Wednesday 1 July 2015

45,000 homeowners lifted out of negative equity by price rise

Charlie Weston Personal Finance Editor

Published 01/08/2014 | 02:30

Now prices are rising so rapidly that it is likely to be well before that when all mortgage holders are back in positive equity
Now prices are rising so rapidly that it is likely to be well before that when all mortgage holders are back in positive equity

THOUSANDS of mortgage holders have been lifted out of negative equity by surging property prices.

New research from the Economic and Social Research Institute (ESRI) shows that 45,000 homeowners came out of negative equity since the end of 2012.

If property prices keeping rising this year the number emerging with a property worth more than the borrowings will be close to 90,000 homeowners.

Negative equity is where the value of the home is less than the mortgage taken out on it.

Numerous studies have shown that households spend less when the property value is "under water".

It also means they cannot sell up and move.

The Dublin market has experienced the greatest reduction in the numbers whose home is worth less than the borrowings on it, according to the new research by David Duffy, an economist at the ESRI.

"Negative equity can have harmful effects on an economy through its impact on a household's consumption, savings and labour market mobility," Dr Duffy said.

"The combination of property price increases and mortgage repayment has reduced the extent of negative equity in Ireland in recent times which is positive for the economy overall.

"The expectation is that, with house prices continuing to increase in 2014, we should see a further decline in negative equity numbers."

And the negative equity mess is being cleaned up much faster than previous estimates by Dr Duffy.

Four years ago he estimated that it would be 2020 before all mortgage holders were out of the negative equity nightmare.

Now prices are rising so rapidly that it is likely to be well before that when all mortgage holders are back in positive equity.

He estimates that the total numbers in negative equity peaked at 314,000 at the end of 2012.

But the recovery in house prices since has seen that fall by 45,000 to 268,000 at the moment.

Property prices jumped by 12.5pc in June across the country when compared with the same month a year earlier, figures from the Central Statistics Office show.

In Dublin, prices jumped by 24.4pc over the past year.

Most of those impacted by negative equity are first-time buyers who bought during the boom, between 2006 and 2008.

Now Dr Duffy has calculated that even if there is no further growth in house and apartment prices this year, close to 90,000 will have been lifted out of negative equity by the end of the year.

This will leave 179,000 in negative equity out of a total of 568,000 mortgages.

From a situation where 55pc of mortgage holders were "in the red"on their mortgage at the end of 2012, the percentage could be down to 31pc by the end of the year, the ESRI calculations indicate.

In 2011, Dublin accounted for four out of 10 of mortgages in negative equity.

By the end of last year, the number of mortgages in negative equity in Dublin had fallen by over 35,000 from a peak of close to 125,000.

This means that more than three-quarters of the improvement experienced nationally is due to the stronger increase in prices experienced in Dublin.

Irish Independent

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