Sunday 16 June 2019

Negative equity hits €43,000 as average debt soars to €130,000

Report paints grim picture of economy

Charlie Weston Personal Finance Editor

THE collapse in the housing market has left the average household sitting on €43,000 of negative equity.

A borrowing frenzy during the boom means Irish households are now nursing debt levels which are the fifth highest in the developed world.

The average household owes €230,000 on its mortgage alone, excluding credit card, personal loans and other debts.

These figures have emerged from calculations based on a new report on the economy from Goodbody Stockbrokers.

Goodbody's Dermot O'Leary estimates that the bursting of the housing bubble has sent house prices down by 40pc from their peak in February 2007.

This means the average house in the State is now worth around €187,000.

There are 640,000 households with a mortgage, and the average household is sitting on negative equity estimated at €43,000, calculations based on the Goodbody report by the Irish Independent show.

The State's 1.5 million households are now struggling with an overall mortgage debt mountain that has climbed to €148bn, leaving mortgage holders hugely vulnerable to a rise in European mortgage interest rates.


Total residential mortgage debt is up from €99bn in 2005.

Mr O'Leary pointed out that the slashing of interest rates by the European Central Bank in the past year, from 4.25pc to a record low of 1pc, had saved mortgaged households a combined €3.1bn in interest payments alone.

The dive in interest rates means that a family with a €300,000 mortgage is paying around €500 less a month in mortgage repayments than this time last year.

"However, this reprieve will soon come to an end," he warned, stressing that there will be no further cut in rates, and instead interest costs will go up from 2011 on. "At this stage households will face increased pressure to meet their debt servicing obligations," the Goodbody commentary stated.

"The collapse in the housing market and the onset of the recession has meant Ireland has experienced a wealth destruction of vast proportions, one which is set to continue for some time," the economist said.

Households have piled up so much debt that they now owe an average of €112,000 on mortgages, credit cards, overdrafts and car loans.


But as only 640,000 Irish households have a mortgage, the mortgage debt alone amounts to €230,000 for these families.

The average Irish household owes €16,000 on unsecured debt, such as credit cards and bank loans, calculations by Mr O'Leary and the Irish Independent indicate.

Mr O'Leary said high private sector debt levels were of greater concern in the medium term for the Irish economy than public sector debt. "Given that Ireland is one of the most indebted economies in the developed world, we have benefited most from the collapse in interest rates," he said.

However, he thinks families will be able to absorb rising interest rates, because we have a younger population than other countries.

Goodbody predicts the economy will shrink by 1.1pc next year, but that it will grow by 2.4pc in 2011. Previously the brokers had forecast the economy would shrink by 3.7pc next year, and grow by only 1.2pc the following year.

Mr O'Leary said he is now more confident of a speedy recovery in economic growth.

Irish Independent

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