Irish house prices could fall a further 20pc and inflict stiff losses on holders of mortgage bonds, with a growing risk of property defaults across the eurozone periphery, according to Fitch Ratings.
The agency said the foreclosure process was now at the mercy of politics in Ireland (OTC BB: IRLD - news) , as well as Greece and Spain, as each takes steps to prevent repossession of homes by lenders.
This has already led to a surge in 90-day arrears to 11.3pc in Ireland, where distressed borrowers no longer feel constrained to pay their mortgages, knowing that they are safe and can expect big debt write-offs under new insolvency laws. “There is a moral hazard concern,” said Fitch.
A decree suspending home evictions has also raised the same risk for lenders in Spain, while Greece has suspended foreclosure sales on main homes.
Fitch raised “substantial concerns” about the prospects for housing debt across the EMU periphery, including Italy, as prices tumble and banks ration lending.
The agency said the US property market had largely stabilised, with affordability ratios back to the levels of the mid-1990s. Britain, France, Holland, and Belgium are likely to see gentle house price falls of up to 10pc over the “medium term”, with defaults on prime UK mortgage portfolios reaching 6pc.
The laggards on the EMU periphery still have a long way to go. Prices are expected to fall another 13pc in Italy and Portugal, 15pc in Spain and Greece and 20pc in Ireland, on top of the 50pc falls already seen.
“The consequences of the [Irish] property boom may not have fully played out yet. Overall vacancy rates remain high,” it said. The gloomy view on Ireland is at odds with growing optimism in the City that the Celtic Tiger has pulled off an “internal devaluation” and will soon be back on its feet.
By contrast, Fitch appears almost optimistic on Spain. A report in December by Madrid consultants RR de Acuña said Spanish prices would drop another 30pc in the big cities over five years, and up to 50pc in overbuilt coastal zones.
The firm cited an overhang of 2m properties on the market, or held by banks and developers, or in foreclosure. “The market is broken,” it said.