Irish still among the most indebted in the EU

Soaring home prices has boosted household wealth but Irish people are still the fourth most indebted in the EU a decade after the start of the crash, Central Bank figures show.

The report, Quarterly Financial Accounts, shows that the net worth of households which takes account of the value of their assets such as property prices and liabilities, including the outstanding amounts on mortgage loans, has soared from the depth of the crash but is 9% below the boom-time peak 10 years ago.

Net worth climbed €7.2 billion to €653.7bn by the end of 2016. That is equivalent to €137,286 for each person in the State, the Central Bank said. Most of the €7.2bn increase was accounted for by a rise of €4.2bn in the value of property values and by an increase of €1.5bn in financial assets.

A decline of household liabilities by a further €1.5bn may also indicate the speed at which households are paying off debts but also reflect the state of an unhealthy housing market because there are so few new homes being built for potential borrowers to take out new mortgages. The Central Bank said the net worth of households has climbed over 50% from the low reached after the boom of €432.9bn in the summer of 2012, “largely due to increasing housing asset values”. In the summer of 2007, net worth households stood at a record of €718.5bn. The value of financial assets held by households, including shares, rose €500m to €1.7bn in the final quarter of the year.

On liabilities, Irish households still carry some of the largest debts of all Europeans. Only Denmark, the Netherlands and Sweden have larger debts, as measured as a percentage of household disposable income.

However, at 140.9% of disposable income, Irish household debt fell from 144.5% during the fourth quarter, helped by a rise in disposable income. The Central Bank said that since the end of 2012 that Irish household debt has slid almost 53 percentage points. Danish households have also cut their debt at a fast pace. The figures show that Greek households have debts which are close to the average of the eurozone. German and Austrian households are the least indebted.

Alan McQuaid, chief economist at Merrion, said the report has both “positives and negatives”, showing the economy has improved considerably since posting the peak level of unemployment, in early 2012. But it also showed the extent to which the economy is exposed to any sort of a financial shock.

“It is an improved picture given that we have come from a very bad place,” said Mr McQuaid.

The ECB is still some time away from raising interest rates but even a small hike in borrowing costs with large levels of debt “could put a spanner in the works”, Mr McQuaid said. Company debt remains at high levels. The debt held by companies, excluding financial firms, increased to almost 240% of GDP in the final quarter. The Central Bank said, however, corporate debt has fallen from a peak of almost 328% of GDP, in the early part of 2015. Company debt levels in Ireland are also bloated by the huge number of multinationals based in the country.

After Luxembourg, the Central Bank said Ireland has the second highest level of corporate debts, and corporates in Cyprus are the third most indebted. The bank said that all three countries have a large number of multinationals.