Debt Consolidations Ireland: Debt Assist: New Study says 35,000 will be unable to pay mortgage

A New Study has shown that by the end of next year 350,000 people could be in Negative Equity with 10% of these or 35,000 people unable to pay their Mortgages. Debt Assist is uniquely placed to help people who are having difficultly paying their Mortgages. Call us on 0818 333 618 or visit us on www.debtassit.ie to set up a free consultation with a Debt Manager and see how much of a difference Debt Assist can make to your monthly outgoings.

UP to 35,000 people face the prospect of being unable to pay their mortgages by next year, a new study warns. The depressing new findings are contained in research by a State-funded think-tank, which also estimates that up to half of those with a mortgage could be in negative equity if house prices keep falling sharply. Negative equity is where the value of their mortgage is greater than the value of the home.
The numbers in negative equity could climb to 350,000 by the end of 2010, if house prices end up crashing by 50pc, Dr David Duffy of the Economic and Social Research Institute (ESRI) estimates. The economist cites international evidence showing that around 10pc of homeowners in negative equity end up defaulting on their mortgages.
This would mean that 35,000 people could find themselves defaulting by next year.
Homeowners hit by a big income shock like the loss of a job, illness or divorce are most at risk of being unable to meet the mortgage repayments. Dr Duffy said that "negative equity does not necessarily result in mortgage default, although it increases the likelihood of default". People in negative equity who cannot meet repayments should be given help by delaying repayments on their mortgages rather than having their mortgages written off, the think-tank said. This solution would avoid the moral hazard problem, or bailing out those who have made mistakes.

Vulnerable

First-time buyers are more likely than second-hand buyers to have a mortgage that is greater than the value of their house, the ESRI working paper indicates. Also highly vulnerable to negative equity are those who took out their mortgages at the height of the housing bubble in 2006 and 2007. This is especially the case for those who took out 100pc mortgages as they had no deposit, and also the case for those who took out 35 and 40-year mortgages. "First-time buyers are also more likely to have a mortgage, the value of which is higher than the house price. This in part reflects the use by first-time buyers of longer mortgage terms," Dr Duffy said in the paper.
Although most of those who find themselves in negative equity will continue to meet their repayments, people whose house value has crashed will spend less. Negative equity will also dampen down housing mobility, so those who need to move house will be unable to do so. The ESRI study has found that if housing prices fall by 30pc by the end of this year one in three homeowners will end up in negative equity. This will represent almost 200,000 of the 650,000 residential mortgages. But if prices fall by 20pc this year and a further 27pc next year, to take overall prices down almost 50pc, as many as 350,000 mortgage holders will end up in negative equity.
Three-quarters of those in negative equity are likely to be first-time buyers, the ESRI study indicates.