The 3 criteria aren’t exactly ‘news’ to anyone who hangs around here.
I nearly fell out of my chair when I saw the BBC’s report on this last night. The three 3 criteria are:
The loan was taken out for longer than 25 years;
It is worth more than 90% of the home;
The amount borrowed is 3.5 times or greater than income.
The FSA are concerned about the 18% (1.04m/5.7m) of British borrowers who meet two or more of the criteria. I don’t have similar data to hand for Irish borrowers, but I bet our percentage must be far greater than 50%!
In the FSA’s report, only 2.6% (150,000) of mortgages met all three criteria. Anyone care to guess what the Irish equivalent is? Still a majority of borrowers maybe?
And this has them really concerned in the UK. Boy, can we show people what a real property bubble is!
It’s just like IFSRA’s warning here to mortgage holders at the time the bubble popped.
House. Stable. Door. Bolted.
Where were these toothless regulatory bodies to enforce those mortgage conditions on banks before it got to this stage?
Okay, I have worked the numbers for Ireland, using data for FTBs, themselves comprising 19.1% of the total Irish mortgage market in 2007. I don’t have the necessary data to calculate for non-FTBs.
Loan longer than 25 years: 85%
LTV > 90%: 66%
Loan > 3.5 x wages: No exact breakdown for this, but we know that average house prices here are in the region of 8-10 x wages, so few if any FTBs are buying for below 3.5 x wages, particularly as the other two criteria have such high percentages.
It is incomplete data, but I think it’s fair to assume that a majority of FTBs meet all 3 of the FSA’s criteria.
That means that at least 10% (19.1*0.5) of Ireland’s mortgage market would be in the FSA’s greatest area of concern, those “most likely to default on loans”. This compares to just 2.6% in the UK.
And the problem is probably worse again as many trader uppers held onto the old property as a rental investment - meaning that they probably have much less of an equity cushion as well as much greater exposure to the downturn and risks of rental voids.