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Central Bank worried about buy-to-lets

Friday, March 22 10:19:39

In a speech to the Bank of Finland, Irish Central Bank Director of Economics and Chief Economist Lars Frisell highlighted buy-to-let (BTL) borrowing as a 'problematic feature' of the Irish property bubble.

This problem was virtually absent in the Swedish and Finnish crises, which have often been cited as having parallels with the Irish property crash. He stressed how BTL mortgages now add to 'the perhaps largest remaining problem facing the Irish economy', the number of mortgage arrears. At the end of 2012, 28,421 BTL mortgages were over 90 days past due, adding to the 94,488 owner-occupier mortgage arrears over 90 days.

He highlighted how, in the decade up to 2007, Irish residential and commercial property prices rose almost four-fold. At the same time, domestic banks' exposure to the property sector rose from 45pc of the balance sheet in 2000 to almost 70pc in 2007. Residential property prices have fallen by about 50pc since the peak six years ago and have left many households in deep negative equity and banks with large unrealised losses.

He concludes that banks have been 'massively recapitalised' by the state and 'can and should' use their buffers to write off losses where such are inevitable. To date, ahead of the roll out of the state insolvency service, which expects to begin taking applications in June, write-offs have been minimal. For instance, Bank of Ireland charged off E51m of its overall E55bn (roughly 50:50 Ireland/UK) residential mortgage book in 2012 (2011: E49m). We don't have comparable data for Allied Irish Banks or ptsb yet but will get an update on their arrears trends, management of those arrears and write-offs when they both report 2012 results on March 27th.