Thursday 20 June 2019

First-time buyers facing 10 years in mortgage bind

Charlie Weston Personal Finance Editor

THE average first-time buyer is facing another 10 years before they will get out of negative equity, a leading housing economist has calculated.

And 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, a new report from the ESRI's Dr David Duffy indicates.

One out of every three homeowners with a mortgage could be in negative equity by the end of the year if property prices continue to fall sharply.

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

Facts and figures in the report point to the housing market being stuck in a dispiriting deadlock from which it will take years to emerge.


The report, seen by the Irish Independent, calculates that the numbers in negative equity doubled to 116,000 by the end of last year. This represents one in five households with mortgages.

By the end of this year the numbers could hit 196,000, or one-in-three mortgage-holding households. This is based on house prices falling by 30pc from the peak of early 2007.

They are expected to fall by 14pc this year, and another 5pc next year. Prices are then expected to stabilise in 2012, according to the Economic and Social Research Institute (ESRI).

But if they fall by 50pc by the end of this year from the peak in 2007, as many commentators expect, then as many as 350,000 homeowners could end up in negative equity, according to the policy paper 'Negative equity in the Irish housing market', published in the ESRI's spring review.

Those most likely to be in negative equity are first- and second-time buyers who bought in the last six years, with a mortgage that was close to the value of the property.

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 writes.

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.

"First-time buyers with a high loan-to-value ratio will not move back into positive equity until after 2020," the report says. Asked to expand on the report, Dr Duffy said that a new buyer who took out a 100pc mortgage in 2006 will end up with a house that is worth less than they borrowed for the next 12 years.

The policy paper, an update of an earlier one back in October, demonstrates that loose lending during the boom was largely responsible for pushing thousands of homeowners into negative equity. Interest-only mortgages, 100pc mortgages and 30 and 40-year mortgages all contributed significantly to overheating the market.

Irish Independent

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