# David McWilliams' "tracker mortgage timebomb" comment



## Novaman (7 Nov 2012)

Brendan,

Thanks for posting detailed reply to my original queries re mortgage figs etc.

I have been trying to get my head around the figures which you have presented and done some further digging on reports issued by the Central Bank etc.

In order to fully analyse the DMcW argument re tracker time-bombs etc. I am trying to establish how much of the original boom lending amount in residential mortgage debt has been since written down by the borrower making capital repayments.

I have taken September 2009 as a benchmark – in particular because it is the earliest date that I can get this information for;

My limited research has established that in September 2009 v June 2012 the residential mortgage situation (excluding BTLs) is as follows;

Total residential mortgage loan accounts outstanding - at end of SEPT 2009 - €118,648,678,000 – 794,609 accounts

Total residential mortgage loan accounts outstanding - at end of JUNE 2012 - €111,989,313,000 – 761,553 accounts

(I have the above in table form but can’t seem to post it on this forum…..)

I am assuming that at the peak of the boom, the €119 bn above was near the max mortgage debt outstanding in Ireland - I stand corrected on this.

The figure for June 2012 is a reduction of €6.6 bn approx. on the mortgage overhang from the Sept 2009 figure or only 5.6% - this seems low for an almost 3 year period.

However the figure for June 2012 obviously includes any additional new borrowing which took place in the intervening 33 months – I am having difficulty establishing this exact figure…….some of my research indicates that this figure could be around €12 bn approx -TBC.

In your latest data one of your headline statements is that almost “80% of people are paying off their mortgages”.

I trust that this statement is based on the fact that the remaining circa 20% are either in arrears or have had their mortgages restructured.

What I would like to get established is what is the exact balance due on the Sept 2009 mortgage figure of €118,648,678,000??.

The reason being that it contains the vast bulk of boom debt, including the “tracker time bomb” - aka DMcW position.

A typical performing mortgage of say an average rate of 3.5% over a twenty year period would reduce the annual outstanding capital amount as follows over the next 20 years;

Year 1	  - 3.76%
Year 2	  - 4.02%
Year 3	  - 4.31%
Year 4	  - 4.64%
Year 5	  - 5.00%
Year 6	  - 5.42%
Year 7	  - 5.89%
Year 8	  - 6.44%
Year 9	  - 7.09%
Year 10	  - 7.85%
Year 11	  - 8.76%
Year 12	  - 9.88%
Year 13	  - 11.29%
Year 14	  - 13.09%
Year 15	  - 15.50%
Year 16	  - 18.87%
Year 17	  - 23.94%
Year 18	  - 32.39%
Year 19	  - 49.29%
Year 20	  - 100.00%

Is it possible that within the 80% of the mortgage accounts who are paying their mortgages – could a significant number be paying interest only – hence the capital is not being reduced??

have the banks told the Central Bank of the 80% of performing mortgages – what fraction is paying capital as well as interest??

The latest CB report states;

1. 49% of mortgages are on a tracker rate
2. 89% of mortgages are either tracker, variable or one year fixed
3. The average rate of all residential mortgages over 5 years is currently 2.86%

Do we have any idea of when the debt overhang of September 2009 will be cleared?? - Hence my previous question re maturity profile of the overhang of boom time debt.

Until I can get to the bottom of the above any discussion on tracker time-bombs etc with all due respects to all involved is taking place on the basis of educated speculation...

This kind of data seems to be readily available in the UK - for example within three years in the UK over 50% of all outstanding mortgages will be paid off - why don't we have that kind of data in Ireland?? - are the Banks withholding important data from the public and misguiding us all with the real state of the mortgage market??


----------



## Brendan Burgess (7 Nov 2012)

(I have the above in table form but can’t seem to post it on this forum…..)

Novaman

I think you will become a big user of tables, so here is how to do  them.

http://www.askaboutmoney.com/showthread.php?t=132794


----------



## Brendan Burgess (7 Nov 2012)

A very interesting exercise...

I think we would need to see this table done out as follows:



 Balance due at Sept 2009| €119 billion 
Add [broken link removed] | €9billion 
Add interest rolled up on mortgages - say |€1 billion 
Less repaid (balancing figure) |€17 billion 
= Balance at 30 June 2012|€112 billion Another way of looking at it might be

The average mortgage is initially 25 years. 
But the average term remaining is probably 15 years? 
So they should be paying off 6% a year ? 

Expected capital repayments over period of 2 years 9 months: 16.5%

16.5% of €119 billion = €19.6 billion 

Which, coincidentally matches my figure of €20 billion


----------



## Brendan Burgess (7 Nov 2012)

Thinking a bit more about this, I think you need to look at the annual  cohorts to see where the problems might lie. 

Take those who bought in June  2006 with cheap trackers on a 25 year mortgage. 



 House cost| €300k
Mortgage|€270k
Interest rate|ECB + 1%
Term|25 years
Their current rate is 1.75%. But if we assume an average rate of 3%, their balance outstanding at the end of each year is as follows: 



2012|€217k
2014|€199k
2016|€180k
2018|€160k
Their repayments will have fallen dramatically as well. If they kept their original repayments, they will have a much lower balance. 

Later borrowers will have been less likely to get trackers but their house price falls won't have been as severe. 

Brendan


----------



## Novaman (7 Nov 2012)

Brendan,

I accept your analysis above, in fact with the example you use, the outstanding capital value of the 25 year mortgage which starts in 2006 will be reduced to 82% by 2012, 75% by 2014, 69% by  2016, 61% by 2018 etc etc.

However I would like the CB to get the banks to provide more data on their outstanding mortgage loan book.

Until there is more transparency, commentators like DMcW etc will be spinning the tracker time-bomb line which is said more to emote than inform.


----------



## Brendan Burgess (8 Nov 2012)

Hi Novaman

There is an Excel spreadsheet here which shows the amount of mortgages lent by IBF members over the past few years. As they account for everyone except the sub-prime lenders, I think it is more or less complete

[broken link removed]

I work out that in the period you refer to, there was €9.5 billion in new lending, not €12 billion. I have edited the above table to show that there was €17 billion repaid over that period. 

Brendan


----------



## Novaman (8 Nov 2012)

Brendan - Thanks for this spreadsheet - it is a very important piece of the jigsaw and throws considerable light on my analysis query. 

I agree that the additional borrowing since Sept 2009 is nearer your €9.5 bn figure - I am happy to be corrected re my €12bn figure - this obviously improves the argument re the overall health of the mortgage market.
Will revert with further analysis when I have had a chance to further review this additional info which you have provided.


----------



## Brendan Burgess (8 Nov 2012)

This time last year, Séamus Coffey wrote



> Two years ago there was €118.6bn of outstanding balances on all owner-occupied    mortgages in Ireland. This has now fallen to €114.4bn. Over the same period    over €5 billion of new mortgage credit was issued. There is some mortgage    lending occurring but when compared to the €40 billion of new mortgage    lending in 2006 the drop in lending is around 95%.
> 
> Although there may have been some mortgage write downs by the banks, the    greater bulk of the reduction in mortgage balances will have been because of    repayments. Given the figures above it can be seen that in the last two    years about €10bn of capital repayments have been made on mortgages. Over    the same time the amount of arrears has increased by €720m. *For every €1,000    of mortgage repayments that are missed nearly €15,000 of capital repayments    are made somewhere else.  *


This is a very intersting way of putting it. 

I am trying to get the mortgage balances at 31 Dec 2006 and will redo the calculations from that date. 

Brendan


----------

