20% of Irish mortgages to default, predicts Fitch
BORROWERS OWING a fifth of Irish mortgages are expected to default on their loans and house prices will fall by 60 per cent from the peak as the increase in the number of people falling into arrears is unlikely to slow in the near future, the credit ratings agency Fitch has said.
The agency painted a gloomier outlook for the performance of the Irish property market and the level of mortgage losses than it had estimated last year when it said that 15 per cent of mortgages would default and house prices would decline by 50 per cent from peak levels recorded in 2007.
In a stressed scenario, foreclosures would reach 40 per cent in a typical mortgage portfolio and house prices would fall by 72 per cent from peak levels, Fitch said.
Prices have fallen by an average of about 49 per cent from peak, the agency said in a report on the risks on Irish mortgages.
Fitch said the changes in assumptions could lead to the agency downgrading the ratings on the bonds that have been sold to investors by the banks where the residential mortgages have been provided as collateral.
The worse-than-expected assumptions on the level of foreclosures reflected “the deterioration of the Irish economy” and its effect on mortgages, Fitch said.
The agency noted that there had been “a sharp increase in mortgage arrears” since last year.
“More importantly, the delay in economic recovery, the austere fiscal consolidation and falling house prices mean the speed at which arrears are increasing is unlikely to slow in the near future,” the agency said.
Government initiatives, including the new personal insolvency regime and forbearance policies to help borrowers who struggling to repay mortgages, would influence the level of repayment arrears and house prices “over the next several years”, Fitch said.
The agency said it had tried to take these into account in its best and worse-case expectations on mortgage losses as far as possible.
The number of mortgages that have fallen behind on repayments for three months or more, or that have been restructured to allow borrowers to make lower repayments, rose to 15.2 per cent at the end of March, up from 11 per cent a year earlier, according to the most recent figures from the Central Bank.
The value of mortgages in arrears or that have been restructured rose to 19.3 per cent of the €112 billion residential mortgage market in March 2012, up from 13.6 per cent over the year.
Allied Irish Banks, which has the most mortgages of any Irish lender, said last week mortgage arrears would continue to rise until the middle of next year, later than it had forecast previously.
Central Statistics Office figures released last week showed that house prices fell again in June, reversing a temporary increase. House prices have fallen nationally by 50 per cent and in Dublin by 57 per cent from peak levels, according to the CSO figures.