The Ongoing Trickle of Repossessions

The latest mortgage arrears statistics from the Central Bank provide an update for the end of September (Q3) 2023. They show there continues to be a trickle of repossessions.

During the third quarter of 2023, there were ten court-ordered repossessions and ten abandonments/voluntary surrenders of primary dwelling houses.  During 2023, court-ordered repossessions have been occurring at a rate of around one per week.

We are now also provided with a more complete breakdown of repossession activity.  The number of repossessions shown above can be broken down into those carried out by banks and non-banks. Non-banks include regulated lenders such as Pepper and Start and also unregulated loan owners.  The chart below shows a split out of the maroon area in the opening chart.

In the last 15 years, there has been a total of 3,400 court-ordered PDH repossessions. Of these around 70 per cent have been undertaken for banks. However, the banks stalled their execution of repossession orders in early 2020 (likely pandemic related) and there has been no increase since.  In the year to the end of September, there were 57 court-ordered repossessions and 42 (nearly 75 per cent) were carried out for non-banks.

Figures on legal proceedings suggest that the banks have pretty much ceased using legal proceedings to obtain repossessions orders.  Here is the number of accounts with legal proceedings in progress.

In early 2016, the banks had almost 12,000 PDH mortgage accounts with legal proceedings in progress. The last figures show that this had fallen to just 1,100 by the end of September. This is 0.2 per cent (1 in 500) of the 594,000 PDH mortgage accounts held by the banks.

Some of the reduction, of course, came about as the non-performing loans were sold to non-bank entities but the fall in the overall total is very clear. And it can be seen that the level of non-banks has been stable in recent years. In Q1 2019, non-banks had 4,400 PDH accounts with ongoing legal proceedings. The latest figure for these entities is 4,300.

That is not to say there has been an improvement in the mortgage accounts held by non-banks.  The arrears on these accounts is still very high.

Of the 710,000 or so PDH mortgage accounts in the latest update, almost 115,000 (16 per cent) were held  by non-bank entities.  And of those almost a quarter (27,300) were in some form of arrears.

The arrears ranged from relatively small (less than 90 days arrears) to incredibly large (over 10 years arrears).  It is bizarre that we have to produce figures for such significant arrears.  Non-bank entities had 21,000 PDH mortgage accounts that were more than 90 days in arrears.

Included in that are 4,500 accounts that are more than ten years in arrears.  The total balance outstanding on these loans is €1.3 billion, giving an average balance of €280,000.  There have been €833 million of missed payments on these giving an average level of arrears of just under €185,000.   That is an incredible amount of missing payments.

It is worth noting again that arrears is not a good measure of current loan distress. It does not tell us when the payments were missed.  An account that had two years of missed payments a decade ago but has had every payment made since will be counted as being two years in arrears.

Also, the measurement of arrears in terms of days past due is impacted by the repayment required.  If an account has had €6,000 of historical missed payments and the required monthly payment is €1,000 then that account will be 180 days (six months) in arrears.  If the required monthly payment rises to €1,200 – due to. say, interest rate increases – and there is no new arrears, then the €6,000 of historical arrears becomes the equivalent of 150 days (five months) of arrears. 

This measurement issue won’t impact a count of the total number of accounts in arrears.  There has been no rise in the total number of accounts in arrears.

As shown above, there remains around 29,000 PDH mortgage accounts which are more than 90 days in arrears.  Of these 21,000 are held by non-bank entities.  The banks have 8,000 such accounts but this represents just 1.3 per cent of the total PDH mortgages they hold (594,000).  The banks do not have a problem with a long-term mortgage arrears.

In some cases this will have occurred with the borrower getting back in track either with or without a cure or modification. In other cases it is because the banks have simply sold the loans.  There were plenty of claims that these sales would lead to a surge in repossessions. All we have seen so far is a trickle.

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No Surprise in November CT Receipts

When the June figures were published the €4.2 billion of Corporation Tax collected in the month pointed to receipts of around €6 billion in November.  The year-on-year declines for August, September and October were attributed to largely idiosyncratic volatility in such a concentrated source of tax revenue. 

And so it proved, with the monthly receipts for November coming in broadly in line with expectations at €6.3 billion or five percent above the crude projection based on the June figure.  With November being the most important month of the year for Corporation Tax, November 2023 was a record month, surpassing the €5.0 billion collected in the same month last year.

In year-to-date terms, November was enough to push 2023 back up above the equivalent total for 2022.  The difference looks small on the chart but the €22 billion collected so far in 2023 is almost €1 billion higher than what was collected in the same period last year.  The difference to 2014 is staggering.

The recent volatility in the receipts can be seen with the 12-month sum.  If December 2023 just matches what was collected last December then the total for the year will be €23.5 billion, up on the €22.6 billion from last year.

The volatility is highlighted in the annual changes from the above chart.  This shows some extraordinary changes. 

Towards the end of 2022, CT was growing at an annual rate of over 60 per cent – exhilarating but unsustainable. This growth plummeted during 2023 and approached zero in October. The November numbers mean that the annual change in the 12-month sum rebounded a little and rose to 2.8 per cent – and such is the scale of these receipts now that even such a small relative increase is a pretty significant sum.

It is hard to say if the December returns will garner much attention, and as a standalone month there is no discernible pattern.  2022 was a boom year for CT but December 2022 was actually lower than December 2021 – that volatility thing again.

Corporation Tax is a highly volatile source of revenue. While there can be some information in the monthly changes there is also an awful lot of noise.  Here the year-on-year comparisons of monthly CT receipts since January 2016 – and note that the chart excludes some of the volatility as the vertical axis is cut off at +100.  The final point shown is November 2023 which was was 27 per higher than November 2022.  Missing values are used when the calculation of the annual change involved a negative number (three instances since 2016: January 2019, April 2019 and April 2021).

Monthly figures that are lower than the same month of the previous year are not uncommon, though some occur in months that are not important from a CT perspective. Around one-third of months in the chart above have negative values – and this was a period when aggregate CT revenues grew at an extraordinary rate.

Four of the six months from December 2022 to May 2023 were negative in year-on-year terms.  The run of three negative figures in a row that was seen from August to October this year was a bit unusual – we have to go back to early 2021 to see such a run, when the pandemic would have had an impact, and the only other instance shown of three negative values in a row was in early 2017. 

The proximity of the recent three-month negative run to the key month of November also likely contributed to the focus. Those negative outturns will also have been seen as an opportunity to try and dampen expectations. Who knows what December will bring. Probably more volatility but structural shifts remain absent for now.

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Volatility to the fore in Corporation Tax revenues

For almost a decade now, the year-to-date revenues from Corporation Tax have exceeded the equivalent amount from the previous year (with early 2021 being the only minor exception).  We can see below that the 2023 year-to-date figure for October has dipped below the 2022 line.  The €15.7 billion collected so far in 2023 is €0.4 billion (3%) below the amount collected to October 2022.

We can also see that this is a reversal of the position seen only a few months ago. By July, 2023 was running nearly €2 billion ahead of 2022 (€10.9 billion versus €9.0 billion).  The reversal since means that this year’s Corporation Tax receipts for August, September and October have been around €2.3 billion lower than the equivalent months from last year.

These three months last year saw €7.2 billion of Corporation Tax collected, this year they brought in €4.8 billion - a fall of one-third, which does appear to be dramatic. 

As seen above, this year was still the second-highest on record for these three months but is the fall just volatility that can be expected in such a concentrated revenue source or a harbinger of a more systematic decline?  For the time being volatility seems the more likely landing spot.

To put the recent declines in context we can look at the 12-month rolling sum of receipts.

The change in direction in the past three months is pretty clear.  November is the most important individual month for Corporation Tax and a one-third drop there relative to November 2022 certainly would be alarming.

The recent falls have put the 12-month sum back close to where it was this time last year, with the annual change in the 12-month sum having plummeted towards zero in recent months. Annual growth rates of 40 per cent plus while exhilarating are not sustainable.

In the 12-months to October 2022, €21.9 billion of Corporation Tax was collected. The 12 months to October 2023 have seen revenues of €22.2 billion – an increase of 1.25 per cent.

To assess the concern that could be raised after the falls in recent months we go back to the Revenue Commissioners guidance on when large companies need to pay their Corporation Tax.

Large companies

Large companies can pay their preliminary CT in two instalments when their accounting period is longer than seven months.

The first instalment is due on the 23rd of the sixth month of the accounting period. The amount due is either:

• 50% of the CT liability for the previous accounting period
• 45% of the CT liability for the current accounting period.

The second instalment is due on the 23rd of the eleventh month. This will bring the preliminary tax up to 90% of the final tax due for the current accounting period.

The key months are month six and month 11 of the company’s financial year, by which time 90 per cent of the estimated tax due for the current year must be paid.  Any remaining tax due will be paid when the company files it tax return.

A company must file its return and pay any tax due nine months after the end of the accounting period. The company must make this payment on or before the 23rd of the ninth month.

Clearly any individual month can be any of these deadlines: month six, month 11 or month plus nine.  The likely candidates for the months we are looking at are:

• August: month 11 for companies with a September year-end
• September: month +9 for companies with a December year-end
• October: month 11 for companies with a November year-end

August

Here are the monthly receipts for August since 2009.  There was an exceptional increase in August 2022 which was up 167 per cent on August 2021.  Some of this was reversed in 2023 but August 2023 was still significantly higher than all years prior to 2022.

The impact of payment timings can be seen if we combine the receipts for March and August – month six and month 11 for companies with a September year end.

Across the two months of March and August there was no fall at all in 2023.  This points to a company having a large increase in its tax liability in 2022 and paying most of this in August 2022 (when it needed to have 90 per cent of its preliminary tax paid).  For 2023, the payments were more balanced as the March payment would have been based on 50 per cent of the 2022 liability with a smaller amount due in August this year to bring the payments up to the required 90 per cent.

The fall in August 2023 seems mainly volatility due to concentration and the timing of payments.

September

The fall in September was small which also points to volatility.

September 2022 was pretty much double September 2021 (€2 billion versus €1 billion). Some of this increase was reversed in 2023 but it is hard to point to anything systematic that might be going on. 

It could just be that companies with December year-ends that filed their 2021 tax returns in September 2022 had more of their final tax payment outstanding than when they filed their 2022 tax returns in September 2023. With lots of companies having December year-ends we can’t point to any company-specific factors but it could be just a general timing issue.

October

The monthly figures for October seem particularly volatile and it is hard to discern anything that might be going on. 

There was a local peak in October 2018 of €1.6 billion.  This fell to €1.0 billion in 2019 and pretty much collapsed to just €200 million in 2020.  This put October 2020 as one of the lowest Octobers in the last 15 years. 

There was a strong bounceback in 2021 and a further increase to €2.3 billion in 2022.  Relative to that there was a large fall in 2023, back to €1.3 billion (which was also lower than both 2018 and 2021). 

It is because of this fall in the October receipts that the year-to-date total for 2023 is running behind the 2022 level.  As we have seen, the August fall was offset by a rise in March, and the September fall was pretty modest.  So, the October fall could be significant – if we could link it to something.

We could try to link the October payments to those made the previous May, which are month 11 and month six for companies with November year ends, but that doesn’t reveal a lot.  May is also also month 11 for companies with a June year end.

The monthly receipts for May have actually been pretty stable over the past four years.  This could mean rising payments from companies with June year ends and falling payments from companies with November year ends but there is no way of telling that. 

For companies with November year ends we can see the October (month 11) payments but as noted above, outside of being especially volatile, there is no discernible pattern.  It is possible that a company with a November year end (for the purposes of paying Irish Corporation Tax) has had volatile profits over the last few years and this has likely been driving the volatility in the October Corporation Tax receipts.

This again points to the concentrated and volatile nature of these Corporation Tax receipts with a company-specific factor driving changes in the aggregate figures.  It does not point to a structural shift in the overall pattern of receipts.

November

November is a month that could be a bell-weather for such structural changes.  It is the most important month for Corporation Tax.  November is month 11 for the most common year-end: December. Last November saw €5 billion of Corporation Tax collected – the highest monthly total ever, and higher than the annual total for 2014. 

The data back to 2009, show a strong relationship between the June and November receipts.

June 2023 was the highest June ever with receipts of €4.3 billion.  If the above relationship holds, this points to record receipts again in November, this time to the tune of €6 billion.

One aggravating factor could be the rise shown above for receipts in August.  August is month 11 for companies with September year ends.  These companies’ tax returns and their final payments will be due nine months later – the following June.

Up to recently, very little Corporation Tax was collected in August (and also in March).  This would translate into very little final tax due the following June.  Now however, the combined receipts for March and August exceed €4 billion.  This can be expected to lead to additional tax payments the following June when companies with September year ends file their tax return and make their final payments. 

The above relationship between June and November was almost exclusively based on the June payments been the first preliminary payments for companies with December year ends so they were a strong predictor of the second preliminary payment in November.  This relationship may no longer be as clear cut as more of the June receipts could be due to companies with September year ends. 

Even with this we would still expect this November’s receipts to be strong. Talk of structural decline in Ireland’s booming Corporation Tax seems premature – for now. But we can certainly expect them to be volatile.

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Numbers of FTBs continue to edge up

A couple of indicators during the week show that the number of first-time buyers (FTBs) continues to rise. First, the volume of market transactions tagged as FTBs in the CSO’s residential property price index.  This is updated monthly and the volume of transactions is shown here on a 12-month basis.

There were 17,500 stamp duty filings tagged as FTBs made in the 12 months to the end of August.  Of these, 12,500 were for existing properties and 5,000 were for new properties.  The increase in the last year has been exclusively in existing properties. 

The volume of FTB transactions has been rising for more than ten years and the total is now pretty much back on the increasing trend evident up to the onset of COVID. 

The second source is the mortgage drawdown data from the Banking and Payments Federation.  This is available quarterly with this week’s update giving figures for Q3 2023.  Again, the figures are presented on an annual basis.  One plus of the mortgage data is that it is available back to 2004 (though the new/existing split is only available from 2006).

The pattern in the mortgage series from the BPF matches that in the volume series from the CSO.  In the year to the end of Q3, there were just over 25,000 mortgage loan drawdowns by FTBs in the BPF data.  This is around 60 per cent of the levels seen during the height of the credit bubble.

There are a number of reasons why the level is higher in the BPF data compared to the CSO (25,000 versus 17,500).  Most of it is likely because they are counting different things: mortgage loan drawdowns versus market transactions.

People who self-build can draw down an FTB mortgage, but obviously there is no market transaction to be included in the CSO data.  FTB mortgages can be drawn down for non-market transactions, such as family transfers or someone may take out a mortgage to renovate a property they received as a bequest.  It may also be that a mortgage drawn down in stages is represented by multiple drawdowns in the BPF data.

With these in mind it could be taken that the CSO figure gives the lower limit for the number of FTBs with the BPF figure giving an upper limit.  The true number of FTBs may be closer to the upper limit.  Whatever about those differences, the trends match, and show both rising.

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The Household Sector in the first half of 2023

A few weeks ago, the CSO published the Q2 2023 update of the non-financial institutional sector accounts. We will use those to check in on the status of the household sector for the first six months of this year (H1) and how it compares to last year and to 2008.

First, the current account.  In the prevailing environment, it is important to note that the figures in the table below are in nominal terms, i.e. not inflation adjusted.  We will look at some of the aggregates in constant prices towards the end of the post.

The start point of the current account here is Gross Domestic Product. For the household sector this is the value added produced, a large share of which is due to the imputed rents attributed to owner-occupier households with the remainder arising from the activities of the self-employed.

From there the account proceeds through a series of inflows and outflows until the bottom line is reached, Gross Savings, which is disposable income not used for consumption.

Most of the items in the table show an increase for H1 2023 over H1 2022.  One of the most significant is the continued growth of compensation of employees received.  This is up 7.3 per cent (remember in nominal terms) and stood at €64.6 billion for the first six months of the year.  Non-financial corporations are the most important source of COE and their pay outlays are up 8.0 per cent in year-on-year terms.

The largest relative changes are for the interest flows. Both interest paid and interest received are up almost 60 per cent in 2023. Taxes on income and social contributions, particularly those paid to the government sector, rose in line with the rise in income.  Social benefits received rose slightly for H1 2023 but remain lower than they were in 2020 and 2021 as COVID-19 supports were withdrawn.

All told, the national accounts estimate of household disposable income for H1 2023 was €73.8 billion.  With consumption expenditure of €64.8 billion and a €1.8 billion adjustment for the excess of contributions to private pensions over benefits received from them, the gross saving of the household sector is put at €10.6 billion for the first six months of the year. 

This is lower than each of the previous three years and gives a savings rate of 14.5 per cent for H1 2023, which remains slightly higher than the 12.1 per cent recorded for H1 2019 in pre-COVID times.

To see how that saving might be used we can turn to the capital account.

Again, the figures are in nominal terms.  The key figures in the capital account are the amount Gross Savings taken from the current account and the amount of Gross Capital Formation (investment in new capital assets) undertaken by households.  These are the main items that give rise to the net borrowing/lending of the household sector.  There are some other minor flows for capital taxes paid, investment grants received and other capital transfers.

With gross savings of €10.6 billion and with the household sector “only” undertaking €4.5 billion of gross capital formation, the household sector had €6.6 billion available for net lending. This goes on the financial balance sheet.

The CSO don’t do quarterly updates of their financial institutional sector accounts but the Central Bank do with estimates for Q1 2023 the latest available.  These show the household sector adding a further €2.7 billion to their burgeoning deposit balances. Between currency and deposits, the Central Bank estimate that the household sector had €198 billion on hand in Q1 2023, up from €154 billion in Q1 2020.  Households also used savings to make the contributions to private pensions referenced above.

On the liability side there was very little movement in Q1.  Repayments on existing loans were pretty much equivalent to drawdowns of new loans, with a net increase in loan liabilities of just €36 million in Q1.  Though it should be noted that repayments have exceeded drawdowns for the past 15 years or so.

All told, the Central Bank estimate that the household sector had €507 billion of financial assets at the end of Q1 2023, with an offsetting amount of liabilities of €143 billion.

Some Constant Price Series

The CSO also some of the main aggregates using constant prices. These series are also seasonally adjusted.  Here are the series for Disposable Income and Consumption Expenditure.

It can readily be seen that the income increase shown in the table for the current account in nominal terms is eliminated with the adjustment to constant prices. In real terms, aggregate household disposable income has been declining in recent quarters.  Real consumption has continued to rise and is not far off its pre-COVID trend.  In aggregate terms, both series are well ahead of the previous peaks reached in 2008.

To conclude, we make one additional adjustment to the CSO constant price series – put them in per capita terms.

As the population is growing fairly rapidly this shows that the decline in per capita income is more pronounced than that shown by the aggregate figures, and that per capita real consumption has essentially been flat for the past year or so.

It is also interesting to make comparisons back to the previous local maxima for each series from 2008.  Both the disposable income and consumption series are actually little different to their peaks in early 2008 – the latest readings put both series about 2 per cent above those 2008 peaks.

This might suggest a “lost 15 years”.  However, the environment on which each were achieved are wholly different.  We can see this by looking at the ‘Saving minus Investment’ of the household and government sectors.  This is each sector’s contribution to the current account of the Balance of Payments and is the Net Lending/(Borrowing) of a sector excluding capital taxes, investment grants and capital transfers.  For this we return to nominal figures and annualise them by looking at their four-quarter moving sum.

The difference between 2008 and 2023 is huge. In 2008, the household sector was in deficit to the tune of €20 billion.  Via the circular flow, this borrowing was contributing to household income.  When the crash came the borrowing was taken over by the government as tax revenues collapsed and spending on income supports increased.  Without this borrowing, income (and consumption) would have been much lower.

For 2023, there is a combined surplus of €20 billion.  There is a €40 billion difference between the positions of 2008 and that of 2023.  Now both the household and government sectors have an excess of disposable income over their consumption and capital formation expenditure.  In terms of GNI*, it is equivalent to going from borrowing 12 per cent of national income to lending 8 per cent of national income.  Simply comparing the income and consumption outcomes misses the scale of the turnaround in the borrowing/(lending) position of the economy.

We are in an income position to spend more – Corporation Tax concerns aside! But do we have the resource capacity to produce the things that we would like to buy, such as new housing units?

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