INSIDE THE WORLD OF BUSINESSBuy-to-let arrears figures not pretty
The potential horror show of buy-to-let mortgage losses at the banks was laid bare in a report yesterday from stockbroker Davy which tried to get a handle on the estimated scale of the problem.
Davy now expects mortgage losses to fall beyond the €9 billion worst-case scenario in last year’s stress tests, putting them at between €10 billion and €11.5 billion.
But the remaining €8.5 billion of unused capital to cover losses on the sale of excess loans and other assets through deleveraging will mean the banks won’t need more capital.
The trouble with the buy-to-let loans is twofold: compared with owner-occupier mortgages there is no industry-wide information on the true level of buy-to-let losses; and the banks have not taken anything like the enforcement action they must take on the borrowers.
Many of these customers are professional investors so the banks should really be sticking more forcefully with the Government aim of keeping people in their own homes and not investors in a multitude of homes that they rent out.
Bankers privately complain that it is not a simple problem to solve, as borrowers have cross-guaranteed buy-to-let mortgages on family homes so it may not be possible to repossess one and not the other.
Repossession have been virtually non-existent relative to the extent of arrears levels, and many loans are still on interest-only.
Davy said that a quarter of buy-to-let mortgages at the Government-guaranteed banks had missed three or more monthly repayments at the end of last year.
The firm expects buy-to-let arrears to rise to 38.4 per cent and, based on an expected 60 per cent peak-to-trough decline in property prices, delinquent buy-to-let loans will total between €6 billion and €7 billion, or close to 40,000 buy-to-let properties in arrears.
Given these figures, it’s timely that the Central Bank should be planning to produce buy-to-let arrears figures across all of the banks.
These will appear in the mortgage arrears figures for the third quarter of the year when they are published in November.
They certainly won’t make pretty reading.
Chemist pretax profits rise as robots riding in
It might be investing heavily in robots to help pharmacists dispense prescriptions and counter the impact of declining sales, but the Sam McCauley chain of chemists is nonetheless performing strongly.
In line with the pharmaceutical sector as a whole, it has been hit by declining sales, with revenues falling by about 1 per cent to €80.3 million in the year to September 30th, 2011. However, the chain reported a significant boost to its profitability during the year.
It saw its pretax profits more than double, up by 125 per cent to €3.6 million, as savings of €5 million on administration expenses helped boost profitability.
It also squeezed employment costs, with pay for its 549 staff declining by 4.4 per cent to €12.9 million, from €13.5 million previously.
Given the boost in profitability, the directors of the firm recommended the payment of a €2 million dividend to shareholders.