Skip to main content

Mortgage Timebomb Crisis...

Mortgage timebomb will cause new banks crisis when it goes off...


The recommendation that the moratorium on repossessions should be extended by a further year is another sign that the clock is ticking on our €150bn mortgage time bomb.

Last year all of the main banks and building societies agreed not to repossess the homes of people whose mortgages were in arrears for at least 12 months. Now, with the 12-month moratorium about to expire for many of those in arrears, there are fears that the number of homeowners facing repossession could rocket.

For some it has already happened. Entertainer Adele King (better known as Twink) revealed that her family home was about to be repossessed by her lender. Twink's statement came on the same day that the Oireachtas Committee on Social and Family Affairs recommended the 12-month moratorium on home repossessions be extended to 24 months.

The recommendation comes just 11 days after the Financial Regulator extended the 12-month repossession moratorium to all lenders, including the sub-prime lenders, who have been by far the most aggressive in pursuing homeowners.

On the face of it, the Financial Regulator's action to curb the ability of the sub-prime lenders to secure repossession orders should contain the problem.

While no official figures have yet been released, it is estimated that financial institutions secured about 1,000 repossession orders last year, up by a third on the 748 repossession orders granted in 2008.

Unfortunately, these figures are merely the tip of the iceberg.

The most recent statistics from the Financial Regulator show that over 26,000 homeowners, 3.3pc of those with mortgages, were at least three months behind on their repayments by the end of September 2008. This was almost double the 14,000 homeowners who were three or more months in arrears at the end of June 2008.

At the same time as the number of homeowners in arrears has been soaring, house prices have been in freefall and unemployment has started climbing again. Further compounding their misery is the growing proportion of homeowners who are now stuck in negative equity, where the value of their homes is less than the amount which they have borrowed.

Recent research by the ESRI estimated that there were almost 100,000 homeowners experiencing negative equity at the end of 2009. Depending on how house prices perform, that number will rise to somewhere between 200,000 and 350,00 by the end of this year. In other words, by the end of 2010 between one-quarter and four-fifths of all homeowners will be stuck in negative equity.

This combination of falling house prices, rising unemployment and increased arrears is setting the stage for a social, economic and financial catastrophe. Not alone will tens of thousands of homeowners be confronted with the prospect of losing their homes, a tsunami of mortgage defaults will also wipe out the banks.

At the end of December the Irish banking system had lent over €147bn in residential mortgages. When one takes into account that Irish house prices have fallen by at least a third since their February 2007 peak, growing arrears and the increased incidence of negative equity it is clear that the Irish banks are going to have take a massive haircut on these loans.

The 30pc average write-down the banks are taking on their development and commercial property loan books has already forced the government to pump in €11bn of fresh capital and set up NAMA to take €77bn of bad loans off their books.

Will the housing meltdown trigger a second phase of the Irish banking crisis?

Even a 10pc average mortgage write-down, surely an optimistic prediction, would cost the banks another €15bn in loan losses. The mortgage timebomb is already ticking. When it explodes, probably in the second half of this year, it could take the banks and tens of thousands of homeowners with it.


Report by Dan White - Evening Herald.

Popular posts from this blog

Ireland's Celtic Tiger Excesses...

'Bang twins' may never get to run a business again... POST-boom Ireland is awash with cautionary tales of Celtic Tiger excesses, as a rattle around the carcasses of fallen property developers and entrepreneurs will show. Few can compete with the so-called Bang twins for youth, glamour and tasteful extravagance. Simon and Christian Stokes, the 35-year-old identical twins behind Bang Cafe and exclusive private members club, Residence, saw their entire business go bust with debts of €9m, €3m of which is owed to the tax man. The debt may be in the ha'penny place compared with the eye-watering billions owed by some of their former customers. But their fall has been arguably steeper and more damning than some of the country's richest tycoons. Last week, further humiliation was heaped on them with revelations that even as their businesses were going under, the twins spent €146,000 of company money in 18 months on designer shopping sprees, five star holidays and sumptu

Property Tycoon's Dolce Vita Ends...

Tycoon's dolce vita ends as art seized... THE Dublin city sheriff has seized an art collection and other valuables from the Ailesbury Road home of fallen property developer Bernard McNamara. The collection will be sold to help pay his debts. The sheriff, Brendan Walsh, is believed to have moved against the property developer within the past fortnight, calling to his salubrious Dublin 4 home acting on a court order to seize anything of value from his home to reimburse his creditors. The sheriff is believed to have taken paintings from the family home along with a small number of other items. The development marks a new low for Mr McNamara, once one of Ireland's richest men but who now owes €1.5bn . The property developer and former county councillor from Clare turned the building firm founded by his father Michael into one of the biggest in Ireland. He is the highest-profile former tycoon to date to be targeted by bailiffs, signalling just how far some of Ireland's billionai

I fear a very different kind of property crash

While 80% of people over 40 own their own home just a third of adults under 40 do. This is disastrous for social solidarity and cohesion Changing this system of policymaking requires a government to act in a way that may be uncomfortable for some. Governments have a horizon of no more than five years, and the housing issue requires long-term planning. The Department of Public Expenditure and Reform was intended to tackle some of these problems. According to its website its remit is to “drive the delivery of better public services, living standards and infrastructure for the people of Ireland by enhancing governance, building capacity and delivering effectively”. So how is the challenge of delivering homes for people in 2024 and beyond going to be met? The extent of the problem is visible in the move by companies, including Ryanair, to buy properties to house staff. Ryanair has, justifiably, defended its right to do so. IPAV has long articulated its views on how to improve supply an