BELFAST BRIEFING:SHOULD FALLING house prices, rising repossessions and a growing army of "mortgage prisoners" prompt a new-all island approach to the problem of negative equity?
Forget for a moment the two jurisdictions issue and consider this – if people cannot afford to pay their mortgages are the implications for the economy not the same whether it applies to Derry or Dungarvan, Belfast or Ballybrit?
Essentially the same factors come into play regardless of whether the individuals in question owe thousands of pounds or thousands of euro to their mortgage provider.
Negative equity does not respect borders and the property crash North and South, plus Nama’s subsequent role, has revealed just how closely interlinked the two property markets really are.
This is starkly illustrated by both the rising failure rate of Northern Ireland-based building firms who ventured across the Border during the boom times and the associated property losses suffered by Dublin-headquartered banks in the North.
It has also been closely felt on both sides of the Border by the UK government-owned Royal Bank of Scotland. Its Irish subsidiary Ulster Bank suffered losses of more than £1 billion last year.
RBS, which is the largest state-owned bank in the UK, is estimated to have had to pump around £10 billion into Ulster Bank since the property crash.
So the rising losses incurred by Ulster and the likes of Bank of Ireland, Danske Bank and AIB across the island stem from the same problem, bad debts.
The issue now for both the Northern Ireland Executive and the Republic’s Government is how they can mitigate the impact of these bad debts on the wider economy. Both also have to address the impact of the all-island property crash at an individual level.
The Government’s proposed new Insolvency Bill includes provisions to help people who cannot meet their mortgage payments by effectively writing off some of their debt.
But in Northern Ireland, according to the Housing Rights Service (HRS), the government and privately funded housing charity, there are few initiatives to help people who are in a similar boat.
Its latest research suggests that while repossession levels are in general falling across the UK, they are rising in the North as house prices continue to decline.
The HRS research highlights how Northern Ireland attracted an influx of property developers, many from the South, in the run-up to 2007 when house prices were rising rapidly.
The body states that following 16 years of consecutive growth, Northern Ireland house prices recorded annual growth of 47.5 per cent for February 2007, surpassing all other areas of the UK, which on the whole recorded an increase of 12 per cent over the same period.
In 2007, according to the HRS, the average house price peaked at £234,000; however, by last year this had fallen to £137,000 and that is the crux of the problem.
The housing charity says it is “very concerned” about the increasing number of people who are now unable to escape the negative equity trap.
“The majority of lenders in the Northern Ireland market are exercising forbearance but this will become unsustainable. The consequences could be devastating for many families and could have wider implications for recovery in the housing market,” it warns.
It is calling for new government-supported rescue initiatives.
“Comparatively in Britain and the Republic of Ireland there are mortgage rescue schemes whereby people can remain in their homes as tenants or part-owners, through shared equity. In England, for example, there has been a recent investment of £20 million into a Prevention Repossession Fund to provide small interest-free loans towards mortgage arrears and publicly fund in situ court representation schemes.
“None of these initiatives are available in Northern Ireland. We believe this situation must be reversed.”
The charity says that to tackle the mortgage debt situation throughout the UK and Ireland, “a more co-ordinated response is required from all the governments involved”.
“The problem is of such strategic importance we believe it requires attention at ministerial level and progressed through the established structures of the North/South Ministerial Council and the British and Irish Council”.
But the North’s finance minister Sammy Wilson says the issue of debt forgiveness is complicated: “We don’t have responsibility for banking issues in Northern Ireland, that is up to the Treasury.”
Wilson says there is also a question about when should people live with the consequences of their own bad decisions and when others should step into share the burden.
What is more pressing for Wilson and the North’s Executive is Nama’s increasingly high-profile role and the implications if it decides to extend certain schemes such as its Deferred Consideration Initiative to the Northern Ireland property market.
“Given the level of assets Nama now controls in Northern Ireland we would like to see a Northern Ireland representative on the board of Nama – that’s where the decisions are made – decisions that affect Northern Ireland businesses,” Wilson said.
The property crash has revealed just how interlinked the two property markets really are
