Tuesday, 5 March 2013

Northern Ireland and Negative Equity

Everyone in Northern Ireland knows that house prices have tumbled since the heady days of 2007. Back then,- six years has proven to be a long time in the property world,- the average house in Northern Ireland sold for £234k and builders were buying development land at over £1,000,000 an acre. People were anxious to get on the property ladder as soon as they could. They talked enthusiastically of how many thousands of pounds the value of their house had increased by in the last month. Banks and Building Societies were anxious to loan money and lots of it.

Six years on the confidence is gone, the market has imploded and the average price of a house has declined to £139,000, a fall of almost forty one percentage points. For those entering the property market for the first time houses are more affordable than they have been for more than twelve years. However the hidden downside of the market adjustment is that some thirty five percent of those Northern Irish house owners who have mortgages are in negative equity. This is the highest percentage of any region in the United Kingdom. According to the Belfast Telegraph the next worst region is Yorkshire and Humberside where the percentage is fifteen percent.

If someone is in negative equity in most instances that person is caught with their house or flat. Unless they have substantial savings, or the bank of mum and dad provide funds, they can't pay off their mortgage, even if they are lucky enough to find someone willing and able to buy their property. These house owners are essentially excluded from the property market, as are their properties. In the past, when house prices were increasing even at a modest rate, many people relied on the increasing equity in their house to provide the deposit for their next and larger house. With negative equity there are no available funds, quite the reverse.

We have all learnt the lesson that a house should not be thought of as a no risk investment.

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