MORE than half of those who climbed onto the property ladder between 2005 and 2007 will fall into negative equity by the end of next year if house prices continue to drop, according to new research.
Dermot O’Leary, chief economist at Goodbody Stockbrokers, expects by the end of 2009 house prices will have fallen 30% from their peak in February 2007.
This would leave some 170,000 with mortgages worth more than the value of their homes, with those who bought between spring 2006 and summer 2007 at greatest risk.
A sharp slowdown in property sales has made it difficult to gauge the scale of the slump, but O’Leary believes values are already down 20%. Sherry FitzGerald, the estate agency, said prices have dropped by 17% nationally since June 2006, and by more than 23% in Dublin.
Negative equity is a big problem for borrowers who want to move home or who fall into mortgage arrears, because they would be forced to sell at a loss.
“It’s an issue if you’re no longer able to pay the mortgage because you can’t afford to sell,” said O’Leary. “It’s a problem for those who are losing their jobs and it’s going to become a bigger problem as unemployment rises.”
More than 6% of the workforce is already unemployed and O’Leary expects this will grow to 8% next year.
Those who borrowed most or all of the prices of their homes are the most exposed.
One in three first-timers used 100% mortgages to get on the ladder in 2006, according to the Department of the Environment. This dropped to 26% last year as a slowing market caused banks to restrict availability of these loans. Lenders have now abandoned them completely.
Sunday Times
Saturday, October 11, 2008
Thursday, August 28, 2008
Fear of negative equity haunts owners
Negative equity is not just a problem for homeowners who want to sell their homes: borrowers may also find themselves unable to shop around for better deals, writes Caroline Madden
SOME SAY it's purely a theoretical problem unless you have to sell your home, while others have compared it to burning €50,000 in cash in your back garden. So is negative equity worth losing sleep over or has the issue been blown out of proportion?
Negative equity occurs when a mortgage is greater than the value of a property. As property prices have fallen nationally by 12.1 per cent since February 2007 - at least according to the Permanent TSB/ESRI house price index which measures mortgage drawdowns - borrowers who took out high loan-to-value mortgages and in particular 100 per cent mortgages and bought at the peak have been pushed into negative equity.
In the summer of 2005, First Active broke new ground with the introduction of the first 100 per cent mortgage in the State - making it possible for first-time buyers to get onto the property ladder without scrimping and saving for a deposit.
Other lenders quickly followed suit with EBS, First Active, Ulster Bank, Permanent TSB and Bank of Scotland soon offering similar products. However, in recent months lenders have effectively withdrawn 100 per cent mortgages from the market.
It is difficult to pin down exactly how many of these loans were taken out, as no official cumulative figures have been collated and the banks have been understandably coy on the subject, but it is estimated that one-third of all first-time buyers in 2006 opted for 100 per cent finance, which equates to 12,350 home loans.
In 2007, 5.5 per cent of loans provided were 100 per cent mortgages, which amounts to almost 8,700 mortgages. So, at a conservative estimate, 21,050 homeowners have 100 per cent mortgages and are therefore extremely vulnerable to negative equity.
Of course it's not just those who borrowed the full price of their home who are at risk. Given the magnitude of the recent fall in property prices, anyone with a high loan-to-value mortgage is in the danger zone. According to Davy Stockbrokers, 69 per cent of first-time buyers in 2006, which equates to roughly 25,570 mortgages, had a loan-to-value ratio of more than 90 per cent.
Davy has predicted that 40,000 first-time buyers would face an average paper loss of €18,200 if house prices fall by 10 per cent this year. Prices have already fallen by 5 per cent in the first half of the year according to the Permanent TSB/ESRI figures and anyone in the market will tell you that where properties are selling at all the fall is far greater.
The Irish Times
SOME SAY it's purely a theoretical problem unless you have to sell your home, while others have compared it to burning €50,000 in cash in your back garden. So is negative equity worth losing sleep over or has the issue been blown out of proportion?
Negative equity occurs when a mortgage is greater than the value of a property. As property prices have fallen nationally by 12.1 per cent since February 2007 - at least according to the Permanent TSB/ESRI house price index which measures mortgage drawdowns - borrowers who took out high loan-to-value mortgages and in particular 100 per cent mortgages and bought at the peak have been pushed into negative equity.
In the summer of 2005, First Active broke new ground with the introduction of the first 100 per cent mortgage in the State - making it possible for first-time buyers to get onto the property ladder without scrimping and saving for a deposit.
Other lenders quickly followed suit with EBS, First Active, Ulster Bank, Permanent TSB and Bank of Scotland soon offering similar products. However, in recent months lenders have effectively withdrawn 100 per cent mortgages from the market.
It is difficult to pin down exactly how many of these loans were taken out, as no official cumulative figures have been collated and the banks have been understandably coy on the subject, but it is estimated that one-third of all first-time buyers in 2006 opted for 100 per cent finance, which equates to 12,350 home loans.
In 2007, 5.5 per cent of loans provided were 100 per cent mortgages, which amounts to almost 8,700 mortgages. So, at a conservative estimate, 21,050 homeowners have 100 per cent mortgages and are therefore extremely vulnerable to negative equity.
Of course it's not just those who borrowed the full price of their home who are at risk. Given the magnitude of the recent fall in property prices, anyone with a high loan-to-value mortgage is in the danger zone. According to Davy Stockbrokers, 69 per cent of first-time buyers in 2006, which equates to roughly 25,570 mortgages, had a loan-to-value ratio of more than 90 per cent.
Davy has predicted that 40,000 first-time buyers would face an average paper loss of €18,200 if house prices fall by 10 per cent this year. Prices have already fallen by 5 per cent in the first half of the year according to the Permanent TSB/ESRI figures and anyone in the market will tell you that where properties are selling at all the fall is far greater.
The Irish Times
Monday, July 28, 2008
New homeowners caught in negative-equity loan trap
THOUSANDS of first-time buyers are being forced to pay out sky-high mortgage rates because negative equity has trapped them with their current lender.
The new buyers, who purchased their houses with 100pc mortgages, are now unable to switch to a cheaper lender because they have no equity built up in their homes.
They have been hit by a double whammy -- stuck with high repayments and a house worth less than the price they paid.
Those who took out 100pc mortgages have probably seen about €50,000 each wiped off the value of their homes.
The relentless fall in house prices since the start of 2007 has resulted in many of these people finding themselves in negative equity. This is where the value of the mortgage is greater than the value of the property.
As many as 40,0000 new buyers could be in negative equity, according to recent calculations by stockbroking firm Davy. This calculation was based on first-time buyer house prices falling by 10pc in the past year. In the past year alone, first-time buyer houses have fallen by 9.4pc.
The Indo
The new buyers, who purchased their houses with 100pc mortgages, are now unable to switch to a cheaper lender because they have no equity built up in their homes.
They have been hit by a double whammy -- stuck with high repayments and a house worth less than the price they paid.
Those who took out 100pc mortgages have probably seen about €50,000 each wiped off the value of their homes.
The relentless fall in house prices since the start of 2007 has resulted in many of these people finding themselves in negative equity. This is where the value of the mortgage is greater than the value of the property.
As many as 40,0000 new buyers could be in negative equity, according to recent calculations by stockbroking firm Davy. This calculation was based on first-time buyer house prices falling by 10pc in the past year. In the past year alone, first-time buyer houses have fallen by 9.4pc.
The Indo
Tuesday, June 3, 2008
Monday, June 2, 2008
Negative equity hits 250,000 - and there is worse to come
After months of gloomy forecasts, analysts have finally confirmed the news that homeowners had been dreading for months: that large numbers of British householders have slipped into negative equity.
According to the investment bank Citigroup, a quarter of a million of them now owe more than their properties are worth since house prices started to drop at the end of last year.
Citigroup said prices had dipped by 7 per cent since the autumn and the bank's chief UK economist, Michael Saunders, yesterday warned that house prices could fall by 15 per cent or more by the end of 2009. Such a drop would leave at least a million homeowners in negative equity.
The Guardian
Saturday, May 31, 2008
Housing market bad on both sides of coin
"First-time buyers have been hit and hit hard by the credit crunch, and so far our Government has done nothing to help them or intervene in the market," said Labour's finance spokeswoman Joan Burton.
"Cowen himself killed the property market stone dead by failing to act on stamp duty in December 2006 and now he and his Government are on auto-pilot," said Labour's deputy leader.
For mortgage holders, the news of house-price collapses means they are waking up this morning in negative equity. People are carrying mortgages on properties worth less than their borrowings, but many of those are in for the long haul and will survive the current crisis.
But at the extreme end of the collapsed housing sector is the increasing number of repossession orders being made to the High Court by financial institutions.
Last week alone saw a number of leading financial institutions, such as AIB and Bank of Ireland, take their place on the list beside the sub-prime lenders seeking to repossess properties from payment defaulters. Sub-prime lenders, which provide loans and mortgages to those with chequered credit histories, filled the lists at the courts last week. Two lenders -- Start mortgages and GE Capital -- accounted for most of the cases.
Worryingly, the number of possession applications this year remains at the same high level of 2007, which had jumped 50 per cent on 2006, showing the drastic impact of what happens when things go wrong.
Despite the claim by the Financial Regulator Pat Neary that relying on repossessions is the "final option", Dermot O'Leary of Goodbody Stockbrokers said that there was no doubt that throughout this year, consumers would see house repossessions increase. "They are the byproduct of a slowdown, and while they have been at a historic low, there is no doubt we will see the number of housing repossessions rise as the slowdown takes hold," he said.
In the face of the increasing number of banks taking back properties, the need now arises for establishing a State- backed mortgage relief fund beyond the current system set in place by the Department of Social Welfare.
Such a fund to help those remain in their homes is surely more humane than booting people out on the street. Two factors will continue to keep the house market depressed throughout this year and into 2009.
Firstly, credit is far less available than it was 12 or 24 months ago. Banks across the board have tightened up on their lending criteria, with the aforementioned death of 100 per cent mortgages.
Borrowers seeking mortgages have had to resort to saving deposits, forcing many to sit by and watch house prices tumble without being able to do anything about it.
Secondly, the ECB is now highly unlikely to reduce interest rates in 2008, despite previous indications that such a drop might happen. That means the squeeze on already stretched mortgage holders is not about to subside until sometime next year.
The Sindo
"Cowen himself killed the property market stone dead by failing to act on stamp duty in December 2006 and now he and his Government are on auto-pilot," said Labour's deputy leader.
For mortgage holders, the news of house-price collapses means they are waking up this morning in negative equity. People are carrying mortgages on properties worth less than their borrowings, but many of those are in for the long haul and will survive the current crisis.
But at the extreme end of the collapsed housing sector is the increasing number of repossession orders being made to the High Court by financial institutions.
Last week alone saw a number of leading financial institutions, such as AIB and Bank of Ireland, take their place on the list beside the sub-prime lenders seeking to repossess properties from payment defaulters. Sub-prime lenders, which provide loans and mortgages to those with chequered credit histories, filled the lists at the courts last week. Two lenders -- Start mortgages and GE Capital -- accounted for most of the cases.
Worryingly, the number of possession applications this year remains at the same high level of 2007, which had jumped 50 per cent on 2006, showing the drastic impact of what happens when things go wrong.
Despite the claim by the Financial Regulator Pat Neary that relying on repossessions is the "final option", Dermot O'Leary of Goodbody Stockbrokers said that there was no doubt that throughout this year, consumers would see house repossessions increase. "They are the byproduct of a slowdown, and while they have been at a historic low, there is no doubt we will see the number of housing repossessions rise as the slowdown takes hold," he said.
In the face of the increasing number of banks taking back properties, the need now arises for establishing a State- backed mortgage relief fund beyond the current system set in place by the Department of Social Welfare.
Such a fund to help those remain in their homes is surely more humane than booting people out on the street. Two factors will continue to keep the house market depressed throughout this year and into 2009.
Firstly, credit is far less available than it was 12 or 24 months ago. Banks across the board have tightened up on their lending criteria, with the aforementioned death of 100 per cent mortgages.
Borrowers seeking mortgages have had to resort to saving deposits, forcing many to sit by and watch house prices tumble without being able to do anything about it.
Secondly, the ECB is now highly unlikely to reduce interest rates in 2008, despite previous indications that such a drop might happen. That means the squeeze on already stretched mortgage holders is not about to subside until sometime next year.
The Sindo
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