Negative Equity in the Irish Housing Market. ESRI WP319. October 2009

Duffy, David (2009) Negative Equity in the Irish Housing Market. ESRI WP319. October 2009. [Working Paper]

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Abstract

A consequence of the recent house price falls is that some households will find themselves in the situation where they owe more than their houses are worth. In other words they are in negative equity. Having peaked in early 2007 house prices in Ireland have fallen steadily. By July 2009 house prices were down 24 per cent from their peak in early 2007. Estimates of the number in negative equity range from around 140,000 home owners in November 2008 to 150,000 households in August 2009.3 A mortgage borrower is in negative equity if a drop in house prices results in the value of the house being lower than the outstanding debt. The level of debt remaining depends on the initial price paid, the initial loan and any equity, given the loan-to-value ratio, as well as any reduction in the capital balance outstanding as a result of mortgage repayments. Some borrowers will also benefit from equity accumulated from any house price increases that occurred after they purchased their house.

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