It is estimated that between 300,000 to 350,000 homeowners in Ireland are in various stages of negative equity — where the value of their property is worth less than the balance owed on the mortgage.
Based on house price figures from the Central Statistics Office (CSO), a property that was purchased in early 2007 for €311,000 would be worth about €177,000 today — a 43% drop. This property could be worth less than €170,000 by the end of this year if prices keep falling by at least 1% per month.
Director of moneycoach.ie Frank Conway said negative equity could last well into the 2020s but said this will depend on how soon property prices stop falling.
He said negative equity is one of many problems facing mortgage holders. He said living in negative equity can have psychological impacts, resulting in homeowners feeling less well off and resulting in a negative impact on consumer sentiment.
“At a more practical level, negative equity restricts consumer access to a low-cost source of funding. Top-up loans are loans that are offered by banks against the equity in a property and typically cost far less than other loans,” said Mr Conway.
He added that a much more serious consequence is where homeowners are unable to move from their current location to another.
“This can present a considerable obstacle to homeowners who may need to relocate from their present home to another location for employment purposes but do not have the necessary funds to pay the negative equity on their home.”
He said some 100% mortgage borrowers could expect to be in negative equity until 2025, while 80% mortgage borrowers could expect to exit negative equity at some point in 2021.
“Because of a chronic shortage of mortgage finance, the property market is likely to remain a function of cash-purchases for a while longer. This will continue to have a major impact on buyer activity and overall prices.”
Irish Brokers’ Association chief executive Ciarán Phelan that said with the majority of post-millennium property buyers now in significant negative equity, many are already questioning the long-term viability and carrying costs of their investments.
“The combination of negative equity with declining net incomes may well be the tipping point that could lead some stressed borrowers to default and attempt to surrender the property in an effort to terminate failed investments that appear to have no prospect of recovery,” he said.