Friday 30 September 2016

Negative-equity struggle requires urgent attention

Ignoring the effect of large debt crisis means more families fighting to stay in their homes, writes Carol Hunt

Published 10/04/2016 | 02:30

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Negative equity, debt and depression: First of all let me say that you are absolutely right. When compared with the threat of homelessness, people whose homes remain stuck in negative equity should have little to complain of.

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Last week a report from ratings agency Standard & Poor's showed that, a decade after house prices peaked, some 43pc of mortgages are still in negative equity. But at least they have somewhere to live, a roof over their head. Compare that to the 200 new families who became officially homeless in the first two months of this year and the many thousands already in temporary accommodation. And, as official wisdom goes, unless people in negative equity are planning on moving house (a luxury they shouldn't even consider), sure what's the problem?

Admittedly, the housing crisis has been - and continues to be - so shocking we have forgotten that many Irish families cannot sell their homes because they are currently worth less than the mortgage they owe the banks on them. Sometimes I even forget it myself, although some months when there is feck all left after the massively inflated 2007 mortgage is paid with seriously deflated 2016 wages, I wistfully think of a faraway future when every penny earned doesn't go straight to the mortgage. Yes, in the interests of transparency, any time I have written about negative equity I have always made it clear that, as one of those who bought a family home at the height of the market, I am affected.

This is not why I write about it, however. I bring this topic to public attention because the effects of negative equity and mortgage debt remain a huge problem in Irish society - one which neither government nor banks seem to want to address. In particular, the effect of debt on mental health and indeed on rates of suicidality and deaths by suicide, is ignored at our peril.

Central Bank studies have found that there is a close relationship between being in negative equity and falling into arrears. This shouldn't be rocket science, but the 'negative equity matters only when you want to move' brigade don't seem to understand this simple fact. Firstly, if you're in negative equity it's likely because you bought eight or 10 years ago at the height of the market.

At that time banks were throwing money at everyone - young families included - so it's likely that you got a fairly hefty mortgage with cherries on top. And why not? Everyone from government to (most) economists to mortgage brokers to auctioneers were warning you that if you didn't take the cash and buy a property, you would never again be able to get on to the property ladder. So, you've got a Very, Big, Mortgage.

Secondly, since those heady days most people have seen their incomes slashed. If they have been lucky enough to keep their jobs, they have suffered pay cuts. Add to that the plethora of new taxes and charges we all have to cough up for and it's easy to see why people in negative equity are very much at risk of falling into arrears and consequently losing their homes outright.

They don't even have the choice of selling up a house they can no longer afford and moving into a smaller property or even renting, because the gap between what they owe and what the house is worth, is so great. This isn't America - there's no "jingle mail here" (when home owners drop the keys back to the bank and walk away, debtless).

Currently there are, at the very least, 88,292 mortgages in arrears in the country. However, this figure comes from the Central Bank and there have been many accusations by people working on behalf of distressed mortgage holders that the real figure is actually much higher. Standard & Poor's found that a huge 59pc of Irish mortgage borrowers are both in negative equity and arrears, that the "depth of negative equity" in Ireland is severe. Psychologically, negative equity and debt can have catastrophic consequences. The charity, Phoenix Project Ireland, said in its annual report (2015) that "over a two-year period, calls from distressed borrowers almost doubled . . . behind these figures are normal families who are experiencing high levels of debt-related stress. The mortgage arrears crisis has resulted in marriage breakdowns - we estimate that approximately 60pc of our clients in 2015 were women who were separated or in the process of going through legal separation. They typically report that financial difficulties are the main reason for separation". They also reported that "10pc of clients have had suicidal ideation as a direct result of their financial difficulties and the threat of losing their family home".

Last week at a debt meeting held in Portlaoise, retired garda Ken Smollen said: "Even when people do deals with the banks, they are left with debts that never leave them. The burden stays around their necks forever, and the problem is not being spoken about."

The most obvious way to do this, of course, is through debt renegotiation. The Central Bank needs to pressurise banks to write down inflated mortgages - this would reduce arrears. We also need more split mortgage offers, term extensions and long-term interest rate reductions. The argument that banks cannot afford to do this is negated by the fact that they have no problem selling off homes to vulture funds with 50-80pc write-downs.

Write-downs that are not offered to the desperate families that are forced out of these homes. What insanity is this? It's the Victorian morality mindset of those who believe that the little people must pay their debts, but corporations and financial institutions are entitled to the spoils of their folly - despite the fact that they were often the cause of it. It's also the insidious viewpoint that would rather see a bank evict a family than give them a break.

We need to grow up and address this problem rationally. Negative equity and mortgage debt isn't going away anytime soon. And if we don't force the Government to deal with it, more families will fall further into debt, desperation and worse. Much worse. It doesn't have to be like this.

l Phoenix Project Helpline: (1850) 203-040

l Samaritans: 116-123

Carol Hunt is an Independent Seanad candidate on the NUI panel. @carolmhunt

Sunday Independent

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