HML's Ireland October 2014 Commercial Bulletin contains all of the latest Ireland economic and financial data, including house prices, the unemployment rate and a Budget blog from Angela Keegan at Myhome.ie.

1. October 2014
HML has been awarded a new S&P Irish special servicing ranking at Above Average
Angela Keegan, managing director of Myhome.ie, has rated the Ireland Budget seven out of ten in a blog for HML
PTSB failed the recent ECB stress tests, where a €855 million shortfall was identified

2. HML News
HML has been awarded a new S&P ranking.
We have been assigned a new Standard & Poor‟s (S&P) Irish special servicing ranking at Above Average.
HML also had all of its other rankings affirmed by S&P. This means the company remains with Above Average rankings as a primary and special residential loan servicer in the UK, as well as a primary residential loan servicer in Ireland.
S&P highlighted HML‟s long track record of mortgage servicing in the UK and Ireland. HML has operated in the UK for more than 25 years and has been servicing the loan portfolios of Irish lenders since 2005.
In January 2012, HML became the first residential mortgage servicer to receive an internationally benchmarked ranking from S&P for the services it provides to Irish lenders.
S&P noted the “synergies” that HML would benefit from following its purchase by Computershare, which is subject to regulatory approval.
Other areas highlighted by the rating agency include HML‟s analytical models and business intelligence, which “extensively support HML‟s servicing activity”. It also noted that HML‟s reporting guarantees the “substantial monitoring of internal operations and third-party vendors‟ activity”.
Andrew Jones, chief executive officer at HML, said: “It is great news that HML has been assigned a new Irish special servicing ranking from S&P, as well as have our Above Average rankings affirmed.
“S&P highlighted our business intelligence and analytical models, and advanced analytics are at the heart of our arrears management and wider servicing strategies. This ensures the most appropriate outcomes for borrowers can be tailored to their unique circumstances and is a key part of our continued drive to be the market leader for quality.
“Our new parent Computershare, subject to regulatory approval, will allow us to take advantage of developing business opportunities and build upon our standing in the market as the UK and Ireland‟s leading third-party mortgage administration company.”

3. HML News
Angela Keegan, MD of Myhome.ie, has rated the Ireland Budget seven out of ten.
Her thoughts about the recent Budget can be read this this exclusive blog for HML below.
The surprising element in this Budget was that there were no surprises. Most of the measures were well flagged in advance and as a result the reaction of people generally was quite muted. The photograph of the lone protester outside Government buildings said it all.
We actually had the shock the week before. That was when the Central Bank introduced new deposit guidelines for home buyers which mean that the vast majority of house buyers must now have a deposit equalling 20 per cent of the purchase price of the house.
The new guidelines are expected to come into force on January 1st 2015. This move came as a huge shock to first-time buyers, especially those in Dublin and other cities who are already facing rising prices, rising rents and limited choice of properties due to low supply.
Given the current economic challenges, many of them are already struggling to save a ten per cent deposit. What did the Budget have for them? Very little, it has to be said, apart from some window dressing! They were promised DIRT relief on their home savings, but given that interest rates are two per cent or lower, this relief won‟t amount to a hill of beans.
Clearly, the Minister is putting pressure on the banks to come up with innovative saving products - looks like a hospital pass. Since the Budget, several ministers and at least one senior banker have questioned the wisdom of the move and its impact on the market and first-time buyers. This is one to watch.
Dampening home-grown talent?
While the dreaded Universal Service Charge was reduced at lower levels, it was increased for self-employed people from ten per cent to 11 per cent. It‟s very difficult to understand this retrograde move. These people are out there taking risks and generating employment. The Government talks a lot about encouraging entrepreneurship. People moving to live and work here get preferential tax rates, so why should we penalise home- grown entrepreneurs and small businesses.
It‟s important to make these points, because after seven very difficult Budgets, there is a sense of relief that some money is going back into the economy and that we are over the worst of the recession. So while there were many positive measures, we cannot and should not suspend our critical faculties.
One of the positive moves was the decision to end the pension levy. Irish people are not the best at saving for the future and this levy acted as a further disincentive to young people starting a pension.
Continued over the page

4. HML News
Good news for housing?
The fact that €2.2bn will be spent on social housing over the next three years is also very welcome, as is the extension of the Home Renovation Incentive Scheme to the rental sector. The latter is hugely positive for the building trade, landlords and of course renters and hopefully will help raise the standard of rental properties.
The abolition of the windfall tax was also welcome, even though it is rumoured that this is the only tax ever introduced that never raised a penny! The establishment of a Strategic Fund is also welcome as the availability of finance for builders and developers remains a problem.
While many of these initiatives sound very promising, the devil will be in the detail and we haven‟t seen that detail yet. For example, when and where will the social housing units be built? When will this Strategic Fund start lending? The Government decided not to introduce a vacant site levy, but instead to set up a working group to examine if landowners have been hoarding sites. When will this working group report back?
So a lot of positives, but plenty more work to do. Given Ireland‟s open economy, what happens in the UK, US and rest of Europe will have a much bigger impact than this Budget. So we have to work with what‟s in our control and the Government have done that reasonably well. Marks out of ten? We’ll go with seven for now.

5. HML Ireland Update
Date reflects what the statistic was during that period, rather than when the statistic was published
* Since revised down to 11.3%
Consumer Price Index (Central Statistics Office)
SEP ‘14
0.3%
AUG ‘14
0.4%
JULY ‘14
0.3%
European Central Bank (ECB) Base Rate
OCT ‘14
0.05%
SEP ‘14
0.05%
AUG ‘14
0.15%
Unemployment Rate (Central Statistics Office)
SEP ‘14
11.1%
AUG ‘14
11.2%
JULY ‘14
11.5%*
Average National House Prices (Myhome.ie)
Q3 ‘14
Up 1.4% from Q2
€193,000
Q2 ‘14
Up 1.3% from Q1
€190,216
Q1 ’14
Down 0.7% from Q4
€187,736
Arrears
(Central Bank of Ireland - CBI)
PDH – total
PDH – 90 days+
BTL – total
BTL – 90 days+
Q2 ’14
126,005
90,343
39.669
31,749
Q1 ’14
132,217
93,106
39,361
31,048
Q4 ’13
136,564
96,474
39,250
30,706
Home Repossessions (CBI)
PDH
BTL
Q2 ‘14
1,110
611
Q1 ‘14
1,116
568
Q4 ‘13
1,014
503

6. Industry Statistics
Consumer Price Index
The CPI in September was 0.3% higher than September 2013, down 0.1% on August. Notable upward pressures came from the education (4.5%), alcoholic beverages and tobacco (4.1%) and miscellaneous goods and services (2.5%) sectors.
This was partially offset by declines in clothing and footwear (-2.6%) and food and non- alcoholic beverages (-2.3%).
ECB Interest Rate
The ECB base rate remains at 0.05% in October. Mario Draghi, president of the ECB, said: “Survey data available up to September confirm the weakening in the euro area‟s growth momentum, while remaining consistent with a modest economic expansion in the second half of the year.”
Unemployment Rate
The unemployment rate stood at 11.1% in September 2014, down from 12.6% in the same month in 2013. There were 370,050 unemployed individuals in September, a monthly fall of 4,700 people.
House Prices
The national average house price in Ireland stood at €193,000 in Q3 2014, a 1.4% increase on the previous quarter, according to Myhome.ie‟s analysis of asking prices.
On an annual basis, the asking price rose by 1.1%, which is the first positive year-on-year growth in seven years.
Commenting, Angela Keegan, managing director of Myhome.ie, said: “It's been well flagged that Capital Gains Tax is coming to an end and that is a measure we would welcome.
“The market is showing signs of returning to normality and we don‟t want to see investors competing with first-time buyers when there is already a shortage of stock in the market. The return to a normal functioning market will be a long one and as we can see from the current supply pressures in Dublin and elsewhere will require concerted action from a range of bodies and institutions."
Arrears
Principal Dwelling Houses (PDH)
The number of PDH mortgage accounts in arrears declined by 4.7% between Q1 2014 and Q2 2014. Out of the total mortgage accounts, 16.5% were in arrears, representing 126,005.
The number of PDH mortgage accounts in over 90 days of arrears also declined during Q2, falling by 3%. These accounts totalled 90,343, 11.8% of all the PDH mortgages in arrears.
However, accounts in arrears of more than 720 days increased by 5% during Q2 and currently account for almost 5% of total PDH mortgage accounts. The outstanding balance of such accounts was just under €8 billion at the end of June.
Buy-to-let (BTL)
The number of BTL mortgage accounts in arrears increased between Q1 and Q2 2014 to 39,669 (27.5% of the total accounts) from 39,361 (27.2% of the total accounts).
Home Repossessions
At the end of Q2 2014, there were 1,110 PDHs and 611 BTLs in lenders‟ possession. Of the PDHs, 299 were taken into possession during the quarter, 89 of which were the result of a court order, while 210 were abandoned or voluntarily surrendered.

7. Top News Stories
Early-stage mortgage arrears have declined.
This is according to Fitch, which has noted that the number of mortgages in early arrears has dropped below the 2% of the market threshold for the first time in 3.5 years.
Andrew Currie, managing director of the Structured Finance team at Fitch, said: “Long-term arrears remain a concern for Irish lenders due to the sheer number of cases that still need to be resolved.”
While an improving economy, including rising house prices, has resulted in a decline of early-stage arrears, Fitch stated that „weaker‟ portfolios are experiencing a worsening performance.
36 banks would have failed ECB stress tests if new capital rules had been applied in full.
Vitor Constancio, vice-president of the ECB, made the comments during the announcement of banking stress test results.
The tests simulated how the finances of banks would hold up during an economic downturn – and 36 European banks would have failed if the Basel III capital rules had been fully implemented. They will come into full force in 2019.
Permanent TSB (PTSB) was the only Irish bank to fail as a result of an almost €855 million shortfall being discovered.
Jeremy Masding, PTSB group chief executive, commented: “The tests were based on our position at the end of December last and we‟ve made huge progress since then on a number of fronts, so we‟ve already provided for over 80% of the shortfall that the ECB identified.
“We look forward to bringing international investors on board now to raise the remaining amount which will leave the bank fully in line with the ECB requirements.”
Springboard has been sold to Mars Capital.
Springboard Mortgages has been sold to Mars Capital by PTSB following what was a competitive sales process.
While the financials surrounding the deal have not been officially disclosed, Springboard‟s mortgage loan book contains around €468 million gross assets, of which €350 million are non-performing.
Mr Masding said: “This transaction completes an important part of our planned deleveraging programme and, importantly, it also confirms the adequacy of our provisioning methodology. Non-conforming lending does have a limited role to play in a mature mortgage market, but it was not appropriate for us as at this time as we focus on our rebuilding task."
Mars Capital has said that it will comply with the Code of Conduct on Mortgage Arrears.
For the year ended 31 December 2013, a profit for Springboard of €3.2 million was reported.

8. Top News Stories
The majority of home buyers will soon need a 20% deposit.
The Central Bank of Ireland has published new mortgage rules which will come into effect on January 1st and which noted that no more than 15% of new mortgages should have an LTV ratio of more than 80%.
The Bank has also announced that only 20% of new mortgages should be issued above 3.5 times income.
Stefan Gerlach, deputy governor of the CBI, stated: “The primary objective of these measures is to increase the resilience of the banking and household sectors to the property market. In Ireland, we are still experiencing the destabilising effects of a property bubble.
“Our research has shown there is strong evidence that mortgage losses are much higher where borrowers have a high LTV or LTI rate. We believe that measures such as these are a standard part of a well regulated financial system and introducing these precautionary measures should contribute to a stable and well-functioning mortgage lending market.”
However, speaking to the Sunday Independent, Jim Brown, chief executive of Ulster Bank, said he was concerned about the “unintended consequences” that may follow as a result of the rules.
While he recognised the importance of keeping the property market in check, Mr Brown said the rules would mean many first- time buyers will be unable to get their foot on to the property ladder, as well as be required to save for a higher deposit while covering the cost of climbing rents.
The National Asset Management Agency (NAMA) will repay an extra €600 million of senior debt.
NAMA has revealed that its senior debt redemptions now stand at €7.6 billion for 2014. Since it was established, NAMA has redeemed more than €15 billion.
Brendan McDonagh, NAMA chief executive, made the announcement when speaking at the Oireachtas Joint Finance Committee.
Mr McDonagh said: “Achieving this 80% target [by 2016] will require a substantial volume of NAMA loan and asset disposals in Ireland as well as Britain and elsewhere; for the most part, sales will involve commercial assets (offices, retail, hotel and leisure and industrial assets) or loans secured by commercial assets.”
Moody‟s believe that the Ireland Budget was a “missed opportunity”.
In a credit outlook report, the rating agency said that the economy of the country is now at risk to “unexpected shocks” due to the lack of action in the Budget to reduce debt levels.
Describing the Budget as “mildly expansionary”, Moody‟s went on to say that the closure of the Double Irish tax scheme - which allows multinational companies to legally move their profits offshore to avoid paying tax - could see foreign companies leaving Ireland.
This could therefore present a “significant risk” to the fiscal outlook and growth of Ireland.