According to NCB Stockbrokers, as reported in the Examiner today, if house prices have continued to drop at the same rate as in 2009 then over 50 percent of all mortgage holders will be in negative equity by June of this year (this assumes that house prices are on average down 45% since the peak). The same story reports that the ESRI predict that 53% of mortgage holders will be in negative equity if house prices fall by 50%, and that the Bank of Ireland report that 21.5% (40,000) of its residential mortgages are in negative equity, and that the average level of negative equity is presently greater than €50,000. There’s clearly a significant difference between 21.5% (BoI) and 50% (NCB), and it’s likely that the true number in negative equity is somewhere between the two.
It is also the case that there are significant geographical variations in rates of negative equity for two reasons. First, rates will vary in line with household growth, with some areas experiencing a large growth in new homes, and hence new mortgages, in the Celtic Tiger years. For example, there was significant household growth in the commuting counties around Dublin – Meath (69%), Fingal (68%) and Kildare (57%) between 1996-2006, whereas growth in other counties was substantially less, such as Sligo and Monaghan (both 22%). In the high growth counties, a large number of new mortgages would have been in the 2003-2008 period (with house prices in Dec 2009 having fallen to April 2003 prices according to the PTSB/ESRI index). Second, rates will vary in line with local housing markets. Daft.ie, for example, report that asking prices have dropped between between 43% (Dublin city centre) and 21% (Limerick) between the peak of the market and Dec 2009, with more people in negative equity in those areas with the highest price drops. It seems likely then that negative equity is likely to affect more people, with the size of the equity gap also larger, in the commuting belt around Dublin than in other places across the country. What that means is that the consequences of negative equity, in terms of ability to move homes and consumer confidence, also varies geographically and may have additional effects on local trade.
Rob Kitchin
Ireland after NAMA 
April 27, 2010 at 2:11 pm
According to Oxford Economics and Cushman and Wakefield in the latest C&W economic review, Dublin will grow at only 50% (or thereabouts) the rate of the rest of the State in the next 2 years which would lend further support to negative equity affecting the capital more than the regions (including regional cities) as a consequence of negative equity is it depresses spending by households who save in order to possibly paydown their loans and return to positive territory.
Here’s the link to their report (free registration is required to access it): http://www.cushwake.com/cwglobal/jsp/kcReportDetail.jsp?Country=GLOBAL&Language=EN&catId=100006&pId=c28600007p
It might also indicate less property will proportionately come on the sale market in the capital because sellers are unable to realise the losses in their property. However the reciprocal is that the rental market may see a glut of negative-equity homes.
Lastly whilst negative equity might be forecast to affect 350,000 households there are close to 2m homes in the State (800k or thereabouts subject to residential mortgages), so although it is a very worrying statistic the chances are most homes will not be affected by negative equity.
April 27, 2010 at 3:20 pm
According to CSO (http://www.cso.ie/releasespublications/documents/other_releases/2008/progress2008/measuringirelandsprogress.pdf) there were c. 1.58m households in the state (quite a bit short of 2m). 350K would be about 22% of all households in negative equity, which is significant. The same report also gives details on mortages (Table 8.3, page 62) which reveals that 486,777 mortgages were taken out between 2003 and 2007 on new and secondhand homes.
April 27, 2010 at 4:26 pm
1.58m households in 2008 agreed – but nearly 2m dwellings (that includes about 350k empties)- not disputing the significance of the forecast and it’s nearly twice what the ESRI estimated for end 2010, but it is 350k estimated out of 1.58m households and nearly 2m properties.
April 27, 2010 at 2:38 pm
The “atm effect” on loan to value ratio also needs to be taken into account in low growth areas. Significant numbers of people used the increasing value of their property as security for lifestyle spending or to purchase second homes in Ireland or abroad. So people with 80%ltv in 2001 could be in significant negative equity without having moved house. It would be interesting to know what proportion of BOI’s negative equity loans are re-mortgages. There are certainly 2 distinct negative equity groups – House purchasers and Lifestyle borrowers.
April 27, 2010 at 3:22 pm
Agreed re. comment and that it would be interesting to know the relative proportion of both groups. Not sure if that data is available, but would be interesting to see. Also mortgage data by county would be interesting.
May 11, 2010 at 8:26 pm
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