Key Post Summary of mortgage stats - trackers, buy to lets, etc

Central Bank

Note: all figures in billions of euro

Owner occupied
State owned banks: AIB & EBS & PTSB (excludes Bank of Ireland)
Data from PCAR report

There is only €1.5 billion in total with fixed rates in excess of 5 years.

Buy to lets
Not sure how much buy-to-lets Bank of Scotland has

Brendan

Are the above figures €Billions?

Also, what does "not securitised" mean?

Thanks

Does anyone have figures for Bank of Scotland trackers? I think that they were all trackers.

Did BoSI have much in buy to lets?

Hi Brendan,

I could be mistaken, but I think all Bank of Scotland's loans were trackers. Even those that were called Standard Variable rate had a "price promise" that meant that they were de facto trackers. (The actual rate they charged on their SVR was, for example, ECB + 1.2% but they had a clause in the loan offer that it would never exceed 1.5%. These are not real figures - just an indication of how they operated.) I remember that shortly before they pulled out of new business in Ireland they hiked up the price promise, but the loans were still trackers - just not very attractive ones.

I'd say BoSI did a fair amount of business in Buy to Lets as at one time they (like other lenders) had "professional investor" packages where they only assessed the rental income and not the earned income, offered interest-only for full term and would offer equity release on a portfolio without seeking evidence of what the released equity was for.

Hope this helps.

callybags said:

Brendan

Are the above figures €Billions?

Also, what does "not securitised" mean?

Thanks

Click to expand...

Hi Cally

Clarified now. They are all billions of euro.

Which is important. While 50% by value are trackers, I would say that the trackers have a higher average mortgage size, so the percentage of people with trackers may be less than 50%.


A securitised mortgage is one which has been sold on by the lender. It has no implications for the borrower. The Central Bank gives out the information in this format, so I have summarised it in this format, to show where the figures came from.

Brendan

Apologies if this is the wrong place to ask this but why is the state guaranteeing securitised mortgages?

Hi Purple

As I understand it, there are two types of securitised mortgages

1) Securitised mortgages in the traditional sense. The new owners would take the hit.

2) Covered bonds. They are bonds issued by bank secured on a mortgage book. But they are recourse loans. If the assets are not sufficient, the bank must pay the difference.

I did query this at the time of the recap and wondered why the liabilities were not reduced by the amount of securitised mortgages. I didn't get a full explanation but one of the reasons was that only the best bits of the mortgages were securitised.

Brendan

I got a bit more information on this issue.

When a lender securitised its mortgage book, it split it into tranches with different levels of risk and return. So the safest tranche would be rated AAA. The riskiest tranche would take the first losses. This could be 20% of the book. In many cases, the banks held this themselves. So unless there are defaults in excess of 20% most of the securitised bonds won't lose any money at all.

Oddly enough, if there were defaults affecting the rating of some tranches, the banks could substitute good mortgage for the bad mortgages to maintain the rating of the tranche.

There was another type of securitisation where the banks securitised their mortgages but didn't actually sell any of the bonds to third parties. But they were able to use these bonds to raise money from the ECB. Obviously, the bank is on the hook for all the losses on these.

Brendan Burgess said:

There was another type of securitisation where the banks securitised their mortgages but didn't actually sell any of the bonds to third parties. But they were able to use these bonds to raise money from the ECB. Obviously, the bank is on the hook for all the losses on these.

Click to expand...

this activity is not really securitisation, and is often referred to as Covered Bonds, or a Covered Bond programme. the bank keeps the "asset" on its balance sheet unlike the typical securitisation vehicles used for securitisation. The sole purpose of the Covered Bond is to allow access to the ECB repo market, and is in no way designed to mitigate or dilute risk. Again unlike securitisation.