Feb 7 (The following statement was released by the rating agency)
Slowdowns in new arrears cases in Spain, Portugal and Greece suggest that economic stabilisation is starting to support mortgage market performance in the European countries worst hit by the financial crisis, Fitch Ratings says. But Ireland's recent experience shows that early arrears levels will not necessarily drop steadily even after they appear to have peaked.
Our latest quarterly Mortgage Market Index reports for Spain and Greece show quarter-on-quarter slowdowns in early (one- to two-month) arrears in 4Q13. Mortgage markets in both countries are benefiting from more stable macroeconomic backdrops - we forecast real GDP growth of 0.6% in Spain and 0.3% in Greece in 2014.
In Portugal, meanwhile, one- to two-month arrears fell steadily in 2013, from 0.8% to 0.5%, to reach the lowest level since the onset of the financial crisis. Here too the economy is starting to pick up slowly, and the country emerged from a severe recession last year.
However, Ireland early arrears peaked at 2.9% in November 2011 and fell steadily through 1H12, before continuing to decline, albeit with more monthly variation in performance, up to September 2013. But there was a quarter-on-quarter increase in 4Q13 to 2.2% from 1.9%.
The increase may be due to changes in lenders or servicers' approaches to troubled borrowers, enabled by changes to the Code of Conduct on Mortgage Arrears and the Land and Conveyancing Act that make enforcement and foreclosure more viable. This may have reduced banks' willingness to offer some troubled borrowers options such as payment holidays or a switch to interest-only payments.
A permanent turning point in overall mortgage market performance may remain a more distant prospect. In Greece, for example, although there was a slowdown in the number of new borrowers getting into mortgage distress in 4Q13, late-stage arrears are increasing due to low foreclosure activity (the Greek parliament extended the suspension on property auctions by another 12 months in December). Three months-plus arrears including defaults rose 28bp quarter on quarter to 15.5%.
We do not expect arrears to peak in Greece or Spain until 2015, although they are likely to peak in Ireland this year, suggested by the overall trend of falling early-stage arrears due to a stabilising economy and firmer housing market, combined with banks' increased ability to resolve existing arrears cases.
Our Mortgage Market Index publications for Ireland, Spain and Greece are all available at www.fitchratings.com, as is our "Global Housing and Mortgage Market Outlook." We plan to release our first quarterly Mortgage Market Index for Portugal later this year.