By Charlie Weston
AS many as 170,000 homeowners may already be in negative equity, it has been estimated based on figures released by Bank of Ireland last week.
This means that about one in five households that have a mortgage owe more on their home loan than the value of their property.
Bank of Ireland said last week that 40,000, or 21.5pc, of its residential mortgages in Ireland are in negative equity.
The bank has 199,0000 domestic mortgages, which works out at about a quarter of all residential mortgages.
If the bank’s figure for the numbers in negative equity is applied across the market, it means that as many as 170,000 homeowners are in negative equity.
The ESRI (Economic and Social Research Institute) has predicted that close to 200,000 mortgage holders will be in negative equity by the end of this year, a prediction that is in line with the Bank of Ireland data.
And the average first-time buyers are facing another 10 years before they will get out of negative equity, the ESRI’s housing economist David Duffy calculated recently.
Second-time buyers who bought in the past six years are likely to be stuck for another six years in a situation where the value of their home is worth less than the mortgage, Dr Duffy wrote in a research paper last month.
The average household in negative equity owes €38,000 more than the home is worth.
The total value of the shortfall — the amount by which the mortgage is greater than the value of the home — will hit a staggering €7.4bn by the end of this year, Dr Duffy wrote.
This works out at an average of €38,000 per home for first and second-time buyers who bought in the last six years.
For first-time buyers who borrowed 92pc or more than the value of the property, the average is €41,000.
Individual homeowners in negative equity will not have a problem if they can meet their monthly repayments and do not want to move.
However, Dr Duffy warned that vast numbers of people owing more to their lender than their home is worth will be a huge drag on the economy.