Ireland’s home mortgage crisis persists


Though the property market in Ireland is showing signs of an uptick, ghost housing estates are still prevalent in many parts of the country.
Though the property market in Ireland is showing signs of an uptick, 
ghost housing estates are still prevalent in many parts of the country. 

A few weeks ago in this column we were looking at the signs of an end at last to the five-year downward spiral in the Irish property market.

In some areas and for some homes, mainly family size houses in good areas in Dublin, there has been a slight recovery in prices this year, although they are still around half what they were at the peak of the bubble.

That's good news, of course.  For those with money to buy or those with secure state-paid jobs who can get mortgages, the signs that the bottom of the market has been reached are prompting them to act now and not to put off buying a home any longer.

Such activity will help the wheels of the economy to start turning again.  There is even talk that a few new housing estates will be built in Dublin in the coming year to meet demand.

Good news, as I said, but it's important to remember that this is only half the story.
The other half of the story concerns the tens of thousands of people here whose lives have been destroyed by the property crash.

These are the people who bought during the boom and who are in negative equity – their homes are worth far less now than they paid for them a few years ago.  So they can’t sell to pay off their mortgage loan.

Unlike in the U.S., here you still owe the bank even if you give them back the keys.  If you do sell at a loss and give the bank the proceeds, you still owe the bank the difference between the sale price and the loan.  
The property price collapse over the past five years also triggered the crash in the wider economy which means that many people in this situation have also lost their jobs, or their businesses have gone to the wall.  That means they can no longer meet the payments on the huge loans they took out to buy their boom time homes.

The latest figures released two months ago showed that the number of homeowners unable to pay their loans has increased to close to 100,000 mortgage holders who are now 90 days or more behind in their payments.

That is nearly 13 percent of all residential mortgage holders in the country and it’s a huge problem for the banks.   Over half of these are more than a year behind in their payments.
The overhang of bad mortgages means that the banks are effectively bust again despite more than €60 billion having been pumped into them, for which the Irish taxpayer is now on the hook.

Instead of using a big chunk of this €60 billion bailout loan from the IMF/EU to write down the debts of Irish homeowners who simply can’t pay, the banks used most of the money to pay off their bondholders, and what was left was used to start rebuilding their capital reserves.

Part of the €60 billion was supposed to be used to allow solutions for distressed mortgage holders like loan restructuring and partial debt forgiveness.  But that never happened.  Instead, the banks continued to avoid the growing crisis and have continued to threaten and squeeze mortgage holders.

The problem for the banks is that once they accept that someone cannot repay the full amount of their loan, they have to show the loss on their books.  And if they have to do that for half of the 100,000 domestic mortgage holders now in trouble they will have a big problem.

For young families who bought their homes to live in themselves, the situation is an absolute nightmare.  They did not cause the property crash and now they have become the victims of it.  Although everyone has sympathy for them, nothing much has been done to help them.

It’s also hard not to have sympathy for many of the older buy-to-let investors who took out loans to buy a second property as a pension investment and now face the possibility of losing both homes.

Around half of the buy-to-let buyers were on interest only payments for the first few years and now cannot cope as full repayments begin.  It’s estimated that at least 15,000 buy-to-let homes are in this situation and could be repossessed by the banks.