This week it has been widely reported that property prices in Dublin have increased 8% over the past 12 months. I'm not sure how I feel about that. Obviously it's encouraging for the hundreds of thousands of householders in negative equity that their freefall into a debt prison may have slowed, or stopped even. It's not that a house increase happened, but the size of the increase. 8% over a year is massive.
The central bank says that 31% of mortgages are in negative equity - and Simon has written here before that roughly 1 in 4 of all mortgages are in distress (in arrears or already restructured).
There have been some attempts to address the increasing number of mortgages in distress, especially those in negative equity. A Negative Equity Mortgage has been introduced by a number of lenders in an attempt to enable their existing mortgage customers who can service their mortgage but find themselves unable to move due to previous rules on how mortgages should work. Sadly though, the number of these mortgages which have been approved is pitifully low.
The Irish Banking Federation's latest report on mortgage lending for Q2 2013 shows that the number of mortgages is up 0.1% on the same period last year - a fractional growth, but nonetheless it is the first time growth of any kind has been recorded in the last 7 years; since Q2 of 2006 in fact.
So where will Investec fit in to the picture? First, while Investec are best known in Ireland for savings accounts and more recently for their acquisition of NCB Stockbrokers, they're no stranger to the mortgage market in Ireland. Kensington, a sub-prime mortgage lender in UK and a subsidiary of Investec, completed their purchase Irish lender Start Mortgages in 2010 so they'll know a thing or two about the local mortgage market.
Investec's mortgage lending strategy in the UK and elsewhere has been to target high earners with decent mortgage rates. Earlier this year, Investec UK launched a new mortgage product aimed squarely at professionals; Wayne Preston, Investec's Head of Banking Services in the UK says:
Our focus is banking for the entrepreneurial class. Our clients are high income, high net worth individuals: clients who are active, who are looking for something out of the ordinary, something difference, clients who have an enquiring mind...
Investec says they plan to enter the Irish mortgage market via a network of mortgage brokers. In doing so they will be the first lender to enter the Irish market since 2008, and will likely be followed by other non-Irish banks who aren't still hungover from their partying in the noughties.
What will that mean for Irish customers? Hopefully it will mean that mortgage lending will show signs of growth, rather than the stagnancy that's evident right now. Back in 2002 when Bank of Scotland (Ireland) started lending in this country, they brought with them a new concept of a tracker mortgage, which we all lapped up. They succeeded in attracting customers in their droves because they innovated, they created a product that offered unprecedented value to customers. Clearly the execution of the concept failed them (and the other banks) but it was a nice idea to begin with. If they had stuck to a reasonable margin over ECB, who knows what might have been different...
Investec (and perhaps other lenders) is coming back to Ireland's mortgage market at a good time for them - when the other banks are hamstrung with their own debt burden and a new wave of eager & able first time borrowers are scrambling to get their first mortgage but are being turned away.
Investec is coming into the market without a hangover and without any desire to get one. They'll target customers who aren't in negative equity, who haven't seen their home values drop up to 70% in the last 6 years. They'll be looking for those customers who are new to this Game of Mortgages. Sure, the other banks need those customers too, but with their own issues, it's going to be difficult to challenge Investec if they're really serious about offering value to their chosen audience. So where will that leave those 1 in 4 mortgages in distress? It's probable that Investec won't even attempt to offer any solution in those cases - they're looking for the green pastures.
And best of luck to them. Competition in the mortgage market is badly needed.