Brexit ‘single biggest risk’ to Irish economy and mortgages, Moody’s warns

Moody's highlighted that Brexit is the "single biggest risk" to the Irish economy and mortgage market, as the EU warned that there is "significant uncertainty" of a trade deal with the UK being reached ahead of a fresh deadline on Sunday.

In a report published on Thursday on an area of the European financial market focused on mortgage-backed bonds, the ratings agency said Irish banks are likely to focus, as they did after the 2008 property crash, on restructuring problem mortgages resulting from the Covid-19 shock, rather than repossessions.

“Ireland had high forbearance levels during the 2008-09 financial crisis, and has regulations and processes in place for the expected wave of forbearance still to come,” Moody’s said. “However, even more borrower friendly measures may emerge from this crisis.”

The ratings firm added that Brexit “is still the largest single risk to Ireland’s economic outlook over the next few years”.

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The EU published some no-deal contingency plans on Thursday, after a meeting between Commission president Ursula von der Leyen and UK prime minister Boris Johnson in Brussels failed to reach a breakthrough the previous evening. Negotiators have until Sunday to try to find a path forward.

Moody’s currently forecasts that Irish gross domestic product (GDP) will expand by 2 per cent next year, and that house prices, which have remained stable so far during the Covid-19 pandemic, will decline by 1 per cent.

A no-deal Brexit would knock three percentage points off economic growth next year, according to the Department of Finance. In the longer term, the Irish Fiscal Advisory Council said the hit could be twice that, at 6 per cent of GDP.

Still, Moody’s said that central bank mortgage-lending rules, “which are among the tightest in Europe, will support the credit quality” of new loans being issued by banks.

While 10 per cent of Irish mortgages were subject to temporary blanket payment breaks at the height of the coronavirus crisis, the figure had fallen to 1.9 per cent by the end of October. Lenders have returned to offering forbearance measures on a case-by-case basis since September to borrowers facing financial difficulties, including those coming off the breaks but who have been unable to return to regular payments.

The rate of mortgages in arrears for more than 90 days had fallen to 5.6 per cent at the end of June, from a crisis-era peak of 12.9 per cent in 2013, according to Central Bank data.