PDH mortgages held by unregulated loan owners

Unregulated loan owners have been buying distressed mortgage loans over the past number of years.  Some figures on the numbers and arrears position of mortgage accounts held by non-bank entities (regulated non-bank retail credit firms and unregulated loan owners) have been included in the Central Bank’s mortgage arrears statistics since the end of 2013 and the level of detail provided has improved periodically since then. 

The regulated non-bank retail credit firms includes entities such as Dilosk, Haven, Pepper, Springboard, Start and Stepstone.  The unregulated loan owners are the “vultures”.

Initially, aggregate figures for all non-bank lenders that combined primary dwelling house (PDH) and buy-to-let (BTL) mortgages were provided.  At the start of 2016, separate figures for PDH and BTL accounts were provided and from the second quarter of 2016 these were further broken down by non-bank retail credit firms and unregulated loan owners. 

The table shows the progression of the breakdowns provided and the detail focuses on those PDH mortgages held by unregulated loan owners.

We can see that the total number of mortgages (PDH + BTL) held by non-bank entities rose sharply during early 2014. The number reached 47,000 by the end of the year and has stayed pretty close to that level ever since.

The number of PDH accounts held by non-bank lenders was first provided at the start of 2016 and the figure has remained close to the initial value of 38,000.  From Q2 2016 we have been told the number of PDH accounts held by unregulated loan owners.

This started off at just over 10,000 and the number peaked at just over 12,200 at the end of 2016 and had fallen to 11,300 by the third quarter of 2017, with the total outstanding balance tracking moving from €1.9 billion to €2.4 billion to €2.2 billion over the same period. 

The reason for the recent decline is not provided and it could be, in part, a reclassification issue as the total number of loans (PDH plus BTL) held unregulated loan owners was largely unchanged over the period. The total was 18,200 in Q4 2016 and was 18,100 in Q3 2017. 

At the end of Q3 2017, the average balance on the PDH mortgage accounts held by unregulated loan owners was €190,000.  As it is possible for more than one account to be linked to the same PDH property it is likely that the 11,300 accounts corresponds to around 9,000 properties.

And here are the details of those accounts which are 720 days or more in arrears.

Over 40 per cent of the PDH mortgage accounts held by unregulated loan owners are more than two years in arrears and these accounts make out almost 60 per cent of the total balance due on PDH mortgages to these entities.

The average balance on the accounts more than two years in arrears is over €250,000.  The figures giving the amount do not seem that reliable with a near 50 per cent jump showing for Q1 2017, so there is possibly some measurement or reclassification issue at play.  Taken at face value the Q3 2017 would indicate that the average amount of arrears on PDH mortgages which are more than two years in arrears held by unregulated loan owners was almost €130,000. 

That is an extreme level of arrears and seems incredible.  That would be six full years of missed payments on a 20-year €250,000 loan at an interest rate of six per cent.  There may be some instances of that but to suggest it is the average seems unlikely.

We don’t have much insight into the repossession activities for these entities.  In the Q1 2016 release it was shown that in that quarter between PDHs and BTLs unregulated loan owners and non-bank retail credit firms repossessed 15 properties on foot of a court order and took possession of a further 57 properties via a voluntary surrender arrangement.  Those made up about about five per cent of repossessions and 25 per cent of voluntary surrenders in the quarter.  However, without other observations it is difficult to make any meaning of those.

In recent quarters a table like that above has not been provided and we have only been provided with the number of properties in possession of the entities at the end of the quarter rather than their repossession activity.  The number of PDH properties in the possession of unregulated loan owners at the end of the last three quarters were:

• Q1 2017: 183
• Q2 2017: 186
• Q3 2017: 187

Without knowing the underlying repossessions and disposal amounts nothing can be gleaned from these figures.  It would be useful if the table provided in Q1 2016 was made available for PDH accounts held by unregulated loan owners which would show the level of court-ordered repossessions and voluntary surrenders involving these entities.  Getting some insight into the number of forced sales would also be useful and that applies to all mortgage providers not just unregulated loan owners.

What will happen to the loans held by unregulated loan owners?  It is still not clear but if proposed sales go ahead there is a good chance that they will increase.  After such sales are completed we can expect the numbers to decrease but how that will be achieved (redemptions, repossessions or resales) remains to be seen.