70% of buy to lets in arrears are on cheap trackers

[Brendan Burgess]

according to a study by the Central Bank reported in today's Irish Times

http://www.irishtimes.com/business/...-in-arrears-on-trackers-study-finds-1.1777987

And the majority [unspecified] of home loans in arrears are on SVRs.

The finding, contained in a study by the [broken link removed], is likely to reignite concern that a significant portion of property investors are strategically defaulting on their mortgage loans in hope of gaining concessions from lenders.


...
Since the financial crisis first hit, these rates have fallen from 4 per cent to an all-time low of 0.25 per cent, in theory making it a lot easier for tracker holders to service their debt.


In addition, buy-to-let landlords, particularly in the urban areas of Dublin and Cork, have benefited from a recent upward shift in rents.

I have attached the paper to this post, although I have not had the chance to read it yet.

If a home owner has a tracker mortgage, they are very unlikely to lose it due to arrears. In contrast, I warn buy to let investors that they need to be very careful if they have a cheap tracker.

If I was a lender, I would be prioritising enforcement action against buy to lets on trackers.

 

[Delboy]

Wow, a large amount of strategic defaulters! Who'd have thunk it! In such an upright country as Ireland!
I'm sure the usual SD deniers will be along soon to refute this study

 

[Kine]

I don't know the amount but I imagine there is a proportion of "Buy to Lets" who were originally home owners but have had to move / emigrate?

Or maybe they form a miniscule amount

 

[cremeegg]

I read this article this morning and I don't think that there is much evidence to attack a partly imaginary group the strategic defaulters.

"The study found that 70 per cent of mortgage arrears of 90 days or more in the buy-to-let sector - which equates to about €8.7 billion – were linked to cheaper tracker products, which are tied to European Central Bank interest rates."

OK fair enough. But why is this happening. Everyone wants to blame "strategic defaulters"

But perhaps the real reason is

"It showed mortgages taken out between 2004 and 2008, when credit rules were at their most lax," and trackers were the most used product, and prices at their highest "make up the large share of mortgages currently in longer-term or very-long terms arrears."

 

[Brendan Burgess]

But perhaps the real reason is

"It showed mortgages taken out between 2004 and 2008, when credit rules were at their most lax," and trackers were the most used product, and prices at their highest "make up the large share of mortgages currently in longer-term or very-long terms arrears."

So what you are saying is

1) Buy to let mortgages taken out at the peak are most likely to be in arrears
2) These mortgages are likely to be trackers

Let's look at the repayments:

Say someone borrowed €200k @ 4% ( ECB + 1%) in 2006 on interest only for 5 years. Their repayments were €666 per month.
Now they owe €200k at 1.25% capital and interest with 25 years left - their repayments are €777 - an increase of €100.

A minority bought in ghost estates, but the majority who bought apartments in urban centres have very good rental income well in excess of their repayments.

They are trying to delay payment of capital and using the rental profit to supplement their lifestyle.

I would think strategic default accounts for a huge part of this.

The fact that the investment may have fallen by 50% does not affect their repayment capacity, but it appears to have affected their willingness to pay.

The lenders have appointed Rent Receivers because so many investors were paying nothing at all towards their mortgage. The surprise is that they have not appointed more.

I don't think that there is much evidence to attack a partly imaginary group the strategic defaulters.

I can't understand the strategic defaulter deniers?

The vast majority of people make every effort to pay their mortgages on time and make great sacrifices to do so.
A tiny minority, say 5% of mortgage holders are strategic defaulters.
But that is still around 40,000 people.

Brendan

 

[Bronte]

On this point I agree with Creemaag.

Everybody thinks a tracker is a great product and are envious of those that have them. But the truth is that many people who borrowed this way overborrowed. Not only that they bought at peak, so they have massive NE, mortgages of more than 100%, little or no deposits. So they had no breathing space. In addition they didn't know how to be landlords. From the get go they had no contingency plan. As in the first month a tenant didn't pay, or a void occured, or even a not forseen event, washing machine repair, the landlords started to get into trouble.

Those that got easy money were so used to lifestyle that initially they didn't cut back on their own lifestyle to fund the rental. Not willing to. Used the deposit as income as well. Loads of mistakes. And from these seemingly small errors arrears quickly built up. A month behind with a large mortgage can quickly become insurmontable. A lot of these people I find have a strange attitude to risk, money and arrears. They literally think nothing of arrears, it's a mind concept I've had to try and understand, which AAM has helped with.

 

[Bronte]

The lenders have appointed Rent Receivers because so many investors were paying nothing at all towards their mortgage. The surprise is that they have not appointed more.

Many times I've posted on the rent receivers. It doensn't make financial sense to the bank in a lot of cases. They cannot sell, don't want to sell as it will devalue property further, taking back the property is a headache, handling it is a headache, rent is nonsense, hard to rent in many cases as there is too much vacant property, being a landlord is not easy in Ireland, you really need a hands on approach.

What should have happened is the whole lot taken back and firesales. We would be well out of the mess by now.

 

[dereko1969]

On this point I agree with Creemaag.

Everybody thinks a tracker is a great product and are envious of those that have them. But the truth is that many people who borrowed this way overborrowed. Not only that they bought at peak, so they have massive NE, mortgages of more than 100%, little or no deposits. So they had no breathing space. In addition they didn't know how to be landlords. From the get go they had no contingency plan. As in the first month a tenant didn't pay, or a void occured, or even a not forseen event, washing machine repair, the landlords started to get into trouble.

Those that got easy money were so used to lifestyle that initially they didn't cut back on their own lifestyle to fund the rental. Not willing to. Used the deposit as income as well. Loads of mistakes. And from these seemingly small errors arrears quickly built up. A month behind with a large mortgage can quickly become insurmontable. A lot of these people I find have a strange attitude to risk, money and arrears. They literally think nothing of arrears, it's a mind concept I've had to try and understand, which AAM has helped with.

I'm sorry but how does this tally with what cremeegg posted? You seem to agree that these people are taking the proverbials about their debt, whether it's because of their attitude or not, they are at the end of the day strategically defaulting.

 

[Dermot]

My real life experience would back up Brendan's last post.

Example 1. Guy taking in 75k a year in cash (yes cash) for the past 4 years. Not registered with PRTB and probably none of the other property charges paid either. Property not even insured. The property is owned by a limited which has not submitted returns for 8 years and is insolvent. Rent receivers not appointed yet.

Example 2. Guy taking in 90k a year for the past 5 years. Not paying property taxes or PRTB. Has tracker mortgages but not paying a cent to the Bank for the last 5 years. He did pay for the first two years and then stopped. Bank is now about to put in rent receiver. His wife owned her house before they got married 10 years ago. She is not involved in the BTL's and he has no other property. He is very casual about it all and accepts that he is milking the system.

I know of a few others in similar situations but I cannot understand why this is allowed to carry on for so long.

I also am aware of genuine hardship cases who are in extreme difficulty.

This type of carry on absolutely frustrates me and makes me wonder why I try so hard to do the right thing.

 

[Butter]

I wish I hadn't read this thread.

Scattered all over AAM are stories of hardship & worry.

And then I read this and in particular Dermot's example no.2. This guy has raked in €450,000 over 5 years. Paid no taxes, no mortgages. Assuming he put very little of his own money into those properties in the first place - he is quids in. The banks have colluded in this over the last five years, although in other cases they seem to be hounding people with small BTL arrears. It's really incredible & makes an idiot out of anyone trying their best to service mortgages.

 

[Delboy]

lets hope that when the stress tests are over later this year, the banks get real about repossessions (and yes, writing off debt for those in hopeless situations)

 

[DebtCert]

I don't necessarily disagree but I'm curious to know who you think should decide on which cases get repossessed and which forgiven and on what basis?

 

[Delboy]

If you can't afford the mortgage, even if the term is extended, then my opinion is that the house should be repossessed.
I don't think the debt should follow people around for the rest of their days and their are many ways of dealing with that- perhaps complete write off after 5 years or something like that etc.