More than one in 10 people fell behind in their mortgage payments last year and an average of three homes a week were repossessed by building societies, according to figures compiled by the voluntary housing agency, Threshold. The report, called As Safe as Houses?, warns that more people could fall into arrears and have their homes repossessed as a result of the property boom. Huge increases in property prices now mean the average new house costs £35,000 more than a person on an average wage can normally borrow.
The 178 repossessions by building societies last year represent a lower rate than in 1995, but is almost twice that of 1990. More than 2,700 homeowners were served with repossession orders by building societies last year. Almost half of these orders were settled, 31 per cent were adjourned by the courts, 9 per cent were struck out and 13 per cent resulted in repossession.
The average new house price of £77,090 is 4.5 times the average income of £17,131, the report says. "The traditional lending ratio of 2.5 times the primary salary means a borrowing limit of £42,725 occurs - leaving a £35,000 shortfall." This gap is being bridged by people with savings, parental gifts and a "significant number" who are "taking advantage of competition among lenders to stretch their budgets and over-borrow".
In 1993 the majority of mortgages were between £25,000 and £35,000. Only 9 per cent of loans were over £55,000. However, by 1995 only one in 10 mortgages was at the lower end and the proportion of loans for more than £55,000 had increased by 17 per cent.
"For many first-time buyers, buying a starter home is becoming increasingly difficult due to spiralling house prices," the report says.
A record number of first-time buyers grants was paid out last year, with almost 11,000 people claiming the grant at a cost of £32.4 million to the State.
At current interest rates, a first-time buyer on an average wage, borrowing 90 per cent, is spending 40 per cent of income on a mortgage.
"A rise in mortgage interest rates to 10 per cent coupled with a continued rise in house prices of 20 per cent guarantees almost 60 per cent of this borrower's income will need to be spent servicing the mortgage."
The danger of over-borrowing is that this would "replicate the lending conditions of the British market in the late 1980s", the report warns. The British boom resulted in home-owners falling into a negative equity trap. Interest rates rose, leaving them owning houses that were worth less than they cost.
Irish borrowers with a fixed-rate mortgage may face an "enormous payment shock" at the end of this fixed-rate term, the report warns. "While banks and building societies insist that they do not in any circumstances over-lend, there is now a battle for market share and many are prepared to lend a bit more to secure the business."
The report found that 7 per cent of mortgage borrowers were in arrears with their building society in March 1994, representing almost 23,000 borrowers.
This rose to 15 per cent in 1995, and there was a slight drop in 1996 to 13.7 per cent. In 1994 there was an "alarming increase" in the number of people who had long-term arrears, classified as greater than six months.
On the basis of population growth and the increase in young, qualified people, the report estimates a need for 32,000 new houses or apartments a year until the year 2000. A further 28,000 properties a year will be needed in the first half of the next decade.
It says new house prices rose by 4.1 per cent in 1994, 7.2 per cent in 1995 and 11.8 per cent in 1996. Private housing debt is also reflected in the public housing market, with the report finding that arrears on Dublin Corporation mortgages averaged £1.4 million a year between 1993 and 1995. Of those local authority tenants in rent arrears, the majority, or 81 per cent, owed less than £300, and 6 per cent owed more than £1,000.