'No Nama' to tackle negative equity
Cowen rules out move to help house market along lines of car industry aid
THE Government has no plans to help people stuck in the trap of negative equity, Taoiseach Brian Cowen has indicated in an interview with the Sunday Independent.
Asked about a Nama-style intervention for people unable to sell homes without incurring significant financial loss, Mr Cowen said: "The situation you're talking about is how do we assist people who bought at the height of the boom. . . in five years' time we'll have to see what the market situation is then. Of course, there's difficulties for people to overcome, but you can't undo what's happened."
The ESRI has estimated that 200,000 will face negative equity this year, among whom are 35,000 homeowners facing repossession because they may be unable to meet mortgage repayments. Interest rates are expected to rise in the second half of the year.
The social implications of negative equity can be far-reaching: for example, a young couple who own a small apartment and who are planning a family may be prevented from trading up to a larger home. The economy overall will continue to suffer as a result of such stagnation.
A possible solution would be to allow homeowners carry negative equity into their next property, but the banks are reluctant to allow this. The Government could, however, step in to "socialise" some of the private debt, according to Derek Brawn, the author of Ireland's House Party.
He has proposed that a new agency be set up to provide state-backed loans which, he believes, would "unclog" the property market. Such a proposal should include stamp duty reform, he said.
More pressing, however, is the prospect of spiralling house repossessions expected this year, a scenario which has been described as a "timebomb" facing the Government.
The Taoiseach told the Sunday Independent that the Government had worked, and would continue to work, with the banking federation to assist people who were facing repossession.
He said: "The thing I would say to people is, get in touch, come up with an arrangement. The worst thing people can do is to keep away." While the number of repossessions is increasing, Mr Cowen said that, compared to the UK, it was "very, very minor" here.
End-of-year figures show that almost 1,000 new repossession orders were initiated in the High Court -- a 27 per cent increase on 2008. Latest numbers also show 218 enforcement proceedings were concluded during the quarter ending September 2009, with repossession orders granted in 79 cases.
The Master of the High Court, Edmund Honohan, has called for the code of conduct on handling repossessions to be rewritten to give borrowers breathing space and force lenders to accept "break even" on their loans.
In an interview with the Irish Examiner last Friday, Mr Honohan also appealed to Finance Minister Brian Lenihan to persuade the main banks to absorb loans from subprime lenders to help ease the burden on borrowers.
"Why should we think that lenders should continue to demand interest rates of the sort that they've been demanding and for the borrower to shoulder all of the loss of the collapse in market prices?" he said.
"Somebody has to take that hit. At the moment, it's been taken in the form of a judgment, a potential one, against a homeowner as he's supposed to have taken the hit. But in reality, he hasn't got anything to take the hit against. The reality has to come home."
Mr Cowen indicated that the Government had no plans to stimulate the property market, as it had sought to do for the retail sector and motor industry in the Budget.
He said: "People are chasing value. I mean, you've up to 100,000 houses in this country, between those newly built, in construction and second-hand houses, coming on to the market. The supply is about four times the demand. So people are looking for value. That's a market issue."
The Taoiseach disclosed that following a Cabinet meeting in December, it was agreed that the Department of the Environment would provide an aide-memoire for the next Cabinet meeting on January 13 "outlining the situation on the delivery of housing for low-income households".
The analysis will include how the department's housing programme has adapted to changes in the market and the tightening fiscal situation -- including the new long-term leasing scheme and rental accommodation scheme.
The Government also hopes to develop new initiatives on tapping unsold private housing through Nama, which will require working through the Department of Finance once such stock comes in under Nama's remit.
House prices have fallen 36 per cent on average from their peak and the mortgage market weakened further in late 2009, though the pace of decline has eased, according to the most recent survey from KBC Bank Ireland and the Independent Mortgage Advisers Federation.
The survey of mortgage brokers concluded that they did not expect an improving market this year but found there were "clear signs" that a "bottoming out has begun".
The bank and broker association found that the Dublin property market "may be closer to a turn than elsewhere" but that credit constraints and job concerns continued to weigh on potential buyers.
"The dominant influence on Irish house prices has been the intensity of the downturn in the property market and in the broader economy, but there were also other factors," Austin Hughes, chief economist at KBC Bank has said.
"Signs of slightly stronger conditions, for example in the first-time buyers market or in Dublin, suggest that some parts of the market have begun to bottom out even if no marked improvement is envisaged in early 2010."