Negative equity to affect 125,000 owners

HALF of homeowners who purchased in the last three years will be left owing more than their houses are worth.

In that time nearly 125,000 people borrowed more than 70% of the value of property. It is predicted house prices will fall by 30% from their peak by the end of next year.

Financial analyst Bill Hobbs said that in that time frame the number of 90%-plus mortgages trebled as people chased escalated house prices.

“The vast majority of these households were first-time house buyers who borrowed in excess of 90% over 30 years, with over one in three borrowing 100% at peak prices in 2006.

“Collectively they borrowed about €46bn, which is now exposed to a negative equity trap of close to €14bn,” he said.

Analysts at Goodbody Stockbrokers said people who have jobs and can afford to pay their mortgages will not be in trouble. They said evidence has shown that even in severe housing busts most owners are able to keep up payments on their mortgages.

“Despite consistent denial, a post-bubble negative equity trap is facing tens of thousands of Irish homeowners who have lost their jobs, or whose take-home pay is dramatically reducing as they lose bonuses, sales commissions, work shorter hours and face increasing taxation,” said Mr Hobbs.

He added that banks who offered 100% mortgages were doing so at a time when affordability was already dramatically declining.

Homeowners have also clocked up a bill of €6bn borrowed to fund houses from credit unions and other suppliers of “no questions asked” ready finance, as well as credit borrowed for family cars, household furnishings and white goods, he said.

“All in all, the size of the loans highly exposed to the collapse of the bubble and the recession is likely to be in excess of €52bn in consumer debt,” he said.

Mr Hobbs said lessons could be learned from Australia where if a lender makes a loan without due consideration for affordability the loan is void.