I have been following the arguments for an inevitable crash on this site over the last few months, and the arguments for a crash seem to make sense (disclaimer: I have no economics expertise nor background, but the logic seems sensible to this layman).
There have been several references made to the fact that average mortgage:income ratio far exceeds what it was in the past, and this has been one of the reasons for the bubble.
My questions are: is there any indication that Irish banks will scale back on these (historically) loose lending policies? If securitisation of the loans isn’t a problem for Irish banks due to a low incidence of sub-prime mortgages (I may be wrong on this and will stand corrected if someone has the actual stats), then could the 6x single income (and upwards) mortgage be here for the long-term? And will this take the sting out of a crash?
Apologies if the answer to this is obvious or has been answered elsewhere.
No it’s a good question and one of the key questions. Personally I don’t see how Irish banks can escape what’s happening in global markets, and as UK and US banks have tightened their lending standards so I believe Irish banks will follow. Irish banks are not insulated from this, their securitisations are for the most part sold to international investors. We’ve seen what international investors think of our banks over the past few months by dumping them on the stock market, why should those same investors buy up Irish mortgage backed products with no commensurate re-rating of risk?
I would say that over the next 3-6 months we will see Irish banks quietly withdrawing products and being less flathuileach with granting mortgages in general. It’ll be one of the key tests as to who will be right - will the comments from bank economists about “good news, the ECB will cut rates” prove to be disingenuous salespatter because interest rates really don’t matter any more (you know where I stand).
p.s. “sub prime” is very much an American term as they have much better statistics on credit standards. I would consider Irish 5-10 times income loans, interest only 30 year loans etc to be just as risky as US subprime and with similar outcomes.
Also from last monday new rules from the central bank require all Irish Banks to increase the levels of stress testing up to 2.75% above ECB rate on all mortgages issued.
This will reduce the amount that a couple with combined earnings of 64000 euros that can be borrowed by 50000.
This has obvious major implications for house prices and this action from the central bank is far too late.
I just attended the funeral of a relative who died suddenly, two days before he died, the bank called and told him write no more cheques and make a lodgement. While this did not kill him, the stress was a contributory factor, since he was motivated to work rather than diagnose what was causing the pain and relax.
Speaking to others in the construction industry over the weekend , its acknowledged by them that developers with large loans and cashflow problems are being pulled in by the banks. So yes their policies regarding easy credit have changed.
Did anybody read the Sunday Times, last sunday? (don’t have a scanner): In the business section, 1st page there was an article titled “Buyers gain more credit”…It was about how some mortgage providers are now including tax benifits for 1st time buyers as an additional lending criteria - could get some up to 40,000 extra.
They’ll find a way to shake it out of us…
I’ve sent a complaint to the financial regulator…What the banks are basically doing here is pocketing the tax relief of the FTB.
I was speaking with a client last week. Senior exec at large Irish Bank.
I turned the discussion to the property market and ran my theory by him that there was a large number of big developers whose businsess model was falling apart at the moment. vis. They were solely reliant on the cash flow provided by 100% sell out at launch to provide cash flow for a highly gearedd carry play on land prices, which they rolled through lauch “phases” until they exited out the other end (and then promptly doubled down on the next bigger project). I wondered out loud how many of these developers were suffering cash flow shortages now that they could sell the next phase to pay to complete the current phase and were in secret negotiations with their banks to find a way through.
Given that this is a pretty contentious thing to say to such a person, you might be surprised to hear that he had nothing to say on my views.
And most importantly: what bank did he work for? - so we can all get our money out of any institution who employ those who can ignore the significance (even if incorrect for that particular bank) of such a question.
I couldn’t possibly say , but it might have some connection with vikings
But I took his silence to mean he new well enough the significance and that there were indeed moves behind the scenes to manage through this potential prbolem with large clients with as little impact on profits as possible.
Had a similar experience talking to some staff in the risk management section (home mortages) of a large Irish bank. Just happened to mention to them that they must be busy at the moment - got an absolute clam up - the silence spoke volumes - I think there must be a 3 line whip within the bank that no one can say anything on these topics