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Irish report Irish report
by Euro Reporter
2011-09-01 07:41:54
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Mortgage arrears worsen

Irish residential mortgages in arrears or restructured due to financial distress rose 10 per cent in the second quarter from the previous three months, heaping pressure on the government to come up with a solution for struggling homeowners. More than one in 10 Irish home loans are not being fully repaid and the situation is deteriorating as the rate of unemployment remains stubbornly high and house prices continue to fall, marking a three-and-half year decline. Stress tests carried out as part of Ireland’s EU-IMF bail-out have bulked up Irish banks’ balance sheets to deal with rising arrears but Prime Minister Enda Kenny, who returns to work on Tuesday from his summer break, is under pressure to alleviate the burden for homeowners.

“We’re seeing a worsening pace. Over the past two quarters the rate of deterioration has worsened which is a slightly worrying sign,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers. “It’s still within the realms of the stress tests carried out earlier on in the year but the trend from quarter to quarter is something to watch very, very closely.” The central bank said on Monday that 95,158 mortgages were either in arrears or has been restructured at the end of June, representing some 12 per cent of the total residential mortgage market. The proportion of loans in arrears for more than 90 days was 7.2 per cent at the end of June, up from 6.3 per cent at the end of March. Nearly three quarters of those were in arrears for more than 180 days.

Stress tests published last March that forced Irish banks into a €24bn recapitalisation assumed that 6.7 per cent of their combined mortgage book would never be paid back. Ireland’s ruling coalition has promised to examine ways to ease the burden on mortgage holders in arrears but it is waiting for an expert group’s report on the issue, due to be published at the end of next month, before making any major decisions. The Irish Times reported on Monday that Dublin was considering creating an agency with legal powers to enforce debt restructuring agreements between banks and struggling home owners. Ministers have, however, ruled out a blanket debt forgiveness programme for fear of the potential cost and the risk it would encourage people not to pay off their debts.

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Banks won’t meet lending targets


Ireland’s ‘pillar bamks’ won’t meet their official targets for lending to small and medium enterprises this year – because of a shortage of applications for credit, a new report has said. The quarterly report from the Credit Review Office‘s John Trethowan found that the €3 billion targets set for lending for AIB and Bank of Ireland – which were laid down by the government in July 2010 – would not be met this year.

The report from John Trethowan said that while there was still no official measure of demand for credit from small businesses and farms, his discussions with the banks suggested that demand for new lending was “subdued”. Demand for credit was “sluggish” – while credit facilities, where they had been offered, were being drawn down only very slowly, Trethowan added. “Businesses which became accustomed to the easy credit era and are presenting elemental, or – worse still – casual proposals, are being refused,” he said.

The report continued that it was impossible to grow the level of new lending in the country when loans were not being demanded in the first place. Companies’ failure to apply for credit was an understandable symptom of businesses saving at a level too high for an economic recovery, he added. The Small Firms’ Association condemned the findings, saying it did not reflect the reality of the current business climate. “The overwhelming response from our members is that there’s no point going near the banks,” its director Patricia Callan said. “The breach of trust has reached crisis point.” Callan said some small firms were looking into setting up their own structures for securing future finance, but that such proposals could take years to come to fruition. She also criticised the government’s failure to measure demand for credit, with the last survey of credit demand taken 18 months ago.

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Construction tender prices ‘back to 1998 levels’


Latest figures from the Society of Chartered Surveyors Ireland show that construction tender prices have stabilised. While tender prices have fallen dramatically over the last four years – down 33% from its peak in 2007 – the latest Index shows that prices have remained unchanged from the second half of last year. It is the first time that prices have remained steady over the last four years. Prices are now back to levels last seen in 1998 when the Index was first published.

Andrew Nugent, Chairman of the Quantity Surveying Professional Group of the Society of Chartered Surveyors of Ireland, said: “While tender prices appear to have stopped falling and may even start to increase slightly, there is still a severe shortage of work within all sectors of the construction industry and it is expected that pricing levels will remain very competitive for the foreseeable future.” Mr Nugent added: “Falling tender prices have been used by successive government departments as a basis for cutting investment levels in public infrastructure projects.

“With tender prices now stabilising, it is no longer possible to attempt to secure the same amount of work for less investment, as this will inevitably reduce the quality of the project, threaten the viability of construction firms and their sub-contractors, and promote below-cost tendering.” A recent survey by the Society of Chartered Surveyors Ireland revealed that over half of all tenders for construction projects are now coming in at 17% below realistic construction costs. The Society has recommendations for better procurement, including selecting contractors who tender realistic prices for work, rather than the lowest cost tender.


        
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