Monday, April 19, 2010
Sunday, June 28, 2009
Trapped in a negative equity nightmare
When I bought my new home in May 2008, I knew exactly what I wanted. A two-bed apartment designed for modern living with a roof garden and outdoor space with great views of the city for holding summer barbeques on balmy evenings. When I saw just this, it accelerated my impulse to buy immediately, even though the market was softening.
The two-bed showroom unit apartment on the fifth floor wasn't exactly affordable, considering I was buying alone, but with its sleek Scandinavian furniture and skyline views I was prepared to stretch my cash limits and fork out the €525,000 sum required.
Printed in bold on the pastel-coloured brochure at the launch of the complex was the slogan: "contemporary tailored apartment living that won't cost you the shirt on your back". Truth is, it's costing me that and a hell of a lot more.
I now see my apartment devalue massively on a daily basis. Hooke & MacDonald have said 40 per cent is the typical price drop for new houses and apartments in Dublin. Trapped by negative equity, if I did decide to move, I would stand to make a massive loss on my investment. It has been reported that "those who bought a house in 2007 will have to wait until 2030 before they move out of negative equity".
The Sindo
The two-bed showroom unit apartment on the fifth floor wasn't exactly affordable, considering I was buying alone, but with its sleek Scandinavian furniture and skyline views I was prepared to stretch my cash limits and fork out the €525,000 sum required.
Printed in bold on the pastel-coloured brochure at the launch of the complex was the slogan: "contemporary tailored apartment living that won't cost you the shirt on your back". Truth is, it's costing me that and a hell of a lot more.
I now see my apartment devalue massively on a daily basis. Hooke & MacDonald have said 40 per cent is the typical price drop for new houses and apartments in Dublin. Trapped by negative equity, if I did decide to move, I would stand to make a massive loss on my investment. It has been reported that "those who bought a house in 2007 will have to wait until 2030 before they move out of negative equity".
The Sindo
Thursday, June 25, 2009
HINDSIGHT IS a wonderful thing. Looking back at the prices people paid for Irish property during the boom, it’s easy to see how unsustainable they were.
However at the time, despite warnings from everyone from the Central Bank to the Economist magazine that Ireland’s property market was a bubble which had to burst, banks and consumers ignored the advice and ploughed money into property, propping up prices until the inevitable collapse during 2008.
Now, latest estimates suggest that as many as 340,000 home owners, or one in five homes, are stuck in negative equity and prices are still sliding.
If this is the case, then people who purchased property as far back as 2003 with loan-to-values (LTVs) of more than 80 per cent, will discover that they owe more to the bank than what their house is worth.
For example, at the peak of the market two-bed apartments at Wyckham Point in Dundrum, Dublin were selling at €525,000.
Now however, prices have slid back by over a third to €339,000, which means that someone who bought during the boom on a 92 per cent mortgage is stuck in negative equity of about €144,000, or have a loan-to-value (LTV) of 142 per cent. If the property was financed with a loan of 65 per cent of the purchase price, then the owner is just about in the black.
And it looks like negative equity is here for some time. According to the Economic and Social Research Institute (ESRI), those who bought a house in 2003 will have to wait another four years before they move out of negative equity, while those who bought close to the peak in 2007 will have to wait until 2030.
The Irish Times
Thursday, March 5, 2009
We’re splitting – but can’t sell apartment
Q We are splitting up and have to sell our apartment. It has been on the market for eight months with no interest. The estate agent says we must drop our price if we are to have any chance of selling but if we drop to the price he suggests we won’t cover the mortgage (shortfall of €20,000). Do lenders really come after people for this small amount? This has to be happening to other people so what do they do in this stalemate?
A The first thing is that while the agent has suggested a new asking price, that doesn’t in any way guarantee a sale or that you will even get that amount – so your shortfall could be greater than €20,000. At a new lower valuation, might one of you be able to buy the other out? Could you rent it out? What’s been happening in the eight months that your place has been for sale? Are you both still living there? Could one of you stay and get a tenant in to part-pay the mortgage? Or might it be time for you to cut your ties with this property and your ex and be prepared to sell at a lower price and take out a loan (or eat into your savings) and pay off the outstanding mortgage amount. And yes, if you don’t pay back a mortgage in full you can expect the lender to come looking for the outstanding balance no matter how relatively small it is. Not paying it will, at the least, ruin your credit rating for seven years, which could stop you moving on with your life in all sorts of ways.
The Irish Times
A The first thing is that while the agent has suggested a new asking price, that doesn’t in any way guarantee a sale or that you will even get that amount – so your shortfall could be greater than €20,000. At a new lower valuation, might one of you be able to buy the other out? Could you rent it out? What’s been happening in the eight months that your place has been for sale? Are you both still living there? Could one of you stay and get a tenant in to part-pay the mortgage? Or might it be time for you to cut your ties with this property and your ex and be prepared to sell at a lower price and take out a loan (or eat into your savings) and pay off the outstanding mortgage amount. And yes, if you don’t pay back a mortgage in full you can expect the lender to come looking for the outstanding balance no matter how relatively small it is. Not paying it will, at the least, ruin your credit rating for seven years, which could stop you moving on with your life in all sorts of ways.
The Irish Times
Sunday, November 2, 2008
140,000 homeowners 'have fallen into negative equity
AT LEAST 140,000 homeowners have fallen into negative equity, with this figure expected to rise to 200,000 by the end of next year, it was warned last night.
Jim Power, chief economist with Friends First, said: "I reckon the majority of first-time buyers who bought into the market over the last three years are in negative equity."
Analysing the gains made up to the peak of the housing boom, and the losses since, Mr Power said negative equity was affecting "at least 140,000 people and that's rising by the day".
He warned that, in terms of the recession, "we haven't seen anything yet" and predicted the numbers in negative equity could reach 200,000 by the end of 2009.
Latest Census figures show there were 570,000 residential mortgage holders in 2006, with tens of thousands of new mortgages taken out since.
So the continuing decline in house prices means that one in three mortgage holders are likely find themselves trapped in a home worth less than the loan they took out to pay for it.
With €125bn owed on Irish mortgages, homeowners facing rising debts will be desperate for another European Central Bank interest rate cut, which could come on Thursday.
According to Mr Power: "Negative equity becomes a serious problem if you lose your job. It doesn't matter where house prices are or where interest rates are when you're faced with having to sell your property in a situation like that.
The Indo
Jim Power, chief economist with Friends First, said: "I reckon the majority of first-time buyers who bought into the market over the last three years are in negative equity."
Analysing the gains made up to the peak of the housing boom, and the losses since, Mr Power said negative equity was affecting "at least 140,000 people and that's rising by the day".
He warned that, in terms of the recession, "we haven't seen anything yet" and predicted the numbers in negative equity could reach 200,000 by the end of 2009.
Latest Census figures show there were 570,000 residential mortgage holders in 2006, with tens of thousands of new mortgages taken out since.
So the continuing decline in house prices means that one in three mortgage holders are likely find themselves trapped in a home worth less than the loan they took out to pay for it.
With €125bn owed on Irish mortgages, homeowners facing rising debts will be desperate for another European Central Bank interest rate cut, which could come on Thursday.
According to Mr Power: "Negative equity becomes a serious problem if you lose your job. It doesn't matter where house prices are or where interest rates are when you're faced with having to sell your property in a situation like that.
The Indo
Saturday, October 11, 2008
170,000 homeowners facing negative equity
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
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
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
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