Wednesday 7 December 2016

Light at the end of debt tunnel

Published 15/02/2012 | 05:00

The Central Bank's decision to approve so-called "negative equity" mortgages is a necessary step to restoring stability to the housing market. With close to 400,000 homeowners owing more on their mortgage than their homes are worth, negative equity has had a chilling effect on the housing market with even people who can afford to repay larger mortgages unable to trade up to larger houses or move house for a new job.

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Given the excesses of the Celtic Tiger era when the banks irresponsibly lent many house and apartment purchasers five, six or even seven times their income, one could hardly be blamed for greeting the news that two lenders, Bank of Ireland and Permanent TSB, have been cleared to lend negative equity mortgages with some trepidation. However, the advantages of such loans almost certainly outweigh the disadvantages.

These negative equity mortgages will allow certain borrowers, whose outstanding loan balance is greater than the value of their existing home, to carry forward the negative equity to their new loan if they move house.

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