October 2014

HML has been awarded a new S&P Irish special servicing

ranking at Above Average

Angela Keegan, managing director of Myhome.ie, has rated

the Ireland Budget seven out of ten in a blog for HML

PTSB failed the recent ECB stress tests, where a €855 million

shortfall was identified

HML News

HML has been awarded a

new S&P ranking.

We have been assigned a new Standard &

Poor‟s (S&P) Irish special servicing ranking at

Above Average.

HML also had all of its other rankings affirmed

by S&P. This means the company remains

with Above Average rankings as a primary and

special residential loan servicer in the UK, as

well as a primary residential loan servicer in

Ireland.

S&P highlighted HML‟s long track record of

mortgage servicing in the UK and Ireland.

HML has operated in the UK for more than 25

years and has been servicing the loan

portfolios of Irish lenders since 2005.

In January 2012, HML became the first

residential mortgage servicer to receive an

internationally benchmarked ranking from S&P

for the services it provides to Irish lenders.

S&P noted the “synergies” that HML would

benefit from following its purchase by

Computershare, which is subject to regulatory

approval.

Other areas highlighted by the rating agency

include HML‟s analytical models and business

intelligence, which “extensively support HML‟s

servicing activity”. It also noted that HML‟s

reporting guarantees the “substantial monitoring

of internal operations and third-party vendors‟

activity”.

Andrew Jones, chief executive officer

at HML, said: “It is great news that HML has

been assigned a new Irish special servicing

ranking from S&P, as well as have our Above

Average rankings affirmed.

“S&P highlighted our business intelligence and

analytical models, and advanced analytics are

at the heart of our arrears management and

wider servicing strategies. This ensures the

most appropriate outcomes for borrowers can

be tailored to their unique circumstances and is

a key part of our continued drive to be the

market leader for quality.

“Our new parent Computershare, subject to

regulatory approval, will allow us to take

advantage of developing business opportunities

and build upon our standing in the market as

the UK and Ireland‟s leading third-party

mortgage administration company.”

HML News

Angela Keegan, MD of

Myhome.ie, has rated the

Ireland Budget seven out of

ten.

Her thoughts about the recent Budget can

be read this this exclusive blog for HML

below.

The surprising element in this Budget was that

there were no surprises. Most of the measures

were well flagged in advance and as a result

the reaction of people generally was quite

muted. The photograph of the lone protester

outside Government buildings said it all.

We actually had the shock the week before.

That was when the Central Bank introduced

new deposit guidelines for home buyers which

mean that the vast majority of house buyers

must now have a deposit equalling 20 per cent

of the purchase price of the house.

The new guidelines are expected to come into

force on January 1st 2015. This move came as

a huge shock to first-time buyers, especially

those in Dublin and other cities who are

already facing rising prices, rising rents and

limited choice of properties due to low supply.

Given the current economic challenges, many

of them are already struggling to save a ten

per cent deposit. What did the Budget have for

them? Very little, it has to be said, apart from

some window dressing! They were promised

DIRT relief on their home savings, but given

that interest rates are two per cent or lower,

this relief won‟t amount to a hill of beans.

Clearly, the Minister is putting pressure on

the banks to come up with innovative saving

products - looks like a hospital pass. Since

the Budget, several ministers and at least

one senior banker have questioned the

wisdom of the move and its impact on the

market and first-time buyers. This is one to

watch.

Dampening home-grown talent?

While the dreaded Universal Service Charge

was reduced at lower levels, it was increased

for self-employed people from ten per cent to

11 per cent. It‟s very difficult to understand

this retrograde move. These people are out

there taking risks and generating

employment. The Government talks a lot

about encouraging entrepreneurship. People

moving to live and work here get preferential

tax rates, so why should we penalise home-

grown entrepreneurs and small businesses.

It‟s important to make these points, because

after seven very difficult Budgets, there is a

sense of relief that some money is going

back into the economy and that we are over

the worst of the recession. So while there

were many positive measures, we cannot

and should not suspend our critical faculties.

One of the positive moves was the decision

to end the pension levy. Irish people are not

the best at saving for the future and this levy

acted as a further disincentive to young

people starting a pension.

Continued over the page

HML News Good news for housing?

The fact that €2.2bn will be spent on social

housing over the next three years is also very

welcome, as is the extension of the Home

Renovation Incentive Scheme to the rental

sector. The latter is hugely positive for the

building trade, landlords and of course renters

and hopefully will help raise the standard of

rental properties.

The abolition of the windfall tax was also

welcome, even though it is rumoured that this

is the only tax ever introduced that never

raised a penny! The establishment of a

Strategic Fund is also welcome as the

availability of finance for builders and

developers remains a problem.

While many of these initiatives sound very

promising, the devil will be in the detail and we

haven‟t seen that detail yet. For example,

when and where will the social housing units

be built? When will this Strategic Fund start

lending? The Government decided not to

introduce a vacant site levy, but instead to set

up a working group to examine if landowners

have been hoarding sites. When will this

working group report back?

So a lot of positives, but plenty more work to

do. Given Ireland‟s open economy, what

happens in the UK, US and rest of Europe will

have a much bigger impact than this Budget.

So we have to work with what‟s in our control

and the Government have done that

reasonably well. Marks out of ten? We’ll go

with seven for now.

HML Ireland Update

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

* Since revised down to 11.3%

Consumer Price Index (Central

Statistics Office)

SEP ‘14

0.3%

AUG ‘14

0.4%

JULY ‘14

0.3%

European Central Bank (ECB)

Base Rate

OCT ‘14

0.05%

SEP ‘14

0.05%

AUG ‘14

0.15%

Unemployment Rate (Central

Statistics Office)

SEP ‘14

11.1%

AUG ‘14

11.2%

JULY ‘14

11.5%*

Average National House Prices

(Myhome.ie)

Q3 ‘14

Up 1.4% from Q2

€193,000

Q2 ‘14

Up 1.3% from Q1

€190,216

Q1 ’14

Down 0.7% from Q4

€187,736

Arrears

(Central Bank of Ireland - CBI)

PDH – total

PDH – 90 days+

BTL – total

BTL – 90 days+

Q2 ’14

126,005

90,343

39.669

31,749

Q1 ’14

132,217

93,106

39,361

31,048

Q4 ’13

136,564

96,474

39,250

30,706

Home Repossessions (CBI)

PDH

BTL

Q2 ‘14

1,110

611

Q1 ‘14

1,116

568

Q4 ‘13

1,014

503

Industry Statistics

Consumer Price Index

The CPI in September was 0.3% higher than

September 2013, down 0.1% on August.

Notable upward pressures came from the

education (4.5%), alcoholic beverages and

tobacco (4.1%) and miscellaneous goods and

services (2.5%) sectors.

This was partially offset by declines in clothing

and footwear (-2.6%) and food and non-

alcoholic beverages (-2.3%).

ECB Interest Rate

The ECB base rate remains at 0.05% in

October. Mario Draghi, president of

the ECB, said: “Survey data available up

to September confirm the weakening in the

euro area‟s growth momentum, while

remaining consistent with a modest economic

expansion in the second half of the year.”

Unemployment Rate

The unemployment rate stood at 11.1% in

September 2014, down from 12.6% in the

same month in 2013. There were 370,050

unemployed individuals in September, a

monthly fall of 4,700 people.

House Prices

The national average house price in Ireland

stood at €193,000 in Q3 2014, a 1.4%

increase on the previous quarter, according to

Myhome.ie‟s analysis of asking prices.

On an annual basis, the asking price rose by

1.1%, which is the first positive year-on-year

growth in seven years.

Commenting, Angela Keegan,

managing director of Myhome.ie,

said: “It's been well flagged that Capital Gains

Tax is coming to an end and that is a measure

we would welcome.

“The market is showing signs of returning to

normality and we don‟t want to see investors

competing with first-time buyers when there is

already a shortage of stock in the market. The

return to a normal functioning market will be a

long one and as we can see from the current

supply pressures in Dublin and elsewhere will

require concerted action from a range of bodies

and institutions."

Arrears

Principal Dwelling Houses (PDH)

The number of PDH mortgage accounts in

arrears declined by 4.7% between Q1 2014 and

Q2 2014. Out of the total mortgage accounts,

16.5% were in arrears, representing 126,005.

The number of PDH mortgage accounts in over

90 days of arrears also declined during Q2,

falling by 3%. These accounts totalled 90,343,

11.8% of all the PDH mortgages in arrears.

However, accounts in arrears of more than 720

days increased by 5% during Q2 and currently

account for almost 5% of total PDH mortgage

accounts. The outstanding balance of such

accounts was just under €8 billion at the end of

June.

Buy-to-let (BTL)

The number of BTL mortgage accounts in

arrears increased between Q1 and Q2 2014 to

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

39,361 (27.2% of the total accounts).

Home Repossessions

At the end of Q2 2014, there were 1,110 PDHs

and 611 BTLs in lenders‟ possession. Of the

PDHs, 299 were taken into possession during

the quarter, 89 of which were the result of a

court order, while 210 were abandoned or

voluntarily surrendered.

Top News Stories

Early-stage mortgage

arrears have declined.

This is according to Fitch, which has noted

that the number of mortgages in early arrears

has dropped below the 2% of the market

threshold for the first time in 3.5 years.

Andrew Currie, managing director of

the Structured Finance team at

Fitch, said: “Long-term arrears remain a

concern for Irish lenders due to the sheer

number of cases that still need to be resolved.”

While an improving economy, including rising

house prices, has resulted in a decline of

early-stage arrears, Fitch stated that „weaker‟

portfolios are experiencing a worsening

performance.

36 banks would have failed

ECB stress tests if new

capital rules had been

applied in full.

Vitor Constancio, vice-president of the ECB,

made the comments during the announcement

of banking stress test results.

The tests simulated how the finances of banks

would hold up during an economic downturn –

and 36 European banks would have failed if

the Basel III capital rules had been fully

implemented. They will come into full force in

2019.

Permanent TSB (PTSB) was the only Irish

bank to fail as a result of an almost €855

million shortfall being discovered.

Jeremy Masding, PTSB group chief

executive, commented: “The tests were

based on our position at the end of December

last and we‟ve made huge progress since then

on a number of fronts, so we‟ve already

provided for over 80% of the shortfall that the

ECB identified.

“We look forward to bringing international

investors on board now to raise the remaining

amount which will leave the bank fully in line

with the ECB requirements.”

Springboard has been sold

to Mars Capital. Springboard Mortgages has been sold to Mars

Capital by PTSB following what was a

competitive sales process.

While the financials surrounding the deal have

not been officially disclosed, Springboard‟s

mortgage loan book contains around €468

million gross assets, of which €350 million are

non-performing.

Mr Masding said: “This transaction

completes an important part of our planned

deleveraging programme and, importantly, it

also confirms the adequacy of our provisioning

methodology. Non-conforming lending does

have a limited role to play in a mature mortgage

market, but it was not appropriate for us as at

this time as we focus on our rebuilding task."

Mars Capital has said that it will comply with the

Code of Conduct on Mortgage Arrears.

For the year ended 31 December 2013, a profit

for Springboard of €3.2 million was reported.

Top News Stories

The majority of home buyers

will soon need a 20%

deposit. The Central Bank of Ireland has published

new mortgage rules which will come into effect

on January 1st and which noted that no more

than 15% of new mortgages should have an

LTV ratio of more than 80%.

The Bank has also announced that only 20%

of new mortgages should be issued above 3.5

times income.

Stefan Gerlach, deputy governor of

the CBI, stated: “The primary objective of

these measures is to increase the resilience of

the banking and household sectors to the

property market. In Ireland, we are still

experiencing the destabilising effects of a

property bubble.

“Our research has shown there is strong

evidence that mortgage losses are much

higher where borrowers have a high LTV or

LTI rate. We believe that measures such as

these are a standard part of a well regulated

financial system and introducing these

precautionary measures should contribute to a

stable and well-functioning mortgage lending

market.”

However, speaking to the Sunday

Independent, Jim Brown, chief

executive of Ulster Bank, said he was

concerned about the “unintended

consequences” that may follow as a result of

the rules.

While he recognised the importance of

keeping the property market in check, Mr

Brown said the rules would mean many first-

time buyers will be unable to get their foot on

to the property ladder, as well as be required

to save for a higher deposit while covering the

cost of climbing rents.

The National Asset

Management Agency

(NAMA) will repay an extra

€600 million of senior debt. NAMA has revealed that its senior debt

redemptions now stand at €7.6 billion for 2014.

Since it was established, NAMA has redeemed

more than €15 billion.

Brendan McDonagh, NAMA chief executive,

made the announcement when speaking at the

Oireachtas Joint Finance Committee.

Mr McDonagh said: “Achieving this 80%

target [by 2016] will require a substantial

volume of NAMA loan and asset disposals in

Ireland as well as Britain and elsewhere; for the

most part, sales will involve commercial assets

(offices, retail, hotel and leisure and industrial

assets) or loans secured by commercial

assets.”

Moody‟s believe that the

Ireland Budget was a

“missed opportunity”.

In a credit outlook report, the rating agency said

that the economy of the country is now at risk to

“unexpected shocks” due to the lack of action in

the Budget to reduce debt levels.

Describing the Budget as “mildly expansionary”,

Moody‟s went on to say that the closure of the

Double Irish tax scheme - which

allows multinational companies to legally move

their profits offshore to avoid paying tax - could

see foreign companies leaving Ireland.

This could therefore present a “significant risk”

to the fiscal outlook and growth of Ireland.