The European Commission has cautioned about “spiralling” house prices and has questioned the number of supposedly permanent restructured mortgage deals that banks strike with distressed borrowers that fall apart.
“The recovery in housing assets, together with some increases in earnings, strengthens households’ net worth and capacity to repay,” the commission said in its latest post-bailout report on Ireland.
“On the other hand, the spiralling house prices warrant constant supervisory caution,” it said.
It highlighted the significant number of mortgage arrears cases — representing balances of more than €11bn of long-term arrears.
Citing Central Bank research, the Commission said that split mortgages have the best record in resolving arrears cases, but that households currently paying interest-only loans have the worst outcomes under restructured or new deals.
“In summary, these results highlight that loan restructuring practices may still leave certain underlying vulnerabilities, which may surface if the conditions worsen,” it said.
Confidence in the banks has been hit by the tracker mortgage scandal, it said.
Low credit demand by SMEs may “partly” be because they face some of the highest interest rates on their loans in the eurozone.
It said that at 4.7%, loans for Irish SMEs were “substantially higher” than anywhere else in the eurozone.
New home loans at 3.2% were also “much higher” than in other eurozone countries, it said.
The economy will continue to grow strongly but the globalised nature of the country poses risks, it said.