International vulture funds that have been buying the loan books of Irish financial institutions have received a bad press from the media and from politicians since their entry into the Irish market five years ago.
A narrative has grown up in some quarters that presents them as ruthless and clinical, being interested only in the bottom line, and forcing more families in mortgage arrears out of their homes than the indigenous and regulated banks and mortgage providers.
But the evidence does not bear that contention out. It shows that despite being in the Irish market for five years, vulture funds still hold a relatively minor amount of the Irish mortgage portfolio.
Moreover, there has been no rise of repossessions applications, or orders, since their arrival. If anything, given that they proportionately hold far more distressed loans than banks, the strike rate is, if anything, low.
This week, Fianna Fáil’s finance spokesman, Michael McGrath, said he would be bringing forward legislation to have vulture funds regulated by the Central Bank. His colleague John McGuinness is also pushing legislation, the effect of which will be, as was said on Wednesday, to drive vulture funds out of Ireland.
High figure
All this activity has come on the back of the disclosure that Permanent TSB intends to sell €4 billion of its loan book. Some 29 per cent of the bank’s loan book comprises non-performing loans. This is an astonishingly high figure, although some of the loans have since been restructured and are actually performing.
Much research on the actual rate of repossession has been done by UCC economist Séamus Coffey (who is, separately, the chair of the Fiscal Advisory Council). He has shown that the rate of repossessions of family homes and buy-to-lets in Ireland is “extraordinarily” low compared to our EU counterparts. And that includes repossession of loans held by the non-regulated funds.
Perhaps the real issue here is not vulture funds but the incredibly low rate of repossessions in Ireland compared to elsewhere. It seems Irish courts only order repossession in extremis.
Problem loans
Let’s look at the figures produced by Mr Coffey. In all, vulture funds have taken over the loans of 11,000 family homes, which is only 1.5 per cent of the 731,000 existing mortgages in the State.
The vulture funds would own a greater proportion of those loans in arrears, 9.4 per cent in total. And when it comes to deep-seated problem loans – those over two years in arrears – it owns 4,794, which is roughly 15 per cent.
On the buy-to-let side of the market, vulture funds have bought 6,800 loans out of 124,000, which is about 5.5 per cent. That gives it a bigger share of that market.
Serious arrears
Of those 6,800 loans, 5,400 are in arrears, and 4,464 have been in arrears for more than two years. That is out of 13,591, which means that a third of all buy-to-let mortgages in serious arrears are owned by vulture funds.
And there is also no evidence, despite the popular public perception, to back the assertion that vulture funds are repossessing properties.
In June last year, Mr Coffey went through all the courts list and found a total of 1,874 repossession cases. Of those, the vast majority (1,603) were were taken by regulated financial institutions. Only 271 cases, or 15 per cent, were taken by vulture funds such as Mars Capital, Pepper, Promontoria, Shoreline, Springboard, Stepstone Mortgages and Tanager.
That 15 per cent is below the percentage of deep arrears loans that vulture funds hold. And besides, actual repossessions will only comprise a minuscule proportion of all those listed cases.
