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House Price Crash - Irish Homeowners Now Into Negative Equity...

140,000 homeowners 'have fallen into negative equity'...

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.

"A lot of people are going to lose their jobs in the next 12 months so it will be a significant problem. For everyone else, negative equity is not the end of the world."

According to the Permanent TSB/ESRI house price index, prices reached their peak in March 2007 and have fallen 15pc since.

But many within the industry believe that the real drop has been as much as 30pc.

This is borne out by recent research by Goodbody Stockbrokers, which suggests that house prices will have fallen 30pc by the end of 2009.

According to Sherry Fitzgerald, second-hand properties in Dublin are down by almost a third from a peak in June 2006.

Niall O'Grady, Permanent TSB's general manager business strategy, said: "Prices are now where they were in the third quarter of 2005.

"Anyone who bought in the intervening period and who took out a 100pc mortgage, depending on the part of the country they bought in and the type of house they bought, there is the potential for negative equity.

"It is impossible to predict what will happen with prices next year but we are expecting the trend of the last 15 months to continue in the first half of 2009."

Vulnerable

Houses in some of the most exclusive neighbourhoods in Dublin 4 are down by as much as €4m while prices in some new developments in west Dublin are down by €100,000.

Those most vulnerable to negative equity are first-time buyers, those who took out 100pc mortgages, or those who have high loan-to-value mortgages of over 80pc. During the peak, a worrying one in three homebuyers took out 100pc mortgages.

And with unemployment expected to spiral to 8pc next year, many homeowners unable to meet mortgage repayments may be forced to sell their property for less than they paid.

A recent report from the Bank of England warned that 1.2m people are in negative equity there.
Mr Power said the situation in Ireland could, relatively speaking, be "every bit as bad, if not worse".

Meanwhile, figures on housing yesterday revealed that every county in Ireland has seen a slump in housing starts.

Dublin was the best performing county yet it has seen output fall by almost 50pc this year, while 15 counties have seen reductions of 70pc or more.

The Construction Industry Federation warned that up to 40,000 jobs would be lost in this sector by the end of next year.


Report by Breda Heffernan - Irish Independent Newspaper.

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