January 2015

The CBI has announced its new rules regarding mortgage

deposits

The election of the Syriza party in Greece has caused concern

in the European Union

The Department of Finance has decided to regulate mortgage

servicing firms, instead of the entity that owns the home loan

HML News

Pauline Daly, president of

the Society of Chartered

Surveyors Ireland (SCSI),

says in this exclusive guest

blog for HML that despite

some clouds of uncertainty,

the forecast for the

residential and commercial

property sectors in 2015

remains bright.

Looking ahead to see what the year will bring

for the property market is challenging at the

best of times, but given that the Central Bank

has just confirmed new lending guidelines, it is

even more fraught than usual.

Broadly speaking, we would agree with the

new rules in principle and welcome the clarity

they will bring to the residential market. The

fact that first-time buyers will get some relief

from the new loan-to-value limits is most

welcome. However, while the measures will

protect against some of the risks associated

with lending they are also likely to negatively

impact some segments of the market.

Briefly, under the new rules banks will be able

to lend 90% up to a value of €220,000 for first-

time buyers with an 80% limit applying on the

balance of the loan. So while first-time buyers

will be required to have higher deposits when

buying properties over the €220,000 threshold,

the situation is not as bad as it would have

been if the 20% rule had applied across the

board as was first suggested. This will clearly

be a big change for existing home owners for

whom the new 80% loan to value limits will

apply. A 70% limit will apply to buy-to-let

investors.

We believe the impact of the rules on deposits

and loan-to-income are most likely to be felt by

buyers in Dublin and other cities where property

prices in established areas greatly exceed the

€220,000 threshold for which a 10% deposit is

required.

We are also concerned about the impact on the

rental market. According to the latest SCSI

Housing Market Outlook, rents are up 11%

nationally and 15% in Dublin. The new rules are

likely to result in more people renting because

they cannot afford to buy and this will push

rents up further.

The Society also believes the new rules will

reduce the levels of mobility in the housing

market, which will mean that homeowners who

would usually trade up to larger homes will be

unable to do so – thus further reducing supply

of starter homes in the market for first-time

buyers.

Our other main concern is that the rules

will impact negatively on development and

hinder new supply being brought onto the

market. The viability of development is still

limited in some areas and the new rules may

result in a risk of some housing developments

not going ahead. We need to ensure that the

new rules are balanced out by a supply

response to ensure some level of sustainability

in the market.

Continued over the page

HML News

So what way will the market go in 2015?

Overall, it’s likely house price inflation will

continue over the next 12 months, but at a

slower rate, until new housing developments

come on stream to cater for pent up demand.

Residential surveyors are quoting price growth

nationally of between 5 and 10%, but a lot will

hinge on how the market responds to the

Central Bank’s measures.

Recent figures suggest a slight reduction in

asking prices for December in Dublin, but only

time will tell if this is a trend or a normal winter

lull. With banks progressing through their

distressed residential loan portfolios, coupled

with the sale of these loan portfolios, we

anticipate an increase in supply in the second-

hand market. We now have a multi-tiered

property market and the gap between urban

and rural areas is substantial. The property

market nationally is rising but it will be some

time before that feeds through to many rural

areas.

Commercial Property

2014 was an extraordinary year in the

commercial property market. According to

Jones Lang LaSalle, total year-end volumes

were €4.54 billion, which is a 25% increase on

the previous peak of €3.63 billion in 2006. It is

anticipated that 2015 will also be another

strong year for the market particularly in

relation to asset and loan sales. Dublin has

seen capital values surge by 30% in 2014

driven by investor demand and strong rental

growth. It is important to remember that while

the growth in recent years has been very

strong, it is coming from a low base and that

the Irish commercial property market, and

indeed the economy, is always sensitive to

what happens in the international markets.

Transaction levels increased substantially in

2014 and given the large appetite from

overseas investors in Irish commercial

property, we would anticipate that the volume

of transactions will continue to increase in

2015.

One of the biggest challenges for the sector will

continue to be a shortage of Grade A office

space in Dublin and other city centres and we

have pointed out that the lack of construction of

new office space is a potential threat to our

competitiveness as a destination for foreign

direct investment. The lack of availability of

development finance in recent years has been

a major constraint on development going

ahead. The vacancy is around 12% in Dublin

and between 4-5% in Dublin 2 which is

considered a shortage.Now that it has become

viable again to build given the growth in rents,

we hope this will encourage more developers

to build and that financial institutions will be in a

position to increase the provision of

development finance for viable projects.

The recovery is largely being driven by growing

investor demand and improving market rents

and we would anticipate that this will continue

to be a feature of the commercial property

market in 2015.

Employment Growth and Opportunities

One of the major pluses of the economic

recovery is the dramatic improvement which

we’ve seen in the employment situation. In fact

the property industry is experiencing an acute

shortage of qualified professionals to fill

vacancies created as the sector recovers.

If anyone is interested in pursuing a career in

property or construction studies this could be

an opportune time to sign up for a course. Or

indeed if anyone has been working abroad,

gaining valuable experience, this might be the

time to look into bringing it all home! For

further information on surveying and the SCSI

go to www.scsi.ie.

Disclaimer: The views expressed in this blog

are Pauline Daly's and do not necessarily

reflect those of HML.

HML News

Specialist Mortgage

Services (SMS), HML’s

subsidiary, has agreed to

purchase Topaz Finance

Limited (Topaz) from the

Royal Bank of Scotland

(RBS) for an undisclosed

sum, subject to regulatory

approval.

Topaz is the master servicer for approximately

£700 million of residential mortgages held in

the Uropa Series I and Series II

securitisations. SMS is a specialist manager of

mortgage portfolios, managing legal title and

applying its advanced analytics and mortgage

expertise to enhance the performance of

mortgage portfolios on behalf of the beneficial

owners of those assets.

Andrew Freeley, managing director

of SMS, said: “With the recent

improvements in the economy, momentum for

trading mortgage portfolios is building quickly.

Our clients are increasingly looking for a

strategic partner who specialises in managing

mortgage portfolios to support their acquisition

and disposal strategies, to enhance the value

of their mortgage assets and to provide the

rigour and quality required to manage

customers and regulatory risk effectively.

“The acquisition of Topaz supports our

strategy, giving us further scale and enhanced

capability in mortgage portfolio management.

With HML being the clear market leader in

mortgage servicing, the ability to deliver the

most advanced end-to-end mortgage

management solution in the market sets us

apart from our competitors.”

The acquisition of Topaz by SMS and the

development of SMS’s scale and capability in

mortgage portfolio management is also a key

facet of the Computershare strategy for HML

since its acquisition of HML last year.

Andrew Jones, chief executive officer

of HML, said: “The commitment by

Computershare to grow the loan servicing

business is significant and the acquisition by

SMS of Topaz is an important part of this

strategy.

“The growth of SMS is integral to both

Computershare and HML’s strategy for 2015

and beyond. We have already benefited from

working with our new parent’s US mortgage

administration company, Specialized Loan

Servicing, to share our knowledge and

expertise. Further investment into our market-

leading advanced analytics and technology will

enable us to continue our growth plans, meeting

the needs of clients globally.”

Andrew Freeley, managing director of SMS

HML Ireland Update

Date reflects what the statistic was during that period, rather than when the statistic was published

* Since revised downwards to 10.9%

Consumer Price Index (Central

Statistics Office)

DEC ‘14

0.3%

NOV ‘14

0.1%

OCT ‘14

0.2%

European Central Bank (ECB)

Base Rate

JAN ‘15

0.05%

DEC ‘14

0.05%

NOV ‘14

0.05%

Unemployment Rate (Central

Statistics Office)

DEC ‘14

10.6%

NOV ‘14

10.7%

OCT ‘14

11%*

Average National House Prices

(Myhome.ie)

Q4 ‘14

Up 0.6% from Q3

€194,000

Q3 ‘14

Up 1.4% from Q2

€193,000

Q2 ‘14

Up 1.3% from Q1

€190,216

Arrears

(Central Bank of Ireland - CBI)

PDH – total

PDH – 90 days+

BTL – total

BTL – 90 days+

Q3 ’14

117,889

84,955

38,463

31,619

Q2 ’14

126,005

90,343

39.669

31,749

Q1 ’14

132,217

93,106

39,361

31,048

Home Repossessions (CBI)

PDH

BTL

Q3 ‘14

1,393

634

Q2 ‘14

1,110

611

Q1 ‘14

1,116

568

Industry Statistics

Consumer Price Index

The CPI in December was 0.3% higher than

the same month in 2013. Notable upward

pressures came from the education (5%),

alcoholic beverages and tobacco (3%) and

miscellaneous goods and services (4.2%)

sectors.

This was partially offset by declines in

transport (-3.8%) and household equipment

and routine household maintenance (-3.1%).

ECB Interest Rate

The ECB base rate remained at 0.05% in

November. Mario Draghi, president of

the ECB, said: “Inflation dynamics have

continued to be weaker than expected. While

the sharp fall in oil prices over recent months

remains the dominant factor driving current

headline inflation, the potential for second-

round effects on wage and price-setting has

increased and could adversely affect medium-

term price developments.”

Unemployment Rate

The unemployment rate stood at 10.6% in

December 2014, down from 12.2% in the

same month in 2013. There were 352,647

unemployed individuals in November, an

annual fall of almost 38,860 people.

House Prices

The national average house price in Ireland

stood at €194,000 in Q4 2014, a 0.6%

increase on the previous quarter, according to

Myhome.ie’s analysis of asking prices.

During 2014, house prices rose nationally by

2.6%, the strongest year for value growth

since Q2 2007.

Angela Keegan, managing director

of Myhome.ie, said: “The Property Price

Register indicates that in the year to

September over 27,000 transactions had

taken place.

“Based on current trends, total transactions in

2014 look set to hit the 40,000 mark, an

increase of 38% on the 29,000 recorded in

2013. This is very heartening and while still

short of the level required for a properly

functioning property market it shows the

recovery is gaining ground.”

Arrears

Principal Dwelling Houses (PDH)

The number of PDH mortgage accounts in

arrears declined by 6.4% between Q2 2014 and

Q3 2014. Out of the total mortgage accounts,

15.5% were in arrears, representing 117,889.

The number of PDH mortgage accounts in over

90 days of arrears also declined during Q3,

falling by 6%. These accounts totalled 84,955,

11.2% of all the PDH mortgages in arrears.

Accounts in arrears of more than 720 days

increased in number by 418 during Q3 and

currently account for almost 7.6% of total PDH

mortgage accounts. The outstanding balance of

such accounts was just over €8 billion at the

end of September.

Buy-to-let (BTL)

The number of BTL mortgage accounts in

arrears decreased between Q2 and Q3 2014 to

38,463 (26.8% of the total accounts) from

39,669 (27.5% of the total accounts).

Home Repossessions

At the end of Q3 2014, there were 1,393 PDHs

and 634 BTLs in lenders’ possession. Of the

PDHs, 302 were taken into possession during

the quarter, 47 of which were the result of a

court order, while 255 were abandoned or

voluntarily surrendered.

Top News Stories

The CBI has unveiled new

mortgage lending rules.

These include:

• A 90% LTV limit on amounts up to

€220,000 for first-time buyers. So a buyer of

a principal residence of €220,000 must

have a deposit of €22,000.

• For first-time buyers purchasing more

expensive homes, the 90% LTV limit

applies on the first €220,000 and 80% on

the balance. So a buyer of a €350,000

property must have a deposit of €48,000.

• For non-first time buyers of principal

residences, an 80% LTV rule will apply on

the whole amount. So for a €400,000

home, an €80,000 deposit minimum is

required.

• For buy-to-let mortgages a 70% LTV ratio

will apply. So for a property of €400,000, a

€120,000 deposit is required

Patrick Honohan, governor of the

CBI, stated: “These measures will reduce

potential financial vulnerabilities for both

borrowers and the wider economy and will

help ensure a stable and well-functioning

mortgage lending market.

“We have carefully considered all feedback

received through the consultation process. As

far as the LTV limits are concerned, we are

retaining the basic 80% LTV limit for owner-

occupier loans and 70% for buy-to-lets with

the proportionate allowances already

announced. At the cost of some additional

complexity, but without compromising the

overall effectiveness of the measures, we are

increasing the limit for first-time buyers of

lower-cost houses.

“Although they have been designed to be

stable, the requirements are flexible enough to

be adjusted in the future should the need arise

without the need for a long period of

consultation.”

The Department of Finance

has decided to regulate

mortgage servicing firms,

instead of the entity that

owns the home loan.

The Consumer Protection (Regulation of Credit

Servicing Firms) will mean credit servicing firms

require authorisation from the Central Bank of

Ireland – and will also be regulated by it.

Borrowers whose loans are sold to unregulated

entities and managed by credit servicing firms

will have access to the complaints procedure of

the Financial Services Ombudsman.

Michael Noonan, minister for finance,

said: “The protections will apply to all

consumers regardless of when the loans were

drawn down, thus providing complete certainty

to all customers. Subject to the legislative

programme, the Bill will go through the Houses

of the Oireachtas in the early part of 2015.”

However, Michael McGrath, spokesperson on

finance for Fianna Fáil, described the regulation

as “a cop out”.

He said he was concerned that a “two-tier

system” would develop and that the regulation

had been a missed opportunity.

Top News Stories

“Vulture funds who outsource the

administration of loans will essentially still

control key decisions such as initiating action

for repossession or raising the interest rate

that applies to the loan without actually be

subject to regulation. This leaves a potentially

dangerous gap in the legislation,” Mr

McGrath added.

Irish banks need to write-off

some of their mortgage

debt. This is according to Dirk Schoenmaker, dean

of the Duisenberg School of Finance based in

the Netherlands. He was speaking at an event

organised by the International Monetary Fund.

Mr Schoenmaker said that if consumers were

going to be freed from unsustainable mortgage

repayments, debt forgiveness had to happen.

He also supported the introduction of 80%

LTVs.

The economist told attendees: “The

Irish banking crisis can be seen as a one-off,

justifying a unique programme of (partial) debt

forgiveness.

“A government-enforced programme of debt

forgiveness would free both the banking sector

and its borrowers from lingering legacy issues,

broadening the base for economic recovery.”

In response to the comments, the second

secretary general at the Department of

Finance Ann Nolan said in the last seven

years, banks in Ireland have written off

approximately €6 billion of debt.

Mortgage approvals climbed

by 44% in 2014. There were 26,576 mortgages approved last

year, with a total value of €4.7 billion, the

Banking and Payments Federation Ireland

(BPFI) reported.

In the three months ended December 2014, an

average 2,780 mortgages were approved each

month, with a value of €511 million.

National Treasury

Management Agency

(NTMA) has overseen a

successful €4 billion seven-

year bond sale.

There was a strong take-up by Asian banks of

the bold sale, which was announced by minister

for finance Michael Noonan.

Record low interest rates of 0.867% were

benefitted from. Mr Noonan commented: “The government’s strategy of removing risks

from the financial system and securing a

recovery in the Irish economy is working. ”

He added: “This represents a very good start

to 2015 by the NTMA and the low rates bode

very well for future issuances throughout the

year. The funds that will be raised throughout

the year will be used to meet our regular

funding requirements, but also to complete the

refinancing of IMF loans. In 2014, the NTMA

refinanced €9 billion in IMF loans and in 2015

will refinance the remaining €9 billion with much

cheaper funding.”

Details of the plan have not been revealed, but

the newspaper stated that a spokesperson for

the lender has “welcomed” the endorsement by

the SSM. The capital shortfall needs to be

covered by the end of July.

Permanent TSB is over 99% owned by the

state.

Households continue to pay

down their debt.

The Central Bank of Ireland has released its

latest Money and Banking Statistics, which

noted that for November, household loan

repayments surpassed drawdowns by €335

million.

Repayments for house purchase loans

exceeded drawdowns by €2.2 billion for the

year-to-date. The figure for non-housing loans

stood at €1.6 billion.

The CBI also noted that lending to households

in Ireland decreased on an annual basis, falling

by 3.8% last month.

Bank of Ireland has acquired

a portfolio of performing

residential mortgages. The lender has purchased the portfolio from the

special liquidators to Irish Bank Resolution

Corporation, with a consideration of €253

million payable in cash upon completion.

Gavin Kelly, director of Bank of

Ireland consumer banking, said: “We

are pleased to announce this transaction which

is a positive development for our business and

look forward to welcoming a new group of

customers to Bank of Ireland.”