more hassle and provisions for the bank.

I expect the number and amount of loans given out on an interest only basis in the mid 2000's on an interest only basis which are hitting their capital repayment period to be low at the same time.

It's not inconceivable that some property in Dublin is still trading at levels well below boom time prices (I know of 2 bed apartments in Dublin 15 that would have sold for mid to high 400s in the mid 2000s only getting low 300s at present and the gross rental on these is approx 1800 p.m. at present but would have been far lower in 2010-2014 for example).

I think its safe to say that the market is utterly unpredictable for the foreseeable future. We're chain free buyers & the market in Cork City is chronically bad in my humble opinion. A few high end properties coming on, a few nice 3 bed semis in desirable areas. Seems to be a lot of former rentals being marketed but none of the above appeal to us to be honest. We're dying to buy a house & have a good upsizing budget but the supply is awful.

If I was selling, I'd be laughing & would probably get a bit more than we did this time last year. We don't know when we're going to find a house & worse, we may have an awful bidding war as seems to be standard these days. Spoke to my friend today who is a manager in one of the "big" banks & she said they're very busy with mortgage applications...same lady told me in March that we'd do very well out of all this as the banks wouldn't be lending. Again, utterly unpredictable. I wish prices would drop but I just don't see it happening any time soon.