Mortgage defaults ‘lower in Dublin and Cork’

HOMEOWNERS in Dublin and Cork will experience half the mortgage default rate than those in some midland and border counties.

This is according to ratings agency Moody’s which said the mortgage performance in Ireland is, and will likely remain, relatively widely-dispersed across the country.

The agency said that the “severe downturn” in the Irish economy will have a “lasting impact” on the development of residential mortgage loans originated in Ireland.

In its latest index report it said 5.1% of homeowners were more than 90 days in arrears on their mortgage repayments.

Moody’s has also warned that negative equity is set to become a significant factor driving defaults by mortgage holders.

The agency said that given the scale of the correction to the housing market and the wider economy, delinquency levels are expected to remain elevated. They said the typical defaulted Irish borrower is likely to be self-employed, living outside Dublin, with a mortgage originated around the market peak in 2006 to 2007.

“Given that over half of all mortgage loans are expected to enter negative equity, we believe that default rates could still rise on higher LTV ratio loans.”

“Given the current low interest rate environment, affordability has not been weakened and hence default rates have not risen because of this factor. The expected rise in interest rates in the medium-term will lead to future delinquencies especially since a significant portion of loans are susceptible to interest-rate shocks.

“One of the main drivers of default in any environment is unemployment and Ireland is no exception. Self-employed borrowers are experiencing a default rate two to three times higher than externally employed borrowers.

“With unemployment only now reaching its peak, recent increases are expected to have a greater impact on externally rather than self-employed borrowers,” the report said.

Other significant characteristics of the current and future higher default rates include borrowers with a history of previous arrears, remortgages, interest only loans, new vintages and larger loan sizes.

Moodys said house prices have fallen significantly since their peak in early 2007 with the total peak-to-trough decline currently anticipated to be over 45%. The fall places house prices back at 2001 levels.

Also yesterday Moody’s Investors Service placed the last Irish asset-backed bonds that still have top ratings on review for possible downgrade, saying that triple-A gradings are no longer achievable for most securitisations in the country.

Moody’s put the Aaa ratings of six Irish residential mortgage-backed bonds and one balance sheet collateralised loan obligation on review. They included deals for Ulster Bank Ireland Ltd. and Irish Life & Permanent Group Holdings Plc.