Almost half of a 300 million euro portfolio of permanent BST permanent rental loans (PTSB) currently refinanced in international bond markets remain in negative equity, even after the sharp rise in house prices over the past eight years. last years.
The loans come from a larger € 1.2 billion pool of predominantly interest-only loans, where borrowers are only required to repay the principal upon maturity of the mortgage, which PTSB has sold to the US banking giant Citigroup at the end of last year. The operation aimed to pave the way for refinancing loans in bond markets through a process known as securitization, where bond investors receive regular interest payments backed by interest income from the loans.
A prospectus for the € 300million securitization transaction, known as Glenbeigh 2, said 47.8% of the loans exceed the value of the underlying property. For comparison, the level of negative equity mortgages in Ireland fell from around 40% at the height of the financial crisis in 2013 to less than 4%, according to a recent chart released by the Central Bank.
“Mortgages with higher LTV (loan-to-value) ratios typically experience higher default, write-off, execution and bankruptcy rates than mortgages with lower LTV ratios,” the bond document warned. . Irish residential prices have jumped 88% from their lowest point in 2013, according to the Central Statistics Office.
More than 86% of loans carry an interest rate until maturity, he said. While less than 0.9 percent of loans are classified as non-performing, 13 percent have been restructured during their lifetime.
The PTSB sold the loans last October, eight months after reporting it was assessing the risks associated with thousands of pre-crash rental mortgages issued on interest-only terms until the loans matured. .
The PTSB was able to free up € 200million in expensive capital tied to the risky portfolio, which will be held at the bank as it is in talks to buy a large chunk of Ulster Bank’s mortgages and small business loans, while the latter seeks to withdraw. the market.
The PTSB would most likely be interested in € 9 billion of Ulster Bank’s € 20 billion loan portfolio, including untracked mortgages and small business and consumer loans, analysts said. Deutsche Bank in a report last week. This is the equivalent of 60% of the size of the PTSB loan portfolio.
He estimates that PTSB will need 550 million euros of additional capital to support the acquisition, and that it would come “ideally” both from the government, which owns 75% of the bank, and from private investors.