Up to 40,000 Irish first-time house buyers face negative equity

Up to 40,000 Irish first-time house buyers who bought properties with 100 per cent no deposit mortgages will face an average paper loss of €18,200 each, if house prices fall 10 per cent this year, according to research by Davy Stockbrokers.

Davy says in its weekly market comment report that a 10 per cent drop in house prices would lead to negative equity – where a mortgage loan is higher than the value of a property – to the value of €728 million, or 0.5 per cent of residential mortgages.

It is forecasting a 12 per cent decline in house prices this year but said first-time buyer house prices were falling at a faster rate.

A 10 per cent drop in house prices would leave 40,000 first-time buyers in negative equity by the end of this year, Davy said.

In 2006, 36 per cent of mortgages to first-time buyers were 100 per cent home loans, while 69 per cent had a loan-to-value (LTV) ratio of more than 90 per cent.

Davy said a fall in house prices ranging from 5 to 15 per cent would leave between 22,000 and 55,000 first-time buyers in negative equity.

Davy analyst Stephen Lyons, said falling house prices and rising negative equity had personal rather than financial consequences. “If a person’s job is lost, that would be a big concern but unemployment is not on the same par as in the UK in the early 1990s when there was negative equity.”

Lyons said first-time buyers might change their plans to sell so as to avoid making a loss. “I don’t think anyone will want to realise the loss. I think people will sit and hold on to their property, and hope that the capital appreciation will come back so those who had intended to stay in a property for three to four years will probably stay for longer,” he said.

Finfacts.ie