The Mortgage holders

Ireland has one of the highest rates of home ownership in the world.  This is what makes the mortgage crisis even more frightening.  Unlike other European countries Irish people have long shunned renting property in favour of owning their own home.

There are many historical reasons for this which I won’t get into right now.  In 2006 at the peak of the property bubble 203,953 mortgages were taken out, this compares to just 45,818 in 2009 for example.  Of these mortgages 71% accounted for personal dwellings, with 28% buy to let residential properties and 1% holiday-homes or second- homes.

There are are a total of 782,000 home loans with a 116 billion outstanding on them.  At the end of 2010 there were 28,600 mortgages in arrears of more than 91 days.  The method for calculating the number of mortgages in arrears is those home owners who have not paid for 90 days or more. At the end of August 2011 there were 49,600 home owners in arrears.

Those home owners who face the prospect of losing their homes have to deal with some of the most draconian bankruptcy laws in the western world. If their home is repossessed by their mortgage provider they still have to repay their mortgage in full.

Many home owners who purchased their house over the past decade are caught in the negative equity trap. There where an estimated 196,000 in negative equity at the end of 2010. By mid-2011 house prices were almost 43% below their peak levels of late 2006.  Dublin has seen the biggest fall with house prices falling on average of about 60% from their peak.

Negative equity is a problem facing all of society in Ireland. If a person is stuck with a house in negative equity they become immobile. By immobile I mean that they can not move to certain areas to take up jobs, or sell their house to move to a bigger or smaller home.  This will not doubt further depress the sale of second hand housing units in the years to come.

The majority of mortgage holders in Ireland around 54% have tracker mortgages. Those with tracker mortgages can only face interest hikes when the European Central Bank increases its interest rates plus a margin of around one percent.  It is estimated 30% of mortgage holders have variable mortgages, this is the group which has suffered the most pain.  Those with variable mortgages can see the interest charged on their loan increase at any time.  The remaining 15% of the mortgage book is accounted by those with fixed mortgages.  

What further complicates the mortgage crisis is the fact that the government has a large stake in most of the Irish banks and any mortgage write off would require those banks needing further capital.  With the financial coffers dry the government cannot meet this financial burden.

Nearly 40% of the loan book in Ireland is owned by foreign banks. They would not agree to any mortgage write-offs unless of course the government compensated them for it, which is unlikely to happen.

Unfortunately in the years ahead there is likely to be a raft of house repossessions. Some media commentators recently suggested that 30,000 people could be at risk of repossession. The next couple of years therefore are gone to be turbulent to say the least.