Ulster Bank, which owns the First Active brand, has warned that re-possessing buy-to-let properties may prove difficult, thereby increasing the risk of higher loan losses for its Irish operations. The bank, which is ultimately owned by the Royal Bank of Scotland, has told investors that under Irish law it can be difficult to "obtainvacant possession of a property" which is the subject of an "existing tenancy".

The best outcome from the bank's perspective, Ulster warns, would be to sell the property as an investment property complete with the sitting tenants. "This may affect the amount which the relevant servicer could realise upon enforcement of the mortgage and a sale of the property," the bank said. Another option is to appoint a receiver who can collect rents payable. These could then be applied to the outgoing interest and the arrears accruing under the mortgage.

Buy-to-let properties carry much greater risk from a banking perspective than owner-occupied properties. According to Ulster about 23.6% of loans it issues (including First Active products) are made available to buy-to-let borrowers. This is based on a large pool of securitised loans which have been grouped together and sold in bonds.

The securitised pool made available to investors mainly consisted of tracker loans, which represented 69.5% of loan types, with 23% on fixed contracts and the remainder on variable arrangements. However about 40%, consisted of interest-only mortgages.

The bank, which provided a large credit flow during the boom years, occasionally stepped outside its normal lending criteria, the documents stated. Where there was "compensating factors" this was allowed, including stable employment and the amount of time the borrower was in their current residence.

In terms of loan-to-value ratios the bank revealed that 12.1% of the relevant pool had a loan-to-value of greater than 95%. It said the risk of loss with declining property values was more significant with respect to such loans.