Ireland Financial News – Mortgages & Banking

House prices in the North have dropped by nearly 30% over the last year, according to a new quarterly survey.It confirmed 2008 was the worst year for the housing market since the start of the 1980s.

The figures were contained in the latest University of Ulster Quarterly house price index, produced in partnership with the Bank of Ireland and the Housing Executive.

The survey showed prices had fallen by just over 28% in 2008.

It also confirmed the continuing low volume of house sales, with 704 transactions recorded in October, November and December, a figure just slightly up on the previous quarter’s report of 670.

The authors said the drop was no surprise and argued that it came with the silver lining that homes were becoming more affordable for first-time buyers.

The sharp decline confirms the downward trend of recent years.

But the drop followed a period when Northern Ireland house prices rocketed over a very short period of time.

The survey, billed as the most broadly-based of those undertaken in Northern Ireland, covers approximately 120 estate agents and records all open-market transactions.

It showed the overall average price of a house in the final quarter of 2008 was £168,185 – a drop of 16.6% on the third quarter.

Some property types saw greater falls than others.

The sharpest drop was in detached bungalows, down almost 35%over the year to an average of £218,216.

Terraced or town houses fell by 28% to an average of £134,905.

In Belfast the average price of housing at £178,399 showed a 20.9% annual decline, indicating that it did better than the overall Northern Ireland market.

 Bank of Ireland and AIB Group have agreed to delay issuing repossession orders on homes for 12 months as part of the Government recapitalisation plan.

The banks have told Government that delaying repossession proceedings for those in arrears on their mortgages for any longer would be viewed negatively by investors.

The issue of mortgage arrears has become more central in the €7bn recapitalisation talks because of rising unemployment levels.

Negotiations continue today and any final agreement may be extended as part of a new regulatory code covering mortgage arrears for the entire home loan sector.

The fine detail of the plan is now expected after markets close on Wednesday evening or early Thursday.

The Government had wanted delays in repossession proceedings for two years compared to the current six-month rule.

However, banks raise new funds by issuing bonds against using their mortgage books as security. The banks pay interest on those borrowings.

Carrying mortgage arrears for up to 24 months would make the quality of mortgage-backed securities less attractive to international investors.

It now appears banks are offering not to pursue mortgage arrears for six months and have offered not to repossess homes until 12 months has elapsed.

The compromise has regard to the distressed financial situation arising for many losing their jobs.

Other talking points have centred on executive pay.

Future bad debts

Meanwhile, it appears a firm Government guarantee of AIB and Bank of Ireland’s exposure to future bad debts on property development loans is unlikely at this juncture.

The €7bn injection may not be enough to cover future bad debts arising in the property sector, and markets are sensitive to this weakness.

Fine Gael says the Government’s bank recapitalisation plans may leave taxpayers dangerously exposed to massive bad debts.

In a statement, the party’s finance spokesman Richard Bruton said the Government should urgently consider other options, including the creation of ‘good banks’ with clean balance sheets.

Mr Bruton said Fine Gael has huge concerns that the taxpayer is being asked to put money into existing banks without knowing the full extent of the hole in their balance sheet.

He said there was a real risk that the only result will be to allow the banks to nurse along their dodgy property lending while continuing to starve viable businesses of access to the credit
they so badly need.

 Houses prices in Ireland fell by 9.1% last year.

The House Price Index, published by the ESRI and Permanent TSB, indicates that the biggest prices drops were in commuter counties surrounding Dublin.

House prices were down 16.8% in these regions in 2008.

  Permanent TSB says houses prices now are where they were in the middle of 2005 and it is thought houses prices in 2009 will fall by a further 10%.

It says the market will not recover until the economic situation in Ireland significantly improves.

David Duffy of the ESRI says that is unlikely to happen until 2010.

The fall in Dublin commuter counties was the largest fall recorded – with houses in Dublin down almost 12% and just over 10% for houses outside Dublin.

The national average house price for first time buyers was down 14% last year; that is more than double the decline seen in 2007.

Niall O’Grady of Permanent TSB says the last two years have seen a rate of decline as high as 17%.

He says that trend is likely to continue for at least the remainder of the year.

The Permanent TSB/ESRI index is based on actual transaction prices and not market valuations and other indicators.

The organisations say it is more reflective of the reality of the housing market.

The latest figures from the Central Bank show that weakness in residential mortgage lending persisted in November.The Central Bank says that mortgage lending rose by just €96m in November.

This compares with an average monthly increase of over €850m between January and September of this year.

It also compares with an average monthly increase of almost €2bn at the height of the housing boom in 2006.

The annual rate of increase in residential mortgages slowed to 6.7% last month from 7.6% in October – the lowest annual rate of increase since 1986.

Overall, private sector credit growth slowed to 8.4% in November from a figure of 8.9% the previous month.

The figures from the Central Bank also show that new credit card spending was slightly over €1bn in November, the lowest level since April 2006

 Figures from the Central Bank show a dramatic slump in the growth of residential mortgage lending in October.

The annual rate of growth in October fell to 7.6%, the lowest figure since 1986.

The Central Bank described the mortgage figure as ‘exceptionally weak’.

The amount of money lent for mortgages rose by just €26m during October, compared with the average monthly increase of almost €2bn at the height of the housing boom in 2006.

 The Minister for Housing has denied that the Government’s new home loan and equity schemes for those trying to get on the property ladder will put the State’s finances at further risk.

Michael Finneran also denied that the measures were being taken to help builders to offload excess stock.

He said they were purely designed to extend credit to first-time buyers unable to secure finance due to the credit crunch.

Under the Home Choice Loan scheme, the Government will lend up to 92% of the value of a home to an individual buying a new house, provided they are a first-time buyer and earn in excess of €40,000 a year.

They must also be in permanent employment for at least two years, and be able to prove that they have been unable to secure a sufficient mortgage from a bank or building society.

The loan will be at the commercial variable lending rate and the risk of each loan will be assessed using the same grounds that banks use.

Mr Finneran said the purpose of the scheme, which will be launched properly in a fortnight, is to extend loans of up to 92% to buyers who at present who are only being offered loans of around 80% by the banks.

The aim of the Government Equity scheme is to streamline the existing affordable housing initiatives into one system.

Instead of selling properties to buyers at a reduced rate, subject to a clawback if they are sold on, the local authorities administering the new scheme will take an equity stake equivalent to the amount that is currently being discounted.

The State’s equity will remain as a set percentage of the market value of the house and will stay in place until fully repaid or bought out.

Both schemes will be financed from the market through the Housing Finance Agency, which borrows from the international markets at Government rates, and will lend on at commercial rates.

Outlining details of the scheme, Mr Finneran said there would be no maximum placed on qualifying earnings for those seeking a Home Choice Loan.

He rejected suggestions that the declining value of houses put the State at risk, saying all normal risk management systems will be put in place. Valuations would be done by the State, he said.

Mr Finneran also said that because we are approaching the bottom of the housing correction, the Government believes there is good value there for first-time buyers, which in time will benefit the Exchequer.

He said both schemes will allow Government to recycle money they earn back from the loans and equity into further affordable housing.

 New research suggests that as many as 170,000 people will fall into negative equity by the end of next year if house prices continue to drop.

The research, by Goodbody Stockbrokers, expects that by the end of 2009 house prices will have fallen 30% from their peak in 2007.

Combined with the fact that one in three homebuyers took out 100% mortgages at the peak of the boom, the research concludes that thousands will fall into negative equity.

Half of those who bought between 2005 and 2007 will be left owing more than their houses are now worth, it says.

People who have jobs and can afford to pay their mortgages will not be in trouble.

But, the research also suggests that unemployment will rise by 2% over the next 18 months, leaving more people without the means to keep up their repayments.

However, evidence has shown that even in severe housing busts, most owners are able to keep up payments on their mortgages.

New figures from property website Daft.ie show that house prices have fallen again.

It says the average price of a house is now €312,500, and that an average fall of 3.8% in house prices was recorded between July and September.

Prices are down by almost 11% compared to the same period last year.

Clare and Cork are the worst affected counties, prices in Clare have fallen by 7.8% and by 7% in Cork.

Prices in Roscommon, Tipperary and Leitrim dropped by more than 6%.

The website says the fall in property prices is closely related to the ongoing financial difficulties in the global economy.

Banks have less money to lend and the downturn is affecting confidence among people thinking of buying a house, it adds.

 Figures from the Central Bank show that the annual rate of growth in mortgage lending dropped to its lowest level in 21 years in August.

Residential mortgage lending was up 9% compared with the same month last year, the lowest annual rate since mid-1987.

The increase in mortgage borrowing in August was €508m, just over half the figure for July. The Central Bank said that while August was usually a quiet month, this figure was ‘exceptionally low’.

The annual rate of growth for all private credit in the economy slowed to a six-year low of 12.9% in August.

The Central Bank also said that new spending and repayments on credit cards were noticeably lower in August than July.

News from RTE >>

Two of the country’s leading property companies are offering home buyers interest-free loans in an attempt to stimulate activity in the housing market.Glenkerrin Homes and Radora will announce details today of the schemes to assist would-be buyers at key Dublin locations, including Stillorgan, Elm Park, Ballinteer and Palmerstown.

Speaking on RTÉ Radio’s Morning Ireland, developer Ray Grehan of Glenkerrin Homes disagreed that the company was facilitating bad financial practice, by offering buyers a loan for their house deposits.

Builders step in where lenders fear to tread; a lack of money and a lack of confidence – that is how Mr Grehan assessed the problems in the housing market.

Fellow developer Mr McNamara’s apartment development in Elm Park in Dublin 4 has already seen prices fall 20% to attract buyers.

Radora is now offering interest free loans of up to 30% of the selling price to be paid back within five years.

According to a statement, Glenkerrin is stepping in to help out those no longer able to secure loans of up to 95%.

Potential buyers of its properties Stillorgan, Ballinteer and Lucan will have to pay 5% of the asking price. They can then avail of an interest-free loan of 15% of the price to be repaid in seven years.

News from RTE >>