Fitch: Bad loan levels to fall further

Instances of non-performing Irish homeloans are set to reduce further over the remainder of 2015, according to leading international credit rating agency, Fitch.

In its latest mortgage market index for Ireland, the agency says it sees bad debt levels continuing to dwindle, with restructuring arrangements and renegotiations between bank and borrowers playing a key role.

It also noted the Central Bank’s new mortgage lending restrictions and said they are likely to lower credit growth, but should have a limited impact on home price recovery. The recent change in arrears trends, according to Fitch, “is a result of ongoing servicing activities aimed at resolving long-term arrears cases, and an improvement in the domestic macro-economic environment”.

It added: “Nevertheless, market data provided by the Central Bank of Ireland shows that the portion of loans in arrears by more than 720 days is still rising, implying that more loan re-negotiations are yet to be resolved.”

“Slower home price growth may extend the time banks take to resolve non-performing loans and may reduce recoveries. Rising prices are likely to bring a portion of borrowers back to positive equity, giving them incentives to work with lenders to resolve arrears problems. Fitch expects further reductions in non-performing loans in 2015, with restructurings and re-negotiations playing a key role,” the agency said.

Fitch is also expecting further good news on the mortgage securitisation front, having seen three month-plus arrears levels in mortgages linked to RMBS (residential mortgage-backed securities) transactions, by the banks, recently fall for the first time since 2005.

“The agency also expects improvements in arrears in RMBS transactions, as existing cases start being resolved and the in-flow of new arrears cases lessens, although they will remain high. It is likely that market-wide arrears will continue to decline in 2015, by two percentage points, to 15.9%,” Fitch said in the new report.

It added that the large number of mortgage restructuring deals has helped lower delinquency rates. “Assuming restructured loans remain re-performing, in combination with an improving economic environment, Fitch expects long-term arrears to continue their downward trend and losses to remain limited,” it said.

“The new regulation will help improve the quality of new loans, by limiting access to borrowers who can afford to meet the new standards,” Fitch said.

The agency also expects to see house price growth slow to 4%.

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