Business Irish

Monday 20 November 2017

170,000 homeowners are hit with negative equity

Illness, loss of job, or marriage breakup threatening mortgage repayments

Bank of Ireland said 40,000, or 21.5pc of its residential mortgages in Ireland are in negative equity. Photo: Bloomberg News
Bank of Ireland said 40,000, or 21.5pc of its residential mortgages in Ireland are in negative equity. Photo: Bloomberg News

Charlie Weston Personal Finance Editor

AS many as 170,000 homeowners may already be in negative equity, it has been estimated based on figures released by Bank of Ireland last week.

This means that about one in five households that have a mortgage owe more on their home loan than the value of their property.

Bank of Ireland said last week that 40,000, or 21.5pc, of its residential mortgages in Ireland are in negative equity.

The bank has 199,0000 domestic mortgages, which works out at about a quarter of all residential mortgages.

If the bank's figure for the numbers in negative equity is applied across the market, it means that as many as 170,000 homeowners are in negative equity.

The ESRI (Economic and Social Research Institute) has predicted that close to 200,000 mortgage holders will be in negative equity by the end of this year, a prediction that is in line with the Bank of Ireland data.


And the average first-time buyers are facing another 10 years before they will get out of negative equity, the ESRI's housing economist David Duffy calculated recently.

Second-time buyers who bought in the past six years are likely to be stuck for another six years in a situation where the value of their home is worth less than the mortgage, Dr Duffy wrote in a research paper last month.

The average household in negative equity owes €38,000 more than the home is worth.

The total value of the shortfall -- the amount by which the mortgage is greater than the value of the home -- will hit a staggering €7.4bn by the end of this year, Dr Duffy wrote.

This works out at an average of €38,000 per home for first and second-time buyers who bought in the last six years.

For first-time buyers who borrowed 92pc or more than the value of the property, the average is €41,000.

Individual homeowners in negative equity will not have a problem if they can meet their monthly repayments and do not want to move.

However, Dr Duffy warned that vast numbers of people owing more to their lender than their home is worth will be a huge drag on the economy.


This is because households in negative equity are likely to consume less and save more. This will directly impact consumer spending, a key measure of the health of the economy.

And people who need to move home for a new job will find themselves trapped, the ESRI says.

Huge numbers in negative equity will also mean banks will lend less.

This is because they will want to hold back lending if the value of the properties that underpin their mortgage lending have collapsed.

Dr Duffy also warns that international research shows that up to one in 10 households in negative equity could end up defaulting on their mortgages.

This is especially the case for those who suffer an "income shock" due to losing their job, marriage break-up, or an illness that prevents them working.

"International research has found that households that suffer the double effect of negative equity and an income shock are more likely to default," he said.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business