Teaser rates for first-time buyers? Thirty-five-year mortgage terms? Promotional research touting temporary 'affordability' over long-term value? Have the banks learned nothing from the property crash?
Last week the Financial Regulator reported that mortgage arrears had increased by 13% in the first quarter compared to 2009. Officially, one in 25 home loan borrowers is behind on payments by three months or more. But the reality is even worse. The regulator's figures crucially do not include the thousands of mortgages in distress that have been rescheduled or restructured – by switching to interest-only – to reduce monthly payments and keep the loans superficially in the black. In fact, mortgage distress affects twice as many people as the regulator says, putting more than €12bn of bank assets at risks.
But the banks aren't acting like it. AIB, Bank of Ireland and EBS – the only three lenders really left – are all trying to increase their share of the first-time buyer market. EBS has been conducting first-time buyer seminars at its branches, while Bank of Ireland is advertising it says 'yes' to 100 applicants a day. And they all offer the most attractive introductory rates to new customers, in the knowledge that these rates will reset in a year or two, just as central bank rates are going up, putting double pressure on new borrowers.
It gets worse. PIBA, Ireland's largest group of mortgage brokers, revealed last week that 35-year mortgages are the most popular with first-time buyers – a sign the banks are still getting new borrowers to stretch as far as possible to buy a house, even as prices continue to fall. According to PIBA, the longer the mortgage, the higher the loan-to-value ratio on the property. This means buyers with the longest loan terms are not just the most leveraged, but the most vulnerable to negative equity as house prices drop.
Yet we are still hearing about 'affordability' in the market. This is banker-speak for 'crashing house prices'. The EBS/DKM Affordability Index for May trumpets that house prices are down 34% since peaking in 2006, meaning they are 'affordable'. Indeed, the typical first-time buyer couple is paying less as a percentage of net income for the average mortgage. But this is a snapshot in time. A house may be 'affordable' today, but will it be affordable in a year or two when the teaser mortgage rate disappears and the ECB winds up rates to fend off inflation? Will it be affordable when one of the couple loses a job or both take a pay cut?
The notion that anyone should draw a 35-year, €168,000 conclusion based on market data in the midst of still-overwhelming economic uncertainty (while as many as 8% of existing borrowers are in trouble already) is, frankly, insane.