A RECORD number of people who bought property at the height of the boom are facing a negative equity crisis in the North, new industry research has revealed.
The Council of Mortgage Lenders (CML) in the UK said the severe fall in house prices in Northern Ireland means thousands of homes are worth less than the mortgage on the property.
It has also warned that the negative equity problem in the North could continue to have an impact on future house sales.
The CML, which represents banks, building societies and other lenders, said roughly one in every 20 homeowners in the North are now in negative equity.
In a separate study, the University of Ulster recently estimated that house prices in Northern Ireland fell by an average of 28 per cent in 2008.
According to the latest CML, on average, UK borrowers in negative equity could be facing a 10 to 20 per cent shortfall on the value of their property. The CML estimates that this could translate to an average loss of up to £40,000 (€45,000) on property values in the UK.
Because Northern Ireland’s average house price soared over a relatively short period of time, homeowners could be facing a more severe scenario in the North.
The University of Ulster has calculated that the values of certain properties fell more sharply than others over the last two years. It estimated that the average price of a terraced house in Northern Ireland fell by 28 per cent, or an estimated £28,000 last year.
But the university also warned that the value of a detached bungalow could have fallen by an estimated 34.9 per cent, or more than £75,000, over the same period.
Bob Pannell, head of research with the CML, believes that negative equity will “contribute to subdued property turnover”.
Mr Pannell believes the fall in property values should have few “adverse effects” for the majority of households affected. The CML said there was no link between negative equity and repayment problems.
“Where people need to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record. Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt,” Mr Pannell added.
This week the Royal Institution of Chartered Surveyors in Northern Ireland said there were signs that “homebuyer enthusiasm” grew last month. It said that while the number of transactions had increased in Northern Ireland they had done so from “extremely low levels”.
