Monday, June 27, 2016

At-Risk-Of-Poverty Rates and Work Intensity

The following table gives at risk-of-poverty rates (disposable income less than 60 per cent of the median) for people aged 60 and under by the work intensity of the households.  The countries are ranked from lowest AROP rate to highest for each work intensity level (very high to very low) with Ireland’s position highlighted.

AROP by HH Work Intensity

In this, albeit limited, view of poverty rates Ireland is the best-performing EU country.  Across the five work-intensity categories Ireland’s average ranking is 2.6.  The next best countries are Denmark and The Netherlands with an average ranking of 5.2.  Sweden has an average ranking of 20.6.

Tuesday, June 21, 2016

Repossession orders received by the Dublin City Sheriff

Just over a year ago we looked at a presentation given to Dublin City Council on the arrears and repossessions associated with their mortgage loans.  We can now expand this a bit with data from the Dublin City Sherriff on possession orders received and then subsequently executed or withdrawn.  The data is summarised in the following table:

Repossessions Orders Dublin City Sheriff

What do we see?

1 Orders Received From

Over the past five years the Dublin City Sheriff has received 561 possession orders for residential property.  Of these 320 (57 per cent) came from Dublin City Council, 195 (35 per cent) came from banks or building socities, with a small residual classed as “Private” (most of these arise from rental situations and the Residential Tenancies Board).

2 Outcome of Orders Received

The data indicate that around 60 per cent of possession orders are executed (342 out of 544).  The remaining 40 per cent are mainly instances where the situation is settled prior to repossession (possible because the borrower and lender have entered an alternative repayment arrangement) with a small number of instances where the order is withdrawn because they have expired (possession orders usually have a 12- month shelfl life).

Dublin City Council has the lowest execution rate for orders (though does present the most orders).  Around two-thirds of orders presented by banks and building societies are executed with this rising to almost four-fifths for orders listed as “private”.

3 Orders Executed For

In the past five years DCC has had 178 possession orders executed by the Dublin City Sheriff.  This compares to 128 for banks and building societies.  Possession orders sought by DCC will be for a range of situations such as loan delinquincy, rent arrears or anti-social behaviour.  The presentation linked to above states that:

At the end of 2014, a total of 251 accounts are categorised as unsustainable with 154 being assessed for mortgage to rent and the balance of 97 being assessed for possession (there are 25 properties due for repossession in 2015, 12 of which are abandoned).

In terms of DCC repossessions, to date there have been 16 cases of voluntary surrender and 93 District Court repossessions (a total of 109 properties have therefore been taken into DCC’s possession). The vast majority of these (n=100) relate to shared ownership including ‘affordable’ shared ownership. Repossessed properties are located across the city, with the majority in Dublin 10 and Dublin 11.

To date, only TWO households entered homeless services as a result of possession. Both departed to PRS.

So we have 93 loan-related repossessions by DCC up to the end of 2014.  In the four years to the end of 2014 there were 84 repossession orders executed for for banks and building societies in Dublin City.

The presentation also showed that DCC have issued loans to around 2,600 households.  Census 2011 showed that there were 53,000 households in Dublin City who were owner-occupiers with a loan or mortgage.  This suggests that around 50,000 households have loans with bank/building socities/lenders other than DCC.

Thus the 93 repossessions by DCC represenent about 3.5 per cent of the households they have lent to while the repossessions by banks and building socities are about 0.3 per cent of the households they have lent to.  As a percentage of the number of households they have lent to, the repossession rate of DCC is ten times greater than that of banks and building societies.

DCC have around 600 households who are 12 months or more in arrears so the 93 repossessions represents 15 per cent of that figure.  We don’t have regional arrears data for banks and building societies but for the country as a whole 6.3 per cent of accounts are more than 12 months in arrears.  If this holds for mortgaged households in Dublin City then around 3,200 households in Dublin City have mortgage arrears of 12 months or more with repossessions by banks and building societies over the past five years being four per cent of that figure.  Thus as a percentage of households in arrears of more than 12 months, the repossession rate of DCC is around four times greater than that of banks and building societies.

You can look for mentions of local authority repossessions in the report issued last week by the Housing and Homelessness Committee. You won’t find any.  But you will find a recommendation for a moratorium on repossessions. Go figure.

Friday, June 10, 2016

Mortgages with Non-Bank Lenders

A relatively recent feature of our ongoing mortgage crisis has been the focus on “vulture” funds.  Since the end of 2013 the Central Bank have provided some data on mortgage accounts held by “non-bank lenders” and the coverage of this has increased in recent releases.  Some of these entities are probably not “vultures” as  typically used and may be interested in servicing performing loans rather than trying to work through a package of non-performing loans.

First we can look at the number of accounts held by non-bank lenders.  The data go back to the end of 2013 and we can see that there has been little change in the total number of accounts (PDH + BTL) over the past 18 months or so.

Mortgages non-bank lenders

Around 40 per cent of the loans held by these entities are showing arrears of more than 90 days with more than two-thirds of these over 720 days (two years) in arrears.  Non-bank lenders hold 26 per cent of all accounts (PDH+BTL) that are more than two years in arrears and as with the overall number of accounts the number of accounts in arrears as been relatively steady over the past 18 months or so.

These lenders have 9,356 PDH accounts that are more than 720 days in arrears.  The average balance on these accounts is just over €250,000 and the average arrears amount is nearly €70,000.  It is pretty obvious that many of these accounts of three, four or even more years in arrears.

The average balance on the 3,657 BTL accounts held by these lenders with more than 720 days of arrears is €311,000 with an average arrears amount of €111,000 which again indicates that some of the accounts are hugely in arrears.

Today’s data from the Central Bank gave some insight into the restructuring of accounts held by non-bank lenders but it is not clear if the restructures were carried out before the loan was sold by the original lenders.  For what it is worth here are the restructured accounts held by non-bank lenders.

NBL Restructures

These do not seems like substantial restructures given the scale of the arrears apparent in the loan book.  Exactly half of the restructures are “arrears capitalisation” which isn’t much of a restructure at all.  See here.  The next most common restructure is “reduced payment” which may be only temporary in nature.

And the final extra piece of data this quarter relates to the repossession activities of non-bank lenders:

NBL Repossessions

Non-bank lenders repossessed 15 properties on foot of a court order in the first quarter of 2016.  This represents 0.1 per cent of the 13,000 accounts they have that are more than two years in arrears (and as we noted these entities have had these accounts for at least 18 months now).  A further 57 properties were voluntary surrendered or deemed to be abandoned to non-bank lenders during the quarter.  The release does not indicate the number of legal proceedings issued by non-bank lenders which would be a useful addition if the data was to be expanded further. 

As can be seem below there was an increase in the overall number of court proceedings issued in Q1 for PDH properties but we cannot tell where these originated from.

Court Proceedings Issued

Thursday, June 2, 2016

Why the French are looking for tulips and not shamrocks

A while back we looked at some of the audits and investigations into Google’s tax structure and concluded that while it was definitely about Google it wasn’t necessarily about Ireland.

All the details are in the previous post but an additional little factoid here about the French investigation shows the description was on the right track: the French called the investigation ‘Operation Tulip’ with reference to the Netherlands rather than something like ‘Operation Shamrock’ which many might have expected.

The French authorities are investigating whether the company that sells Google’s advertising has a permanent establishment in France.  But that is only the first step in trying to establish that Google owes more tax in France.

Google’s sales operation has a permanent establishment in Ireland but the tax liabilities that arise here don’t result in anything close to what is been suggested for France.  The reason is that the Irish sales operation pays substantial royalties for the right to use Google’s intellectual property and to sell advertising on Google’s platforms.

Even if the French investigation does conclude that Google’s sales operation has a permanent establishment in France the presence of the outbound royalty means that the residual profit to be taxed would still be small.  And the reason why the French investigation is focusing on The Netherlands and not Ireland is because this royalty is paid to a Google holding company in The Netherlands (before passing to Bermuda and ultimately being owed to Google Inc. in the US).

If the French want to collect significant taxes from Google they must first determine that Google’s sales are carried out through a permanent establishment in France but more importantly they must address the issue of the royalty payment.  There are a number of approaches they can take.  They could argue that the outbound payment should be liable to a withholding tax payable to France; they could argue that the quantum of the payment should be much lower than is allowed in Ireland (which appears to be determined on a cost-plus basis) or they could try to disallow the payment altogether as a deduction.  It is not clear that any of these will succeed.

Of course, they may not even clear the first hurdle.  In the UK, HMRC concluded a six-year audit of Google and determined that Google’s sales operations did not have a permanent establishment in the UK. 

A difference of facts or a difference of interpretation could mean a different outcome in the case of France but that just gets us as far as the royalty payment which is obviously an issue that the HMRC audit did not address.  It is all very interesting (and no doubt our own Revenue Commissioners will have an eye on it) but with the French saying they have “several terabytes” of data to process hopefully we won’t be waiting too long for a conclusion.