Boom time house buyers still mired in negative equity

Rising property prices have not yet lifted a significant proportion of Irish homeowners out of negative equity, according to a new report from the Central Bank.

In its latest Household Credit Market Report, the Central Bank presents data which shows that over 50 per cent of mortgages taken out in 2007 were still innegative equity at June 2014. Those who bought in 2005 and 2006 are also likely to still be underwater, with Central Bank showing that approximately 40 and 45 per cent of these home buyers, respectively, are also in negative equity.

The survey points to an increase in the volume of new lending in the run-up to its new mortgage lending restrictions, with new home loans increasing from €750m in the third quarter of 2013, to €1.1 bn in the same period in 2014. The number of new loans rose from 4,482 to 6,308. First time buyers accounted for 51 per cent of new loans in the third quarter, with movers accounting for 35 per cent and just 4 per cent for investors.

“The share of FTBs has been consistent throughout 2014,” the Central Bank said.

While variable rate mortgage holders continue to pay over the odds for their loans, the survey found that the average interest rate on outstanding mortgages in Ireland is 2.77 per cent.

The data also points to a downward trend in arrears, with arrears in family homes falling to €16.5bn in the third quarter, representing 15.7 per cent of the outstanding stock.

With respect to buy-to-let (BTL) mortgages, arrears stood at approximately €8.9bn, representing 30.8 per cent of the total stock.

A factor behind this trend may be the increase in the number of mortgage modifications offered to family home owners. In Q3 2014, there were just under 110,000 such modifications, an increase from approximately 80,000 in Q3 2012.

“Approximately four-in-five or 82 per cent of borrowers who received PDH mortgage modifications are meeting the terms of the arrangement,” the Centarl Bank said.