Friday 13 December 2019

Living in era of negative equity

ONE in three mortgage holders could be in negative equity, the dismal situation in which the mortgage exceeds the value of the property, by the end of this year. The number of households affected could reach 196,000.

And if prices continue to decline, falling by a 50pc from the peak of 2006, as widely forecast, the figures could become even more frightening. Dr David Duffy of the Economic and Social Research Institute estimates that as many as 350,000 homeowners could find themselves in negative equity.

If even the mildest of these projections comes true, the effects will be shattering. One in 10 of the mortgage holders affected could default. Others will fall into serious arrears. Still others will find themselves unable to move house if they lose their jobs or their marriage collapses.

There will also be grave effects on the wider economy. Some are already visible. Partly because of people's fears of losing their jobs or homes, they are consuming less and saving more: an estimated €12 out of every €100 earned. And the fall in consumer spending makes stimulating the economy more difficult.

The abandonment or postponement of large construction projects also bodes ill for the economy. The Construction Industry Federation reckons that new public works this year will be worth only in the range €500m to €900m and that employment in the sector could fall below 100,000.

Granted, the CIF is a powerful lobby group, not shy about presenting its case. Granted, too, that the number employed at the 2007 peak, 400,000, was one of the excesses of the boom and that half of that number would have been more reasonable. The fact remains that public works projects are a relatively easy and cost-effective way to create employment.

But has the Government the money -- or the wherewithal to ease the plight of the mortgage holders? The short answer is that it has not.

Grotesquely, it may in coming years have to find money to spend in a humiliating way. NAMA sources indicate that thousands of houses, built in inappropriate places, may have to be demolished. If so, the symbolism will not be lost on the taxpayers.

For the moment, both the construction and the demolition can be postponed if needs be. But the deep anxieties of the mortgage holders in negative equity cannot be ignored. To find a rescue plan will be immensely difficult, but the Government must set its collective mind to it.

Irish Independent

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