Non-bank lenders, or so-called "vulture funds" may not be the most popular players in town. However, latest mortgage arrears figures from the Central Bank show that these so-called funds are repossessing properties at a lower rate than their banking counterparts.
A growing trend
Funds of the likes of Tanager and Mars Capital entered the Irish mortgage market in large numbers through the acquisition of loan books from the likes of Irish Nationwide Building Society and Bank of Scotland. Not all mortgages in their portfolios are distressed, but a substantial chunk, of about 47 per cent as of Q1 2016, are in arrears, according to Central Bank figures.
It’s a growing trend, as banks look to offload troubled mortgage books and clean up their balance sheets. Back in 2013, just 2 per cent of the total stock of residential mortgages outstanding were owned by these so-called ‘non-bank entities’. Fast forward to March 2016, and they now account for 5 per cent (47,409) of the total stock, and as much as 7 per cent of buy-to-let (BTL) mortgages.
And it's something that's likely to continue to grow, given recent developments. Last month for example, Ulster Bank said it would sell of € 875 million of troubled mortgages, with some 88 per cent of the loans in the portfolio in arrears of more than three years. Similarly AIB has also been touted as another possible candidate to offload some of its distressed mortgages through a loan sale.
But what do these funds do when they acquire troubled mortgages?
Repossessions
Well, a key concern behind the entry of these players is that they haven’t had to operate on the same playing field as banks, given that there has been some uncertainty about the applicability of the Central Bank’s code of conduct on mortgage arrears to non-bank lenders.
However, an analysis of the latest figures from the Central Bank shows that their repossession rates tend to be lower.
As of end-March 2016, non-banks had some 21,760 mortgages in arrears of 90 days or more (both residences and BTL), compared with 117,052 similar mortgages held by banks.
So how do repossession rates compare?
During the quarter, non-banks repossessed 15 properties , or, as an approximation, 0.06 per cent of their portfolio which is in arrears of 90 days or more; 57 properties were voluntarily surrendered (0.3%), and 41 properties were sold (0.2%). Banks on the other hand repossessed 312 properties during the quarter (0.3% of banks mortgages in arrears of 90 days or more); 227 properties were voluntarily surrendered or abandoned (0.2% of total), and 752 were disposed of (0.6%).
Looking at it another way, just 5 per cent of repossessions in the first quarter were by non-bank lenders - a significant decrease from 2013, when they accounted for 15 per cent of all repossesions but just 2 per cent of mortgages.
