Negative equity still cripples 43pc of borrowers
More than four out of every 10 mortgage borrowers are in negative equity a decade after house prices peaked, a new report from ratings agency Standard & Poor's says.
People who live in the border and western regions, and those who bought in 2007, are most likely to be in negative equity - where the value of the property is less than the amount borrowed to buy it.
S&P said that six out of 10 of those who are in mortgage arrears are also in negative equity.
The ratings agency said that on average those in negative equity owe an average of €54,000 more than the value of their properties.
This means that if they were to sell up there would be a shortfall of this amount owed to the bank.
Half of the borrowers in the border and west regions are in negative equity.
Loans originated at the peak of the credit boom, between 2007 and 2008, were found to be more exposed to negative equity as they were granted at higher original loan-to-value ratios than those from earlier times.
Nationwide, some 43pc of mortgage borrowers are still in negative equity.
As there are around 750,000 residential mortgages, this means around 322,500 borrowers owe more than their properties are worth.
The crash in property prices almost 10 years ago was so severe that it will take a number of years before owners return to a position of positive equity.
Standard & Poor's said that modest house price rises will lead to a gradual decline in negative equity.
House prices have been stagnant in the capital in recent months, following the introduction of tight mortgage rules by the Central Bank.
Negative equity is a problem if a family is trying to sell to move to a larger property.
Being in negative equity also means homeowners are less inclined to spend. This so-called "wealth effect" is stronger in Ireland than in other countries, studies have found.
Central Bank studies have also found that there is a close relationship between being in negative equity and falling into arrears.
Despite strong rises in property prices in 2012 and 2013, prices nationwide are still 34pc below the peak levels they were at in 2007, according to the Central Statistics Office.
S&P analyst Arnaud Checconi said: "We forecast negative equity to further fall to about a third of borrowers in the next two years, on the back of moderate house price growth and stabilising debt repayments, in addition to diminishing arrears."
Meanwhile, there was a sharp fall in the number of home buyers approved for a mortgage in February, with strict Central Bank lending rules blamed for the drop.
Less than 2,000 mortgages were approved in the month, but the average amount offered by banks to home buyers has gone up, and is now close to €200,000, the Banking and Payments Federation said.
Half of all approvals are for first-time buyers.
Loans originated at the peak of the credit boom, between 2007 and 2008, were found to be more exposed to negative equity