RPT-Fitch: Irish mortgage arrears to peak in 2014; new high in 4Q13

Mon Jan 20, 2014 4:03am EST

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Jan 20 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says in a new report that it expects Irish mortgage arrears to peak in 2014, after having reached a new high in 4Q13. In its 4Q13 'Mortgage Market Index - Ireland', the agency says that loans in arrears by more than three months continue to increase, reaching a new high of 18% of the current balance, up from 16.2% a year earlier. However the volume of loans in early stage arrears has fallen to 2.2% from its peak of almost 3% in 2011. Meanwhile, various schemes have been introduced to tackle cases of long term arrears, including reinstating foreclosure as a viable option for lenders. As a result, Fitch expects the level of three months plus arrears to peak in 2014.

"There has been a slowdown in the number of new borrowers getting into mortgage distress," says Andrew Currie, Managing Director at Fitch's Structured Finance team. "Recent legislative changes provide lenders with more certainty that they have effective tools to handle the most uncooperative borrowers. The combination of fewer new arrears cases and our expectation of a slow pick-up in loan workouts means the peak in late-stage arrears is now close."

Home prices have declined over 45% in Ireland since their peak in 3Q07, while mortgage approvals have fallen 92% from pre-crisis levels. However, Fitch expects single-digit house price growth nationally and lending to increase from the current lows. The urban areas are expected to benefit most as the economy improves and confidence increases that the bottom of the market has already passed. Meanwhile, the rural areas of the country continue to tackle the overhang of supply from the construction boom in 2005-06.

"The Irish housing market has a split personality between the major urban centres where demand now outstrips supply and some rural areas where the reverse remains the case," says Mr Currie. "An increase in headline house prices may not fully translate into higher recoveries from distressed borrowers, because steep discounts will still be required to achieve sales on less attractive properties."

Fitch's 'Mortgage Market Index - Ireland' is part of the agency's quarterly series of index reports. It includes information on the performance of residential mortgages, predominantly from RMBS transactions, but also those held on bank balance sheets. The report sets the housing market against the macroeconomic background and provides commentary on the emerging trends. The report is available at www.fitchratings.com or by clicking on the link above.

Link to Fitch Ratings' Report: Mortgage Market Index - Ireland - 4Q13

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