300,000 home owners facing negative equity

HALF of the country’s homeowners will soon owe more on their mortgage than their house is worth.

If house prices continue to fall at the current rate, NCB stockbrokers estimate more than 300,000 mortgage holders will be in negative equity by June.

The stockbrokers said this figure is based on predictions that house prices will have fallen by 45% of their original value by then.

NCB believes prices are already 35% off their peak, meaning close to one in three homeowners are already in negative equity.

Figures from the last Permanent TSB house price index showed prices were down 3.6% in December. Based on these figures additional falls of 10% or more could well be recorded before June.

In a recent commentary, the economic think-tank, the ESRI, also predicted if house prices are down 50% at the end of this year, 350,000 mortgages or 53% of households with a mortgage would be in negative equity.

Figures released earlier this month by Bank of Ireland also showed that 40,000, or 21.5%, of its residential mortgages in Ireland are now stuck in negative equity. The average level of negative equity is above €50,000, according to industry estimates.

Commenting on the report, NCB economist Brian Devine suggested that the final “peak to trough” price decline is likely to be in the region of 45% to 55%.

“Ultimately, confidence and job security will be the main determinants of where exactly prices end up. The stabilisation in the unemployment rate over the last three months, coupled with the up-tick in confidence are positives in this regard.”

ESRI economist David Duffy said the vast majority of those in negative equity are first-time buyers because they were the ones who purchased at the top of the market.

Commenting on the NCB report, director of the Irish Mortgage Corporation Frank Conway said the issue of negative equity has a “significant impact” on the wider society as it increases the sense of a loss of wealth among homeowners and is proven to reduce instances of consumer spending.

“For homeowners who experience negative equity, the impact manifests itself by forming a trap as homeowners who have no problems paying their mortgage repayments may not have the vast sums of money required to pay off their mortgage if they are required to relocate from their present location because of the amount of negative equity.

“It also prevents mortgage holders from shopping for better value mortgages. Switching to another lender will not be possible due the lack of equity in the home,” he added.

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