A 3-yr Breather On Mortgages?

As mentioned on this site previously, the “elephant in the room” from an Irish economic perspective may well be the spectre of the ECB increasing interest rates to cool the Germany economy (currently forecast to grow at over 3% this year). Angela will call the tune, and Jean-Claude the piper will jump.

In my view, sustained interest rate increases over the next 2-3 years will drive the household budgets of many families just about succeeding in making ends meet at the moment straight over the cliff-edge.

Goldman-Sachs issued an excellent piece of analytical work yesterday which has a focus on Ireland (I hold no truck with Goldman’s philosophy, overall capitalistic approach and inherent elitism however their technical analytical work can be excellent):


If you can sift through the details, a few stats jump straight out:

(1) Total Irish residential mortgage book of the domestic banks = €100bn

(2) Total estimated credit losses for the domestic banks across all lending categories over a 5-year cycle = €35bn (of which only €4bn relates to household lending – another bath for joseph the taxpayer). This equates to 8.4% of all loans

So if we can get relatively cheap money from the ECB (or whoever…)  at a fixed rate why don’t we:

  • Re-finance the most vulnerable end of the Irish residential mortgage market (or maybe even the lot at €100bn…)
  • Do this as at the best rate possible, to be fixed for 3 years
  • Those in severest difficulty get to go interest-only for the 3 years.

Now that’s a way to at least put a ceiling on the financial pain for many Irish households for the next 3 years. And after all, we DO own the banks now…