Talking Property

Homeowners are under house arrest, says ISABEL MORTON

MANY HOMEOWNERS are finding themselves “under house arrest”, (as one despairing homeowner described it) as property prices continue to slide and increasing numbers find themselves in negative equity.

One young couple living in an unfinished housing estate on the outskirts of a town northwest of Dublin described their situation: “We can’t sell as even if it sold, we’d be lucky to get back half of what we paid for it and of course we’d still owe the bank the rest. We can’t rent it out, as now nobody wants to live here. Already, there are four houses on our road left empty, as their owners can’t find tenants. And because we can’t hand back the keys and run away, we’re stuck here, chained to this house.”

This young couple, and many others like them, are not concerned about who leads Fianna Fáil or whether our Taoiseach chatted about the banking crises with Sean Fitzpatrick over a game of golf, as they have far more important issues on their minds, such as whether or not they’ll manage to pay this month’s mortgage and whether their relationship will survive the terrible stress it’s being put under.

I recently sought out the views of a number of different bankers and bank employees (note the differentiation). They all agree that our financial institutions are slowly and systematically grinding this country to a halt and we are permitting them to do it.

Banks now intent on refilling their own coffers – having once encouraged the nation to borrow vast sums – are, in addition, under pressure from Nama to produce their “final figures” as soon as possible.

This final call is encouraging banks to pass on any borderline cases to Nama, in the event that they might prove troublesome sometime in the future.

This of course means banks are disinclined to support customers who might otherwise manage to scrape through this appalling recession.

Homeowners are expected somehow to miraculously divest themselves of their property and sell in a non-existent market, when prices are at an all-time low and banks are still not lending to potential buyers.

Many of those who can just about afford to keep up their interest repayments but can’t manage to sell to pay off any of their capital are being dumped into the Nama basket, instead of being helped by their banks to work through their problems.

So eager are our lending institutions to protect themselves in the short term that they are cherry picking the best and ridding themselves of any potentially problematic customers.

Which in reality means that the banks will squeeze them dry of every last cent and we, the taxpaying public, will then have to pick up the pieces and house and support these unfortunate individuals and their families.

Ironically, not only will Nama then hold the largest property portfolio in Ireland but it will also become one of the largest employers, as it will be responsible for maintaining, managing and eventually selling these properties. Already Nama employs solicitors, barristers, accountants, insolvency experts, estate agents, letting agents, management companies, maintenance services, etc, and my suspicious mind wonders how much money is being spent on these advisors and services and what value we (the taxpayers) are getting for our money.

One must also wonder whether it might not be a lot more cost effective in the long-term to leave these owners in their properties, extending their loan periods and allowing them pay interest only, or whatever they could afford, for the foreseeable future, thereby saving the nation a considerable amount of unnecessary expense and saving the homeowners unnecessary stress and grief.

Bankers (off the record) agree that hounding customers to pay back their loans now is as irresponsible, illogical and immoral as it was to lend them such sums of money in the first place. They admit that property prices will continue to fall for as long as credit is so severely restricted and that this in turn, creates a downward economic spiral which is as bad for the economy as the upward spiral of uncontrolled lending was during the boom years.

However, bank employees themselves, are under extreme pressure to deliver and the incentive to do so is no longer based on the overt promise of cash bonuses, but on the covert threat of loosing their jobs.

The Global Property Guide report of December 21st, 2010, headlined “Ireland’s house prices plunge further as crisis deepens”, makes for grim reading. The article’s opening line is “House prices in Ireland are expected to fall for years to come, as it braces itself for massive tax hikes and sharp spending cuts”. However, it also refers to another report, by Standard and Poor (June 2010), which claims that due to the price falls, the housing market may already be undervalued by about 12 per cent. So, perhaps the prospect of parole is at last on the horizon? Maybe, but somehow I wouldn’t bank on it.

* Isabel Morton is a property consultant