Archive for January, 2015

Negative equity: New deposit rules will not apply

Borrowers in negative equity – where the value of their existing property is less than the outstanding mortgage – will not have to find a 20pc deposit to secure a new home.

However, an upper mortgage limit of 3.5 times salary does apply to these homeowners hoping to trade up or move house.

In addition, the Central Bank says that banks can apply stricter lending standards if they deem it necessary.

Governor Patrick Honohan said that fewer than 300 loans to borrowers in negative equity were issued last year, and that the new rules around deposits would not apply to them.

However, the loan-to-income rules – where the maximum mortgage was limited to 3.5 times gross salary – would apply as it was a “very important part” of the new arrangements.

As many as 40pc of mortgage holders are believed to be in negative equity, and the exemption to the new rules is designed to avoid an “unduly limiting scope” to the new arrangements.

The new rules allow the lender to exceed the 3.5 times income limit for up to 20pc of all new lending in one year, but expert Brendan Burgess said that those limits were unlikely to be breached.

“In practice, it’s probably unlikely that the lender will exceed the 3.5 times limit,” he said.


UK economy will slow down in 2015

As 2015 gets under way, the next 12 months could prove tricky for the UK, what with a looming general election and a cooling housing market

For much of 2014, the UK stood out as an island of rapid economic growth in a sea of stagnation. As 2015 gets under way, it looks increasingly as though the UK is succumbing to the slowdown that has settled over much of the world economy aside from the US. Recent data on the health of the UK’s construction, manufacturing and dominant services sectors tells the same story: growth is slowing.

It could be worse. The UK is still likely to grow faster than most other parts of the world this year but, as the poet John Donne observed, no man is an island – and sadly for the UK, no island is an island either: the problems afflicting the eurozone and many emerging markets will not leave Britain entirely untouched; the struggling economies of the eurozone represent Britain’s biggest export market and a significantly weaker euro will force British exporters to hold prices down or risk losing business.

Other factors also point towards a tricky 12 months. With a general election in May and huge uncertainty about the outcome, companies are likely to move cautiously on new investments until they know who is going to be running the country and what changes they can expect – particularly as regards the possibility of a referendum on EU membership.

The election is also likely to signal the start of a further phase of austerity that will shrink the public sector further and put a temporary brake on the economy. Part of the reason that the UK has performed fairly well over the past year or so is that the austerity of the early years of this Government was relaxed in the second half of the parliament. Expect that cycle to turn once the election is behind us.

It is also clear that one of the main factors bolstering consumer spending – the housing market – is cooling again as valuations become stretched. This also points to a less buoyant year ahead. Lower oil prices will provide some support for consumer spending, but they will do nothing to help the Government’s already disappointing tax revenues, further reinforcing the need for more austerity to bring the deficit under control.

The good news is that against this background, interest rate rises are looking increasingly unlikely. The bad news is that wages are still barely outpacing inflation – even at its current weak levels – and the UK’s savings rate is heading back towards historic lows. The good news story is in need of a new chapter.


Irish banks fuelling European distressed property loan sales

Nearly two-thirds of sales in 2014 were in the UK and Ireland with US private equity groups the biggest buyers

European banks have stepped up their sales of distressed real estate loans, as investors flock into the continent’s property sector.
Sales of loan portfolios rose 133 per cent year on year to €49bn in 2014, according to research by CBRE Capital Advisers.
The biggest buyers were US private equity groups, which were involved in 79 per cent of transactions in 2014, CBRE found. This fuelled demand for big-ticket deals — average deal size rose from € 441m in 2013 to € 683m last year.
There were 22 portfolios of more than € 500m in size that came to the market in 2014, all of which were bought by private equity groups.
Paul Lewis, a senior director at CBRE Capital Advisers, said banks had made “a lot of progress” in deleveraging in the past year, “although there is still a lot to do”.
European bad banks have in total € 264bn of “non-core” real estate loans left to shed, research by Cushman & Wakefield found last October. Nearly 40 per cent of that is in Spain.
They have sold off less than € 97bn of loans so far, Cushman & Wakefield said.
Distressed loan portfolios offer real estate investors “a neat way to place a lot of money very quickly”, something greatly in demand in the current crowded European property market, Mr Lewis said.
As a result of investors’ increased appetite for distressed real estate debt, discounts to property value have fallen from 63 per cent in 2012 to 44 per cent in 2014.
However, European banks still have a long way to go to unwind their pre-2008 problems, according to the research — more than three-quarters of loans on their books still date to 2007 or earlier.
Of this, more than 50 per cent — more than half a trillion euros — will mature by the end of 2017, meaning that many borrowers must seek backers in order to refinance.
New debt issuance rose 47 per cent in 2014 to €23bn, but is still less than half that of 2007.
Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on
More than half of the outstanding loans are secured against properties in the UK and Germany, making the need for new finance particularly acute in those countries.
Nearly two-thirds of the sales in 2014 were in the UK and Ireland, with a further 13 per cent in Spain, where volumes more than doubled from 2013.
German banks sold very little in 2014, despite being — along with British banks — one of Europe’s biggest sources of property finance in the years before the financial crisis.
British banks have been in the vanguard of the sell-offs, with Lloyds having shed several large portfolios of distressed property debt. Royal Bank of Scotland was slower to act, but has now embarked on an accelerated disposals programme.
Irish banks have also been very active, with bad bank NAMA last year moving into property development in a bid to build out its stock of undeveloped land.
International investors’ enthusiasm for the Spanish property market over the past two years has opened the way for Spanish banks to begin to unwind their bad debts.
The national bad bank Sareb recently commissioned four special servicing firms to sell off € 41m of property, in a move which it hopes will speed up the unwinding process.
(Copyright The Financial Times Limited 2015)

Banks fail to sort out 70pc of home loans in arrears

BANKS have yet to restructure repayments on thousands of home loans that are in default.

New figures show that seven out of 10 mortgages in arrears have still to be sorted out.

The six main banks put restructuring deals in place for close to 19,000 borrowers who are finding it difficult to meet their repayments in November.

But there still remains more than 45,000 residential mortgage accounts that are three months or more in arrears which have yet to be restructured, according to figures from the Department of Finance.

AIB/EBS, Bank of Ireland, Ulster Bank, KBC, Permanent TSB and ACC have 64,000 residential mortgage accounts in arrears for three months or more.

But just 29pc of these were restructured last November, the same percentage for the previous three months. This amounted to almost 19,000 residential mortgage accounts that were in arrears for more than 90 days which were restructured – either on a temporary or permanent basis.

The figures also show there has been a slight fall in the overall number of mortgages in arrears for 90 days or more at the six main banks.

In November, around 13pc of residential mortgage accounts were in arrears, with 9pc in arrears of 90 days or more.

The number of buy-to-let mortgages in arrears for more than three months fell by 409 in November to close to 26,000.

The Free Legal Advice Centres’ Paul Joyce said thousands of homeowners faced the threat of repossession because the efforts of banks to sort out the arrears crisis is failing.

He accused banks of picking off the easiest cases and ignoring those in longer-term arrears.

Irish Independent

Homeowners paying more to cover mortgage as rates rise

Evidence of higher home-loan costs comes after Permanent TSB confirmed an Irish Independent report that it will give €1,000 to first-time buyers and existing mortgage holders who switch to it to get lower mortgage rates.

New Central Bank figures show the average interest rate for mortgage holders rose to 2.76pc in November.

This figure includes people on ultra-low tracker rates, along with some 320,000 mortgage accounts on variable rates of up to 4.5pc.

The higher mortgage costs is despite two cuts in the European Central Bank rate last June and September.

Regulators did not give a reason for the more expensive mortgages. There were no increases in variable rates at the end of last year.

But Karl Deeter, of Irish Mortgage Brokers, said the likely reason was because thousands of people had come off cheap fixed rates.

These people would have then reverted to banks’ variable rates, which are high compared with rates offered to first-time buyers. They are also high compared with mortgage rates in the other 18 eurozone countries.

Also, many people who are in mortgage arrears may have had to give up their cheap tracker rate to get a debt deal.

Homeowners on high variable rates now have an option to switch, with Permanent TSB trying to entice those not in arrears with an offer to pay €1,000 towards their legal fees.

The incentive, which is open to customers switching from other banks, is designed to match similar offers by rival lenders.

You have to move your current account to the bank to get the offer.

It was announced on the same day as Permanent TSB reduced its key managed variable and fixed mortgage rates – a move signalled in advance.

Mortgage providers have been under pressure to follow AIB’s surprise move in December to cut variable and fixed mortgage rates, its first such reduction in more than three years.

The switcher market died off during the financial collapse, but analysts say recovering home sales mean more banks are likely to target new customers in the months ahead.

But the Irish Brokers Association warned homeowners considering switching to take independent financial advice before moving mortgage provider.

It said there would be both pros and cons associated with any offer.

Meanwhile, there has been a rise in the numbers who think now is a good time to save money in a bank or credit union, with a third of adults able to save regularly, according to the Nationwide UK (Ireland) savings index.

Irish Independent

Thousands of home loans in default not yet restructured by banks

BANKS have yet to restructure repayments on thousands of home loans that are in default.

New figures out this morning show that seven out of 10 mortgages that are in arrears have still to be sorted out to get the mortgage holders back on track.

The six main banks put restructures in place for close to 20,000 borrowers who are in trouble meeting their payments in November.

But there still remains more than 45,000 residential mortgage accounts that are three months or more in arrears that have yet to be restructured, according to figures from the Department of Finance.

AIB/EBS, Bank of Ireland, Ulster Bank, KBC Bank, Permanent TSB and ACC have 64,000 residential mortgage accounts in arrears for three months or more.

But just 29pc of these were restructured in November, the same percentage for the previous three months.

However, there has been a slight fall in the overall number of mortgages in arrears for 90 days or more at the six banks. People getting back into work are getting back on top of their mortgage difficulties.

Banks have been heavily criticised by the Free Legal Advice Centres (FLAC) for their failure to tackle the arrears crisis, particularly cases where people are in arrears for more than two years.

Banks ‘cherry picking’ home loan arrears cases for deals

Thousands of homeowners face the threat of repossession because banks are failing to sort out the arrears crisis, a new report concludes.

In an in-depth report from the Free Legal Advice Centres (FLAC) group, banks have been accused of picking off the easiest arrears cases and ignoring those in longer-term arrears.

Homeowners who are only in arrears for a short while are more likely to be offered a deal to lower their repayments than those who are two years or more behind on repayments.

The study, which has been seen by the Irish Independent, says the overall numbers going into arrears are falling, but banks were not dealing with difficult longer-term cases.

The process of resolving the home-loan arrears crisis should be taken out of the hands of banks and a state body should be set up to resolve the issue, the FLAC report by lawyer Paul Joyce recommends.

This body should have the powers to force banks into compulsory write-downs of debt for genuine cases where people can’t pay.

After going into detail on figures in arrears and the number of restructures put in place by banks, FLAC says: “Our overall conclusion is that these efforts are broadly failing and that there is likely to be a substantial spike in repossessions unless far more radical action is taken.”

The report looks at the statistics on arrears produced by the Central Bank and the Department of Finance for last year.

The 12-month assessment found that there is an average of €50,000 owed by 37,000 mortgage holders who are two years or more in arrears. The numbers in long-term arrears are rising. The report outlines how banks have threatened to repossess more than 31,000 homes.

These legal threats to take ownership of homes are classed as meeting targets for dealing with the arrears crisis by the Central Bank.

FLAC found that there were 10,000 new applications to repossess homes made by lenders in 2014.

Allowing banks to clean up the mess is not working and there is a need for an independent authority to take on the job, Mr Joyce’s report says.

He said that close to 50,000 residential mortgage holders with the six main banks had yet to have a deal put in place by their banks to bring down repayments to a level they can now afford.

There are some 17,000 accounts in other lenders – including banks like Bank of Scotland and Start, where the loans have been sold on – that are more than three months in arrears.

Mr Joyce said it was not clear how many of these have been restructured.

The report also found that more people were exiting arrears than the numbers of mortgages that were being restructured.

“It is unclear exactly how and why substantially more accounts are exiting arrears entirely than are being restructured and the relevant supervisory authorities – and the lenders – need to explain this.”

Mr Joyce, the senior policy analyst at FLAC, said the reasons these people have come out of arrears may be down to their improved financial circumstances, or because they got financial help from relatives.

He added that some “won’t pay” borrowers always had the capacity to pay, and began repaying their mortgage when threatened with repossession.

Mr Joyce also questioned mortgage arrears cases being “fixed” when the arrears were capitalised.

This is when the arrears amount is added to the overall mortgage principal.

This means the monthly repayment goes up, not down, which was often not sustainable.

Irish Independent

House prices up 12% here, but picture is patchy one in Northern Ireland

According to the Office for National Statistics (ONS), property prices here recorded their biggest year-on-year upswing for seven years in November – and were the biggest increases of the four UK regions.

Values in Northern Ireland increased by 11.7% in the year until November to reach an average of £147,000, marking the highest annual increase seen since December 2007, the ONS said.

The reported increase here compared to an average of 10% across the UK.

House price annual inflation was 10.4% in England, 3.1% in Wales and 4.4% in Scotland.

Leading estate agents last night said demand had pushed up property prices.

But they said the vast majority of sizeable increases here were restricted to so-called hotspots, such as south Belfast and north Down.

Mark Leinster from Simon Brien Residential said there were still substantial regional differences in housing price increases.

“Last year was a good year, there’s no doubt about it,” he said.

“Right from the lower end of the market, filtering up to higher-end properties which were starting to move.

“It is still very area-sensitive. It’s still greater Belfast, north Down, pockets here and there, but the peripheral market I think is still quite sticky.

“If you are taking a house in some other areas, say Portadown or Craigavon for argument’s sake, house prices there have not risen by that amount.

“Certainly in and around south Belfast, north Down, things have been very active right from the lower end to the more expensive houses.”

Will Liddell, of Templeton Robinson, agreed with the notion of a two-tier system.

“Confidence has returned in the marketplace over the past 12 months and there’s a bigger demand than supply,” Mr Liddell said.

“Hence, you are seeing situations where house prices are moving up, even from asking prices, in south, east and south-east Belfast.

“The market is moving well but once you get out into more rural areas it is different.

“There is probably a bigger supply than there is demand.

“I would say there is even a discrepancy across Belfast.

“It’s a lot stronger in areas people are wanting to be in, close to the city centre, close to schools and everything else.”

One estate agent said three-bedroom properties in Rosetta Drive were attracting offers of around £230,000 compared to £185,000 two years ago.

A modernised townhouse on the Ravenhill Road recently sold for £350,000 – £40,000 above the asking price.

In 2012, it was valued in the region of £275,000.

Property values are still 43% below their pre-financial crisis peak, having tumbled sharply as the financial downturn set in.

Economist John Simpson said a lack of new-build properties was to blame for the shortage of housing in desirable areas.

He said he wasn’t surprised at the developing gulf between areas like greater Belfast and rural locations.

“We haven’t been building enough,” he said.

“We have created a housing shortage. We should be building at the very least 8,000 to 10,000 houses to deal with population increase. We are building closer to 6,000, which is at the higher end.

“The pick-up in employment and therefore the reduced fear of redundancy has probably been stronger in the Belfast area.”

London property values have surged by 15.3% over the past year to reach £501,000 on average.


England has highest average house prices: £283,000.

NI: £147,000

WALES: £171,000

SCOTLAND: £194,000

** London: London property values have surged by 15.3% over the last year to reach £501,000 on average

Source: Belfast Telegraph

Ulster Bank takes loss of more than €4.5bn as it sells loans to US investor

ULSTER Bank and its parent company, Royal Bank of Scotland, have taken a hit of more than €4.5bn after it sold a huge property portfolio yesterday.

he bank, which is majority owned by the British government, will sell its Project Aran portfolio of loans to US investor Cerberus Capital Management for €1.4bn.

That is about 76pc below the par value of the loans, which were originally worth as much as €6bn.

The deal is by far the biggest Ulster Bank has done as it seeks to offload billions of euro in bad loans it made during the Celtic Tiger.

Unlike other Irish banks, Ulster is owned by the UK’s Royal Bank of Scotland (RBS) so none of its loans have been transferred to Nama.

However, RBS had to be bailed out by the UK government in 2008, putting taxpayers there on the hook for Ulster Bank’s losses.

Ulster Bank has cost Britain an estimated €16bn in bailout funds so far. Britain’s chancellor of the exchequer, George Osborne, had considered selling or closing Ulster Bank before deciding to retain the business.

The Project Aran deal sees Cerberus take control a huge number of assets.

The portfolio is understood to contain 1,300 borrower groups, and over 6,200 loans with around 5,400 properties.

More than three quarters of it is secured by Irish assets and about a fifth in Northern Ireland. In a sign of just how toxic these loans are; more than 90pc of them are believed to be in default.

The lender lost some £800m (€1bn) on the portfolio’s loans last year. “The carrying value of the loans is £1bn,” Ulster Bank added.

Project Aran is by far the biggest portfolio of loans to be sold by Ulster Bank since the crash.

It was originally planned to involve loans with a par value of €1.6bn.

However, that was quickly increased by €100m during the sale process, and even after the finalists for the portfolio had been decided, the bank officially increased Aran’s size to €6bn. The originally portfolio had been expected to sell at between €500m and €600m – that equated to a discount of about 65pc.

Cerberus beat off competition from fellow Americans LoneStar and CarVal to take the Aran portfolio.

The deal is expected be completed by the end of next March at the latest. Eastdil Secured, the US investment house led by Roy March, acted as adviser to Royal Bank of Scotland.

The sale is the latest collection of loans tied to Ulster Bank to have been sold off.

Project Button, which covered loans tied to the developers the Cosgrave brothers, were bought by Davidson Kempner.

Project Button had a par value close to €800m.

Project Achill, meanwhile, involved commercial real estate mostly based in Ireland. That portfolio had a par value of €1.2bn.

Most of Project Achill was bought by LoneStar. Davidson Kempner and Bank of Ireland took on smaller pieces of the portfolio.

One other part of it remains up for grabs after a court case was resolved.

Goldman Sachs, LoneStar and Cerberus are among those still bidding for the final part of Achill.

This is Cerberus’ latest major deal involving real estate on this island.

In April it took over all of Nama’s Northern Irish loan book, paying £1.2bn for the portfolio which had a nominal value of £4.5bn.

Irish Independent

Citi’s Buiter: ‘Economy should be focus, not price in AIB sale’

The top economist who first said Ireland should repay the IMF early by borrowing on the markets has warned against prioritising price in the sale of AIB and other bailed-out banks.

Minister for Finance, Michael Noonan, said he expects to recoup the full €29bn cost of bailing out AIB, Bank of Ireland and Permanent TSB over time, despite an independent assessment that values the remaining bank stakes at €15bn.

The minister’s comments are being taken as a sign that bank shares could remain in State hands well into the future, until their nominal value reaches the levels pumped-in in the period up to 2011.

The State’s holdings in AIB are valued at €13.3bn, compared to the €20.9bn spent rescuing the bank, and which the minister says can be recouped.

US banking giant Citigroup’s global chief economist, Willem Buiter, said that the priority in any privatisation should be on the outcome for the economy, not price.

“I always take the principle that for privatisations, the public eye is always on how much money you get, the eye should be on whether it improves the efficiency or the function of the entity,” he said. The key consideration in selling the bank is whether it gets the management or new owners able to provide the most efficient banking services for the Irish economy, he said.

“Extra money is nice, especially when the taxpayer has had such a hard time, but the main thing is quality of new ownership,” he said.

Last year Mr Buiter said Ireland should take advantage of the low cost of borrowing on the markets to repay costly IMF loans early.

The policy was taken up by the Government with support from the rest of the euro area and could save taxpayers €1.5bn.

On a trip to Dublin yesterday the Dutch economist said he was “very pleased” to see the scheme implemented – crediting “residual guilt” among European leaders as the reason it won their support.

On Monday the Government appointed Goldman Sachs to advise on the future of AIB.

The US investment bank was appointed following a tender process and is not being paid for its advice. The bank will be eligible to tender for the lucrative job of managing any potential share sale, if as expected, a decision is taken to offload part of the bank, possibly this year, however.

Irish Independent

Michael Noonan: ‘We’ll recoup €30bn in bailout money from main banks’

FINANCE Minister Michael Noonan has said the State will eventually recoup the billions that it pumped into the main banks through bailout funding.

The Government is planning to sell Allied Irsh Banks and has hired investment bank Goldman Sachs to advise it.

If economic conditions continue to improve, Mr Noonan believes that the €29.4bn pumped into AIB, Bank of Ireland and Permanent TSB since the banking crisis could be returned to the state.

A total of €64bn was pumped into the banks since the sector collapsed.

Mr Noonan added that the current government invested just under €18bn in the three viable banks.

“If economic and trading conditions continue to improve over the next decade or so, the cash returned to the State combined with the value of any remaining shareholding may exceed the funds invested,” Mr Noonan said in an opinion piece, written in the Irish Times,

While it is planning to get the cost of bailing out AIB, Bank of Ireland and Permanent TSB, this would leave the taxpayer cost of Anglo Iriish Bank and Irish Nationwide at €35bn.

A move to either float or sell a stake in AIB will come later this year and will be key to recouping the cost of bailing out that bank, Mr Noonan said.

Already €5bn has been returned to Government coffers from the sale of stakes in Bank of Ireland and Irish Life.

If conditions continue to improve, Mr Noonan believes that the €29.4bn pumped into AIB, Bank of Ireland and Permanent TSB since the banking crisis could be returned to the state.

Mr Noonan said that, at a minimum, the €18bn invested in the three remaining banks could be recouped.

However, that means the €35bn pumped into Anglo and Nationwide is lost.

And there was no mention of the Government getting money back through EU investment funds – that kind of retrospective bank debt deal was widely flagged in the past.

Northern Ireland house prices lowest in UK

Property values in Northern Ireland increased by 4.9% in the year to October – though the stratospheric growth elsewhere means the region still has the UK’s lowest-price homes.

The Office for National Statistics (ONS) data showed Northern Ireland joined Scotland with the joint lowest rate of house price growth for the 12-month period.

England was storming ahead with house price inflation of 10.8%, followed by Wales at 5.7%.

Northern Ireland’s average price increase for the year to October was more than half the rate of 10.9% in the year to September.

But an ONS statistician said the fluctuation could be down to Northern Ireland’s small sample size.

The ONS data is drawn from mortgaged property purchases recorded by the Council of Mortgage Lenders.

Paddy Turley, an estate agent at Ulster Property Sales, which has around 12 branches in greater Belfast, said he expected further “steady” price increases.

But he said a lack of supply was holding back the market – particularly in sought-after areas such as south Belfast.

“People have expected an avalanche of properties coming onto the market, but that just isn’t happening,” said Mr Turley.

“If we put on 10 houses in the Malone area every month, we can be sure they will sell.” Supply could grow if greater availability of banking finance made people feel more confident about moving, he said.

But Mr Turley added: “The idea of public sector cuts and job losses will also be in the back of people’s minds.”

Last month, the separate University of Ulster house price survey said the average price in the third quarter of the year was £141,173 – up 5.2%.

The residential property price index from Land and Property Services – part of the Department of Finance and Personnel – said average prices were up around 7% in the third quarter of 2014 compared to a year earlier, giving a standardised price of around £107,855.

Transactions were up by around 20% to more than 5,000, the index said.


Rate of price increases in UK regions

England – 10.8% to average of £283,000

Wales – 5.7% to average of £172,000

Scotland – 4.9% to average of £194,000

Northern Ireland – 4.9% to average of £137,000

UK as a whole – 10.4% to £271,000

Property prices ‘start to fall’

Property prices have fallen for the first time in over two years, a report on the market has revealed.

In Dublin, the average asking price for a house fell by 0.7% during the final three months of 2014 – the first drop since mid-2012, said.

Outside the capital, prices were down an average 1.3% with the largest falls experienced in Munster.

Economist and report author, Ronan Lyons said planned changes to mortgage lending were having an impact.

He said: “The intention of the proposed Central Bank limits on mortgage lending is to limit increases in house prices by affecting both buyer expectations and the credit available to them.

“It seems that, even though the limits have not yet come into force, they have already had some impact. For example, when asked what they expected will happen to Dublin house prices over the coming 12 months, survey respondents in September expected an increase of 12%. In December, however, that figure had fallen to 5%.”

Despite the drop, the national average price remained 12.8% higher than 12 months ago – at 193,000 euro compared to 171,000 euro in 2013 and 378,000 euro during the 2007 property boom.

In Dublin, house prices were also still higher than a year ago and there were 3,500 more properties listed for sale.

In cities such as Cork and Galway quarterly prices dipped by 1% while in Limerick and Waterford there were more significant reductions of between 3% and 4%, the report found.

Just under 30,000 homes were for sale on December 1, the lowest national total since March 2007, and less than half the highest figure seen in 2009.

Mr Lyons, an assistant professor at Trinity College Dublin added: “Restricting the amount lent to each household is a necessary first step to ensuring a stable housing market. The second step is addressing the cost base, to ensure an adequate supply of housing. With fewer than 30,000 properties on the market currently – and just 3,500 of those in Dublin – this is the challenge for policymakers as we move into 2015.”

Meanwhile, the report also claimed around 62% of properties found a buyer within three months, compared to 49% a year ago.

House prices slip back 1%

House prices dipped 1 per cent in the final three months of last year, according to the latest report by property website This is the first time since mid-2013 that the average house price fell compared with the previous quarter. Prices fell nationally and in the capital, with Dublin prices slipping back by 0.7 per cent, the first drop there since mid-2012.
Would-be house buyers may have lowered their expectations of the amount they can borrow in light of the proposed Central Bank limits on mortgage lending, the report says.

However, the average asking price for a home nationwide is still 12.8 per cent higher at €193,000 than it was a year ago, Daft’s 2014 Year in Review House Price Report shows. This compares with a peak average asking price of €378,000 in 2007 before the property bubble burst.

Annual house price inflation in Dublin has eased from a high of 25 per cent in September to 20 per cent in December. But the market is far more active than it was in 2013. More than 3,500 properties were listed for sale in Dublin on December 1st, 2014, which was a third more than on the same date a year earlier.
Sherry Fitzgerald said on Friday that there is “every reason to believe that prices will continue to rise at above trend levels in the short term in many locations” into 2015.

A protest march against water charges on O’Connell Street, Dublin. The year started off badly for Irish Water and got worse. Photograph: Eric Luke Pricewatch review of 2014: choppy waters for consumers in a year of give and take
Cork and Galway cities saw price falls of 1 per cent in the fourth quarter of 2014, while Limerick and Waterford cities saw falls of between 3 per cent and 4 per cent. Outside the main cities, the average asking price across the country fell by 1.3 per cent, but remains 7.6 per cent higher than at the same time last year.
Trinity College Dublin economist Ronan Lyons, the author of the report, said it seemed the Central Bank’s proposed limits on mortgage lending – which require most housebuyers to have a 20 per cent deposit – were having an impact on the market even though they have not come into force.

“When asked what they expected will happen Dublin house prices over the coming 12 months, survey respondents in September expected an increase of 12 per cent. In December, however, that figure had fallen to 5 per cent,” Mr Lyons noted. “Restricting the amount lent to each household is a necessary first step to ensuring a stable housing market. The second step is addressing the cost base, to ensure an adequate supply of housing,” he added.
“With fewer than 30,000 properties on the market currently – and just 3,500 of those in Dublin – this is the challenge for policymakers as we move into 2015.”
This shortage in supply is evident across the Irish housing sector, “from the working homeless ‘living’ in hotels to the desperate lack of student accommodation, from the lengthy social housing waiting lists to wealthy first-time buyers bemoaning the lack of homes to choose from”.
Rate cut
Meanwhile, Permanent TSB is to cut mortgage rates for new customers by between 0.36 per cent and 0.42 per cent from January 12th. Permanent TSB’s highest variable rate, for borrowers with a deposit of less than 20 per cent but more than 10 per cent of the property price, will fall to 4.2 per cent, down from 4.59 per cent.
Its lowest variable rate, for customers who borrow less than 50 per cent of the property price, will drop to 3.7 per cent, down from 4.05 per cent.
Its head of mortgages Richard Kelly said the lender hoped to grow its market share. It currently stands at 13 per cent.
“We will continue to provide mortgage credit to those customers who demonstrate affordability and are creditworthy,” Mr Kelly said.
The Central Bank is expected to confirm its plans to tighten controls on property lending later this month.

Bank of England was unaware of impending financial crisis

A month before the start of the financial crisis, the Bank of England was apparently unaware of the impending danger, new documents reveal.

In a unique insight into its workings, the Bank has published minutes of top-secret meetings of its governing body, the Court, between 2007 and 2009.

The minutes show that the Bank did identify liquidity as a “central concern” in July 2007.

However no action was taken as a result.

The documents show that the Bank also used a series of code names for banks that were in trouble.

Royal Bank of Scotland (RBS) was known as “Phoenix”, and Lloyds TSB as “Lark”.

Following publication, Andrew Tyrie MP, the chairman of the Treasury Select Committee, was highly critical of some of the Court’s non-executive directors.

He said they had failed to challenge senior executive members, like the then governor, Mervyn King, whom some accuse of failing to prioritise financial stability.

“The minutes show that during the crisis the Bank of England did not have a board worthy of the name. This mattered. And it still matters,” said Mr Tyrie.

Lord John McFall, chairman of the treasury select committee at the time, told the BBC: “They all missed wider picture.

“They missed the interconnectedness of the whole financial system…when Lehman went down it was a real catastrophe.”

‘Sense and strength’
The minutes show that in July 2007, the Court – akin to a company board – spent time discussing staff pensions, open days and new members of the Monetary Policy Committee.

Northern Rock queue
Thousands queued to take their money out of Northern Rock
Members heard that the Bank was working on a new model to detect risks to the financial system, but there was little suggestion of any impending trouble.

Less than a month later, on 9 August, the French bank BNP Paribas came clean about its exposure to sub-prime mortgages, in what some believe was the start of the financial crisis.

Six weeks later, despite some turmoil in financial markets, Court members were told to have confidence in the triple oversight of the Bank of England, the Treasury and the then Financial Services Authority (FSA).

“The Executive believed that the events of the last month had proven the sense and strength of the tripartite framework,” the minutes asserted for the 12th September, 2007.

The next day the banking crisis began in earnest.

‘Domino effect’
On that day, 13 September, 2007, members of Court were called to an emergency meeting, just as the BBC reported that Northern Rock had applied to the Bank of England for a rescue loan.

Since the news was no longer secret, thousands of customers were in the meantime queuing outside Northern Rock branches to withdraw their money.

By then the minutes show that Court members were in no doubt about the risks posed to the economy by the failure of Northern Rock.

“Both the Bank and the FSA were in total agreement that if Northern Rock was allowed to fail it would create serious economic damage,” the minutes record.

Members expressed concern that if Northern Rock was not rescued, there could be a “domino effect” on other institutions.

By November 2007 the Bank was using code words for other banks that were in danger of collapse – in an attempt to maintain confidence in the banking system.

In discussing a potential rescue for Alliance and Leicester – known as “Tiger”- it said the Bank’s offer of £3bn of emergency funding should remain confidential.

“It was emphasised that there needed to be considerable secrecy about this facility,” the minutes record.

Bank of England code words
Bradford and Bingley: “Badger”

Alliance and Leicester: “Tiger”

HBOS: “Fox”

Lloyds TSB: “Lark”

Royal Bank of Scotland: “Phoenix”

However Andrew Tyrie MP, the Committee’s chairman, said they showed that members of the Court had done a poor job in challenging the executive.

“Even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge,” he said.

“The non-executive directors appear to have done little thinking of their own about financial stability and to have added little or no substantive value to the Bank’s work on it,” Mr Tyrie added.

He also said the members should have done more to challenge Mervyn King’s view that the Bank’s main purpose was monetary policy, rather than financial stability.

He said they had merely acted as “cheerleaders” for the executive’s views.

The make-up of the Court has since been changed, so that it now includes no non-executive directors. Rules on any potential conflict of interest have also been tightened.

‘Mortgage vultures’ may cast cold eye on new Irish clients

IRISH mortgage holders could be facing a wave of litigation this year from unregulated “vulture funds” that snapped up their home loans at discount rates from Irish banks in recent months, according to campaigners.

Foreign investment funds have bought up to 10,000 home loans when Irish banks began offloading them last year. There are fears that 2015 could be the year in which the unregulated entities come down heavy on residential customers who get into difficulty.

Campaigners and opposition parties fear that the New Year could bring a wave of litigation against customers who fall into arrears, while all mortgage holders are vulnerable to a rise in interest rates.

Campaigner David Hall of the Irish Mortgage Holders Organisation says most non-regulated entities have only taken over the loan books in recent months, so the scale of litigation is too early judge.

He described the sell-off of residential loans to these non-regulated entitles as a “consumer protection nightmare.”

Fianna Fail’s finance spokesman said that Irish homeowners whose loans have been taken over by unregulated entities need greater protection.

Michael McGrath said last week: “While these entities claim to be complying with the Code of Conduct on Mortgage Arrears, there is no way of verifying this. In truth, these mortgage holders are left in a no man’s land scenario relying on the goodwill of unregulated firms who are accountable to no Irish authorities.”

Tanager, an American- owned private equity fund that bought up 2,000 distressed home loans from Bank of Scotland Ireland launched a number of legal actions against their clients in the last months of 2014.

A handful of legal cases have been lodged by other non-regulated entities against mortgage holders in trouble.

A spokesman for Tanager said that the fund was not allowed to be regulated by the Irish Central Bank and so has voluntarily signed up to the Code of Conduct for Mortgage Arrears here.

“I can confirm that any litigation action taken by Tanager relates to when a customer has been deemed non co-operative under Sections 28 and 29 of the Code of Conduct on Mortgage Arrears, and that Tanager only takes such action when all avenues have been fully explored. Any such action would relate, in Tanager’s case, to heavily delinquent mortgages,” he said.

The Government is introducing new legislation this year to force funds that buy up mortgages from Irish banks to abide by the Central Bank’s code and the Financial Ombudsman.

The legislation is unlikely to apply retrospectively.

There is considerable confusion as to exactly how many Irish residential mortgages are now in the hands of unregulated “mortgage vultures”.

Finance Minister Michael Noonan said the figure was 5,000 to 10,000 but Mr McGrath said the figure could be much higher, even as high as 15,000 to 20,000.

The state-owned IBRC – now in liquidation – sold off home loans from customers of Irish Nationwide to unregulated entities Lone Star – which owns Shoreline Residential – and Oaktree Capital Management, which owns Mars Capital Ireland. Both entities undertook to abide by the Central Bank’s Code of Conduct on Mortgage Arrears.

Permanent TSB sold around 2,200 home loans to Mars Capital, with half of them in arrears. GE Money sold its subprime mortgages to Pepper.

Last weekend, it emerged that Mars Capital Ireland had to apologise to a couple who were threatened with repossession before Christmas after they fell into temporary arrears.

Sunday Independent

Will 2015 see the US and UK raise interest rates?

Speaking to a panel of economists on the outlook for the economy and the markets, one notable theme among many stuck out.

They remained focussed on the US and what interest rates in the world’s biggest economy would mean for rates in Britain and the rest of the world.

It’s already evident in currency markets.

This year, for the first time since the turn of the century, the US dollar rose against all major currencies.

The euro and the Japanese yen have dropped by 12% against the dollar and the Chinese RMB has fallen by 2.4% versus the dollar – its first annual decline since 2009.

Greater demand for the dollar by investors reflects their expectation that interest rates will rise in the US, so they are piling in to gain a higher return than in the euro zone and Japan.

In those economies, interest rates are likely to not only remain at nearly zero, but the European Central Bank and the Bank of Japan are both poised to continue to loosen monetary policy.

Japan is already injecting some $700 billion of cash annually until inflation doubles to hit their 2% target.

The ECB appears poised for quantitative easing (QE) as well, since deflation – or falling prices – is a real risk.

A graph showing the decline of the FTSE 100 in 2008
The US and UK imposed low interest rates in response to the 2008 financial crisis
So, if US interest rates start to rise from the current 0-0.25% around the middle of the year as currently forecast by analysts, there is profit to be made for traders.

China offers a higher interest rate of course, but with a currency that isn’t freely convertible, a fairly closed capital account, and state-dominated financial markets, it’s not an open market for trades.

The weaker RMB reflects slower economic growth which has already led to the first rate cut in a couple of years and may well lead to more in 2015, putting China more in line with the looser stance of Japan and Europe than the US.

Britain is closer to the US in that economists expect the first interest rate rises to take place in the coming year or so.

The conventional view is that the Bank of England won’t raise rates until after the Federal Reserve, which would put any UK rate rises after the mid-point of the year on current projections.

In fact, Bloomberg data show that traders don’t expect a rate rise before November.

Still, the talk is of rate rises, which has pushed Sterling to rise by over 5% in 2014, the best performer after the US dollar among developed economies’ currencies.

As the Bank of England is keen to stress, any rate rises would be gradual and likely be an initial increase of 0.25%. But it would be the first move of many toward a more normal interest rate, which had averaged 5% before the crisis.

The new trend rate may be lower since growth is unlikely to be as robust, but it would still be a world away from the record low 0.5% rate that’s been in place since March 2009.

There are a lot of factors that could shift the schedule for rate rises, of course.

A man walks in front of the London Stock Exchange
UK equity markets are anticipating a rise in interest rates
These include economic growth, what will happen to oil prices (their decline has driven down inflation), and unemployment, to name a few key ones.

Still, the expectation is that rates will begin to “normalise” for the US and Britain in the coming year or so.

Mortgages will be affected as will equity markets which have been boosted by record low interest rates and cheap cash injections that had only ended in the US a couple of months ago in October.

For the FTSE, the impact has already begun to be felt as the benchmark stock index ended the year down 2.7%. More money has moved into UK gilts. Demand has pushed down yields on UK government bonds; the yield on 30-year debt has fallen below 2.5%, a record low.

Indeed, if you had put your money into bonds, you would have gained 14%, the most since 2011, versus losing nearly 3% on stocks, in 2014.

Any forecasts of rates and markets have to be taken with a huge grain of salt. But, the direction seems clear.

After a long seven years, 2015 could be when the US and UK economies and markets finally get back to normal.

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