Friday 26 December 2014

More than 24,000 Dubliners have escaped negative equity

Published 08/06/2014 | 02:30

DUBLIN: Rise in house prices shows no sign of abating
DUBLIN: Rise in house prices shows no sign of abating

SOME 24,000 Dublin homeowners have escaped negative equity thanks to massive rises in property prices over the last two years, new research shows.

And another 20,000 to 30,000 could move from negative to positive equity by 2016 if the price rises continue, the numbers reveal.

The study, prepared for the Sunday Independent by economist Jim Power, should provide hope for the thousands who found themselves paying mortgages worth far more than the underlying value of their home as property prices plummeted post-2008.

House prices in the capital fell by around 59 per cent from peak in 2007 to bottom in August 2012, according to the Central Statistics Office, bringing about half of all mortgages in the State into negative equity. Thousands were chained to their homes, unable to move because the sale price on their home no longer cleared their mortgage.

But the rapid recovery of Dublin house prices is reversing this trend for mortgage- holders in the capital, Mr Power's research shows.

Dublin house prices have risen 20.9 per cent since the market bottomed in August 2012. Other house-price gauges suggest this gain could be even more extreme, since the Central Statistics Office's figures only account for mortgaged purchases and exclude cash buys. This has moved about 24,000 of the 90,000 Dublin mortgages in negative equity into positive territory, his calculations found.

The trend is likely to continue. "The rise of house prices in the capital shows no signs of abating," says Power. "There's significant pent-up demand in Dublin still, and a clear supply problem.

"The recovery of supply will be slow, since there's a long lead time involved in residential construction – at least 12 months to completion once planning is approved. If over the next two years we see another 20 per cent rise in prices, another 20,000 to 30,000 mortgages should escape negative equity."

The phenomenon is, however, confined to Dublin, with the rest of the country still waiting for any real material rise in property prices. There are another 300,000 mortgages in negative equity, Mr Power calculates, which remain in broadly the same situation as they did in 2012 because house prices have yet to recover nationally.

But those in negative equity outside the capital may not have long to wait. Douglas Newman Good recently predicted that house prices in major urban centres outside Dublin will rise by 5 per cent this year.

Shortages of quality family homes will begin to revive the market in towns and cities countrywide including Cork, Galway, Kilkenny, Ennis and Sligo, the estate agent said.

The most obvious beneficiaries of a move into positive equity are those who want to sell their property, but have until recently been unable to do so because the sale price hasn't cleared their mortgage.

Many people who bought starter homes and apartments just before the property bubble collapsed are desperate to trade up because of growing families and new job opportunities.

But an escape en masse from negative equity also has darker consequences. For distressed mortgages, a return to positive equity makes it more likely that lenders will repossess, FLAC director general Noeline Blackwell warns.

"We are hearing anecdotally that the clients in mortgage arrears who are under the most pressure from lenders are the ones in positive equity," she told the Sunday Independent. "The value added to properties by rising prices is definitely affecting repossessions ... the distressed borrowers who are most at risk of losing their homes are always the ones where the lender can get the most value from the property."

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