Friday, March 17, 2017

Mortgage Repayments in BOI

The last post looked at the aggregate reduction in the stock of PDH mortgage debt in Ireland.  It was a bit crude and the aggregate nature of the data meant some simplifications were required.  Using figures from the annual reports of the banks we can get a deeper insight into the evolution of mortgage balances.  So let’s have a look at Bank of Ireland (which we have done previously here).

First, let’s look at the total amount outstanding by year of origination.

BOI Mortgages Outstanding

In the five years from the end of 2011 the stock of mortgages BOI has in Ireland declined from €27.9 billion to €24.3 billion.  Of these €19.8 billion were PDH mortgages and €4.5 billion were BTL mortgages. 

This 13 per cent reduction since 2011 masks what actually happened to the stock of loans the bank had at the end of 2011 because the bank has, of course, being issuing mortgages since then. 

If we just look at loans issued up to 2011 we again start with a total of €27.9 billion. But ignoring loans issued since then shows that these have reduced to  €18.8 billion, a fall of 32 per cent.  This falls varies by year of origination and unsurprisingly older loans show the greatest falls.

The stock of loans issued before the year 2000 fell by 63 per cent between the end of 2011 and the end of 2016.  For loans issued during the peak of the lending bubble we see that there were 29 per cent reductions in the over the same five year period for loans issued in 2006 and 2007.

The reduction in the outstanding balance could be due to:

  • repayments on the existing loan
  • re-mortgages to a new loan or new provider
  • write-downs on the existing loan

Due to re-mortgages it is probable better to look at the average balance rather than the total stock of debt.  Here are the number of accounts for each years of origination.

BOI Mortgages Number

And using these numbers we can get the average balance outstanding by year of origination.

BOI Mortgages Average Balance

This probably gives a better insight into the capital reduction on mortgages being repaid on a typical or regular basis.  For mortgages issued during the lending bubble we can see that the average balance fell by about one-sixth in the five years from the end of 2011 to the end of 2016.

So for loans originating from 2005-2008 we have a 30 per cent drop in the stock of debt in the past five years and an 18 per cent drop in the average balance for loans that remain extant at the end of 2016.  Of course, we don’t know what happened to the 12 per cent of loans originating from 2005-2008 that were discharged/ended in the past five years.  They may have been replaced by new debt or just simply repaid.  But whatever way we look at it the overall stock of debt from the credit bubble is being reduced.

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