The scourge of negative equity is costing us all in many ways
Published 17/04/2016 | 02:30
The true extent of the negative equity problem we have in this country - and its dangers - have been much under-estimated.
It had been assumed that negative equity was something that was slowly withering away. Not so, if international ratings agency Standard & Poor's is correct.
Almost a decade after house prices peaked, S&P says that more than four out of 10 mortgage borrowers are in negative equity.
This is when you owe more on your mortgage than the property is worth. Huge numbers bought in a panic as the market shot up between 2000 and 2007.
People who live in the border and western regions, and those who bought at the top of the market in 2007, are most likely to be in negative equity.
S&P said that six out of 10 of those who are in mortgage arrears are also in negative equity.
Those in negative equity owe an average of €54,000 more than the value of their properties. This means that if they sell up tomorrow there would be a shortfall of this amount owed to the bank.
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 loan-to-value ratios than those from earlier times.
Nationwide, some 43pc of mortgage borrowers are in negative equity. As there are around 750,000 residential mortgages, this means around 322,500 borrowers are impacted.
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.
While being in negative equity is a problem homeless people would be prepared to live with, and far less serious than being in arrears, it is nonetheless a major issue.
Negative equity is a problem if a family is trying to sell to move home to a larger property.
Being in negative equity also means homeowners are less inclined to spend, and that is something affects everyone. This so-called "wealth effect" is stronger in Ireland than in other countries, studies have found.
And high levels of negative equity feed into the rates charged on variable mortgages. If you are in negative equity you cannot switch to get a better deal, so have accept whatever high rate you are charged by your exploitative bank.
What this means is that you may not be in negative equity, but it is playing a role in the high variable or fixed rates you are paying.
Sunday Indo Business