Rainy days...without an umbrella

There are first-time buyers who have borrowed five and six times their annual salary to purchase houses that are now worth 20 per cent less than they were a year ago. They are trapped in that dreaded purgatory called ‘negative equity’ and, if the recent trends in the housing market are anything to go by, they have more chance of descending into property hell than heaven in the next few years.

They will spend the rest of the their working lives paying off ridiculous mortgages - no longer available to new borrowers - for houses that were grossly overvalued in the first place. Now that’s what you call getting cheated twice. It’s no wonder there are a lot of long faces amongst the socalled ‘Pope’s Children’ in the early months of 2008.

Anyone who bought into the Irish property market from 2003 onwards is likely to face negative equity in the coming years. Those who bought with 100 per cent mortgages are most at risk as the sale of the house - even with a few years of repayments - would not cover the cost of the mortgage.

The question that must be asked now is why did the banks make these huge loans available to people who had not saved a single cent for their new home. It shouldn’t have happened and it is easy to criticise youngsters who were foolish enough to go buying a home when they hadn’t made the sort of sacrifices that were required by previous generations when they were putting together their ten or twenty per cent down-payment.

The problem for many young couples in the last few years is that they would have had to save for a decade to get the money together for ten per cent of the asking price of an average semi-detached house in most of our major towns. They were in a Catch-22 situation and the bank appeared to offer them the perfect get-out clause with the 100 per cent mortgage.

But the greater portion of blame for this unprecedented mess must lie with the political parties - and I include Fine Gael and Labour along with the Government partners of Fianna Fáil and the Progressive Democrats. Obviously the Government must shoulder the bulk of the responsibilty for what has happened in the banking and property sectors. Not once in the past five years did a Government minister issue even a moderate word of caution to young, first-time buyers who were effectively been fleeced by both their local mortgage broker and property developer. But, unfortunately, the Opposition parties were equally silent or, if they did have something to say about it, they didn’t get their message across very well because this writer doesn’t remember hearing it.

The shambolic situation that now exists in the property/banking environment is as much the result of bad governance as it is the inevitable denouement of reckless profiteering. The bankers lent a lot of young Irish people their umbrellas back in the sunny days of 2005 and 2006 when property prices were soaring and 100 per cent mortgages were being handed out quicker than you would pick up money in a game of Monopoly. At one point you were nearly afraid to walk past your local bank in case you were grabbed by the scruff of the neck and marched inside to be presented with a wad of cash. There was a time when you needed a shotgun to hold up a bank but in 2005 and 2006 all you needed to produce was a property brochure from your local auctioneer and the manager was whipping out the chequebook.

We can assume the days of the 100 per cent mortgages are over forever. The bankers have reclaimed their umbrellas for the rainy days ahead. And they have left a lot of young people utterly unprotected for the economic rainstorm that is already upon us.

Western People