Archive for July, 2014

AIB reports six month loss of £2.2bn

AIB has reported an underlying loss of 2.6bn euros (£2.2bn) for the six months to the end of June, driven by continuing elevated bad debts.

This compares to a loss of 2.1bn euros (£1.85bn) during the same period last year.

The bank said that funding conditions remained highly challenging in volatile markets.

AIB booked a 2.2bn euros (£1.8bn) profit from the sale of its stake in the Polish bank Zachodni.

It also benefited from a once-off debt buyback, where the bank re-purchased bonds from certain holders at a substantial discount and generated a profit on the transaction.

The bank said its customer deposits – excluding those it purchased from Anglo Irish Bank – fell by a further 5bn euros (£4.4bn), but were broadly stable in recent weeks.

Non-performing loans amounted to 34% of customer loans, up from 29% at the end of December, the bank added.

AIB said it has seen an increase in arrears due to the impact of a harsher economic climate on borrowers’ repayment affordability.

It said the pace of increase in total arrears eased in the second half of 2010, but has started to accelerate again this year.

It said the level of loans in arrears for more than 90 days was 7.82% by the end of June, compared with 4.8% at the end of last year.

David Hodgkinson, AIB’s executive chairman, said that the support of the ECB remained critical for the bank.

http://www.bbc.co.uk/news/business-14272795

Risk of debt peril’ when interest rates rise

A “relatively benign” rise in interest rates still has the potential to double the number of households facing debt problems, a think tank has said.

A report by the Resolution Foundation said the UK had failed to deal with a “debt overhang”, leaving the economy vulnerable to rate rises.

It predicted that by 2018, 1.1 million households could be in “debt peril”, compared with 600,000 now.

This means more than half of their post-tax income goes on repaying debt.

It also suggested that households spending more than one third of their income on mortgage repayments could rise from 1.1 million to 2.3 million by 2018, equating to about one in four households with a mortgage.

Recovery requirement
The Money Advice Service has claimed that 8.8 million adults have too much debt. However, it claimed that one third of them managed to make repayments and so went under the radar.

The Resolution Foundation, which campaigns to improve living standards of those on low and middle incomes, recommended that the Bank of England resisted Bank rate rises until there was clear evidence of a sustainable, broad-based recovery.

It also said that households should be given the opportunity to lock into low rate mortgages for a set period in the future, and that there should be debt advice and support for those forced to sell their home or who have their property repossessed.

Minutes of the Bank’s Monetary Policy Committee, published on Wednesday, revealed that the committee’s nine members voted to keep rates at 0.5%.

Bank of England officials are still concerned by the UK economy’s weakness despite pressure from some business leaders to start raising rates.

http://www.bbc.co.uk/news/business-28442848

Ulster Bank poised to sell £1bn property loan portfolio

The Gateway office building in Belfast which is set to be sold by Ulster Bank

The proposed sale by Ulster Bank of a £1bn portfolio of commercial property loan is a significant step “on a par” with Nama’s recent sale of its Northern Ireland borrowings, it has been claimed.

The disposal, reported on property news service CoStar, relates to a large chunk of the bank’s property loan book in Britain and Ireland and includes more than 200 Titanic Quarter apartments and the area’s Gateway offices, which are home to Citigroup.

The 160 assets in so-called Project Achill also include Waterfront Plaza and Exchange House, both in Belfast, Ards Shopping Centre in Newtownards and Mallusk Industrial Estate in Newtownabbey.

On a value basis, just over a quarter of the loan book relates to property within Northern Ireland.

Ulster Bank refused to comment on the report – but it’s believed the sales process for many of the properties has already started, with commercial property agents appointed to sell some of the assets.

The total value of the portfolio is close to the estimated £1.3bn worth of Nama’s Northern Ireland loans, which were sold to US firm Cerberus earlier this year.

The Titanic Quarter loans themselves have a face value of around £70m and relate to the Arc Apartments and Gateway Offices.

Around £100m of loans advanced to prominent property developer Paddy McKillen’s Belfast Office Properties, which owns Ards Shopping centre, are also thought to be among the portfolio.

Other loans for sale include around £60m which had been lent to the Newry-based Murdock Group for investments in England.

The sale follow the trend among Irish banks to offload their property exposure.

Ross Davidson, principal at commercial property law firm RW Davidson, said many bank portfolios had been scooped up by big US investment firms.

And the moves towards selling its property loans demonstrated that Ulster Bank wanted to cut its property exposure “sooner rather than later”, he said.

“The tactic also taps into the current strong demand in the Irish market, north and south, from major international investors for this type of deal.”

And broadly speaking, the deal was good news for the property market in Northern Ireland.

“In recent years the market has suffered from stagnation with deal levels at unprecedented low levels.

“Liquidity and deal flow are critical to the successful performance of our property market and the new owners are likely to have the funds available to upgrade and redevelop the properties involved”.

http://www.belfasttelegraph.co.uk/business/news/ulster-bank-poised-to-sell-1bn-property-loan-portfolio-30451844.html

Investors facing repayments squeeze as deadline on interest-only deals looms

Large numbers of investors who bought rental properties are facing a repayments squeeze.

This risks pushing up mortgage arrears.

The investors signed up to interest-only deals when they bought their buy-to-let properties during the boom.
They did this because it costs much less every month than making full interest and principal repayments on the mortgages.

But four out of 10 of those who took out an interest-only mortgage to buy a rental property face having to make full repayments in the next two years, new research out today from the Central Bank has found.
There is a big risk that these borrowers will be pushed into arrears, as rents are unlikely to cover the cost of making full interest and capital repayments.

Central Bank calculations estimate that moving from making interest-only to meeting interest and principal repayments will result in a four-fold rise in monthly mortgage costs. This will typically see repayments go from around €400 to €1,700 a month, the Central Bank academic study found.

See more at: http://www.independent.ie/business/personal-finance/property-mortgages/investors-facing-repayments-squeeze-as-deadline-on-interestonly-deals-looms-30436713.html#sthash.N6KlFIZw.dpuf

Economists warn of ‘time bomb’ on mortgage arrears

A MORTGAGE arrears time bomb is ticking, due to a squeeze on the repayments of a large numbers of investors who bought rental properties. –

These investors signed up to interest-only deals when they bought their buy-to-let properties during the boom. They did this because it costs much less every month than making full interest and principal repayments on the mortgages. But four out of 10 of those who took out an interest-only mortgage to buy a rental property face having to make full repayments in the next two years, research has found. This risks pushing up mortgage arrears, the study carried out by Central Bank economists warns. There is a big risk that these borrowers will be pushed into arrears, as rents are unlikely to cover the cost of making full interest and capital repayments.

Central Bank calculations estimate that moving from making interest-only to meeting interest and principal repayments will result in a four-fold rise in monthly mortgage costs.

This will typically see repayments go from around €400 to €1,700 a month, the Central Bank academic study found.

However, rents vary from €400 a month in Leitrim to €1,230 a month in Dublin, not enough to cover full capital and interest repayments.

The interest-only deals were usually for 10 years, and now 43pc of investors with this kind of deal are coming to the end of it. They are set to be forced to make full capital and interest repayments.

The study, written by Jane Kelly, Gerard Kennedy and Tara McIndoe-Calder, found that arrears for landlords with interest-only arrangements in place tend to be much higher than for mortgages where full repayments are being made. Many of those who took out the interest-only investor mortgages are on tracker rates, which means the repayments are the lowest in the market. More than four out of 10 of the interest-only deals expire in the next two years.
“The concern is that when they do, some borrowers may experience difficulty meeting the higher repayment schedule,” the Central Bank economists concluded.

Most investor mortgages were taken out between 2005 and 2008, the height of the boom.
The latest statistics from the Central Bank show that the number of buy-to-let mortgages in arrears rose in the period up to March at a time when residential arrears fell back.

There are close to 40,000 buy-to-let mortgages that are in arrears. This is a far higher proportion than the number of residential mortgages where payments are not up-to-date. Central Bank governor Patrick Honohan (pictured) has been among those who have criticised banks for failing to tackle high levels of default among mortgaged landlords.
He called for these properties to be repossessed

– See more at: http://www.independent.ie/business/personal-finance/property-mortgages/economists-warn-of-time-bomb-on-mortgage-arrears-30438283.html#sthash.WffZ78Pc.dpuf

Northern Ireland’s economy ‘has been in recovery for a year’

The Northern Ireland economy has been in recovery mode for a full year, a survey of businesses has suggested.

The Purchasing Managers Index (PMI) is a monthly survey of a panel of firms that tracks indicators such as new orders, employment and exports.

It indicated a return to growth in June 2013 and has now remained positive for 12 months in a row.

The PMI data is produced by Ulster Bank.

‘Catch-up’

Richard Ramsey, the bank’s chief economist in Northern Ireland, said the first six months of 2014 has been the strongest start to any year since the PMI began 12 years ago.

However, he cautioned that the robust growth rates will “moderate” the longer the recovery progresses and as the economy normalises.

Northern Ireland suffered a deeper and longer lasting recession than other parts of the UK and recent growth figures to an extent reflect a “catch-up” effect.

Mr Ramsey said the rate of growth in June had not been as rapid as in previous months but “the pace of business activity and rates of job creation amongst local firms remain at very robust levels”.

He said a recovery in the Republic of Ireland, which is Northern Ireland’s biggest export market, is now being felt.

‘Positive figures’

“One recurring theme amongst respondents in recent months, including the June survey, has been the increasing volume of new work stemming from the Republic of Ireland.

“This highlights the positive economic spill-over for Northern Ireland as the recovery in its largest export market continues to gain traction.”

He added that the positive figures were tempered by the rise in Sterling against the Euro, which makes exports less competitive.

The construction sector has seen the fasted rates of growth in the PMI in recent months.

Mr Ramsey said this was largely to do with firms winning work outside of Northern Ireland rather than as a result of a significant pickup in activity locally.

Official figures showing economic performance for Northern Ireland in the first quarter of 2014 are due to be published later this week.

http://www.bbc.co.uk/news/uk-northern-ireland-28300294

NI house prices ‘could take 10 years to recover’

NI house prices                                                                                                                                  Source Image: BBC News

The report suggested property prices in Northern Ireland will rise by almost 5% this year.

Property prices in Northern Ireland could take at least 10 years to recover to what they were before the market collapsed, according to a report.

Business services firm PricewaterhouseCoopers (PwC) said that prices are still around half of their peak values in August 2007.

This despite a recent “modest recovery” in prices.

Average prices in Scotland are 5% below peak and 3% in Wales.

PwC said Northern Ireland’s “depressed” property market, high levels of negative equity and low levels of disposable income mean a slower economic recovery compared to the rest of the UK.

The report also suggested house prices in Northern Ireland will rise by almost 5% this year.

However, it expected growth to slow towards 2020 meaning it could be at least 2024 before prices return to boom time levels.

http://www.bbc.co.uk/news/uk-northern-ireland-28213123

 

UK interest rates ‘could return to 5% in long term’

rise in interest rates is good for savers, but can increase the cost of mortgage payments

Interest rates could rise to 5% in “the very long term”, a senior Bank of England figure has said.

Sir Charlie Bean, deputy governor for monetary policy, called it “reasonable” to think rates would return to pre-recession levels in 10 years or more.

The rate was cut when the financial crisis hit the UK from 2007, and it has remained at 0.5% since March 2009.

Bank of England governor Mark Carney has said it could now rise, possibly to a “new normal” of 2.5% by 2017.

Sir Charlie Bean Sir Charlie Bean leaves the Bank of England on Monday

‘Gradual and limited’ Image Source: BBC News

In an interview with Sky News, Sir Charlie, who will step down from his Bank of England role on Monday, was asked if the interest rate could return to 5% within 10 years.

“That may well be so. I wouldn’t want to say it will be back there in 10 years,” he said.

“It might be reasonable to think that in that very long term you would go back to 5% but it’s probably quite a long way down the road.”

He also said that in the run-up to the financial crisis, economists were “not sufficiently cognisant of the risks building up”.

But he said the economy was now far more resilient than when he arrived at the central bank in 2000.

On Friday Mr Carney said that any interest rate rises in the coming years would be done in a “gradual and limited fashion”.

He said UK household debt levels had altered the financial system, and increasing interest rates would have more impact on household spending than in the past.

Slow rise

In a keynote speech earlier this month, Mr Carney hinted that the Bank may raise interest rates later this year. Markets had previously expected the move to come in the first half of next year.

The governor also reiterated his belief that the timing of the first rise was less important than the speed at which subsequent increases were made.

He told the BBC on Friday that when the time came, rates would rise more slowly than they have the past. Rates would rise in “a gradual and limited fashion”, he said.

The Bank is trying to give businesses and homeowners a better insight into interest rate movements to help them plan better for the future. This policy of forward guidance was introduced by Mr Carney when he joined the Bank last year.

http://www.bbc.co.uk/news/business-28077154

NI housing market ‘dysfunctional’, says Stormont-backed taskforce

Negative equity rates are much worse in Northern Ireland than elsewhere in the UK.

The Northern Ireland housing market remains “dysfunctional” and poses a risk to economic recovery, a Stormont-backed taskforce has concluded.

The taskforce was appointed by the Social Development Minister Nelson McCausland.

It was asked to examine the impact of negative equity and repossessions.

The taskforce has warned that the number of people falling behind on their mortgage payments could increase as interest rates begin to rise.

The taskforce is now undertaking further work aimed at developing policy recommendations.

Northern Ireland suffered a huge housing bubble followed by a crash that saw prices fall by almost 50%.

As a consequence, rates of negative equity are much worse than elsewhere in the UK and repossessions have also increased.

A major “at risk” group identified by the taskforce are households who undertook “equity release” remortgages at the height of the market.

They are people who increased their mortgages to release cash for other purposes, such as home improvements or to finance buy-to-let properties.

In 2007, 74% of remortgaging in Northern Ireland was for equity release.

The taskforce said this category of “credit hungry” borrower was disproportionately active in Northern Ireland.

Lower income groups who took out “second charge” mortgages with subprime lenders are also at high-risk.

The taskforce said those lenders have shown “a more tenacious approach to arrears management”.

However, it said, in general, lenders have shown “forbearance” and if they had not done so rates of repossessions would be higher.

The taskforce warned that, despite a gradual recovery in the Northern Ireland economy and the housing market, major risks remain.

It said that the Northern Ireland economy “remains some distance from reaching escape velocity”‘ and that borrowers are “poorly equipped to absorb future income shocks”.

http://www.bbc.co.uk/news/uk-northern-ireland-28129490

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