Is negative equity still an issue in Northern Ireland in 2016? In a word, yes! Negative equity is still a very real issue in Northern Ireland. It is true that house prices are rising in some areas: south and east Belfast, parts of north Down and several villages and small towns which stand an easy travel-to-work distance from Belfast. Templepatrick, Holywood, Moira and Hillsborough are prime examples.
But even here, the rate of increase means current valuations are still some way short of the highs of 2007 when Northern Ireland’s property prices soared at a previously unimaginable rate en route to unprecedented levels. Alas, to the adjective ‘unprecedented’ can be added another, namely ‘unsustainable’. And the fact that it was unsustainable created economic carnage throughout Northern Ireland. How? Just as prices here rocketed higher and faster than anything seen anywhere else in the U.K so too the crash, when it came, resulted in a steeper nosedive than in any other region. Record-setting house-price increases were followed by record-shattering devaluations. Northern Ireland holds the unenviable top spots in terms of boom and bust.
If you were to draw a graph of what happened here, it would resemble an upside-down V. And the impact of that spectacular example of the rise and fall in house prices continues, with its effects still all-too visible across much of Northern Ireland.
The state of the property market isn’t the only problem. The loss of thousands of well-paid, highly skilled jobs in the hard-pressed manufacturing industrial sector is another, add to that the closure of retail outlets in every city, town and village. Then add the number of employees now on the minimum wage.
The combined effects of all of these blows to family viability – not least in terms of meeting monthly mortgage repayments – underlines how serious the problem of negative equity is. Negative equity – which is just another way of saying property debt – is still a very real and very live issue in Northern Ireland in 2016, with tens of thousands living in homes now worth considerably less than the price paid for them.
The price paid for a house in 2006-2008 may be twice what the same property would fetch if it were put up for sale on today’s property market. This means that a house which was sold for £200,000 in 2007 may now be worth just £100,000. In other words, after a sale there would still be £100,000 of negative equity, that being the shortfall.
The lender will still require that shortfall to be met, however, which means the unfortunate seller must continue to pay off the mortgage despite having sold the property. That means having to continue to pay for something you no longer own.
The situation is even worse for those with interest-only mortgages. As the name suggests, currently anyone in that position is paying just the interest on their mortgage.
Say it’s for £200,000. This means that at the end of their 25-year mortgage term, their repayments will have covered only the interest. The clue is in the name. Thus the £200,000 mortgage they borrowed, still has to be paid. In other words, the home they bought for £200,000 will end up having cost £400,000, that being the combined interest-plus-capital total.
If you do not have a repayment plan with which to clear that £200,000 capital loan, you are in a very unenviable place – particularly if your home is in negative equity. It is estimated that 40% of Northern Ireland homes are in negative equity, with some of the worst affected areas being Mid-Ulster (Dungannon-Omagh), Craigavon (Portadown-Lurgan) and Banbridge-Newry where there have been price-falls in excess of 50%.
True, those areas are showing some signs of improvement. But while that sounds positive, such is the deficit from which they are recovering that prices are nowhere remotely close to what they were in 2006-2008 when they spiralled so madly. Those home-owners of whom this is true, need help in finding a solution to their negative equity property problem.
Negative equity is not a problem for anyone who is able to make repayments and does not need to sell at this stage. They are able to ride out the storm until such times as the market has made a full recovery. That, however, is going to take some time.
If you do need to sell your home, negative equity creates huge problems. Unless you have sizeable personal savings, moving may not be an option at all – and certainly not an easy one. Unless, that is, you know how and where to get expert advice and help with the problem of negative equity, ultimately leading to a solution.
Experts – like those of Negative Equity NI – are trained in all such matters and, as a result, know all of the options. They also know which of those would be best for your individual circumstances.
Re-mortgaging may be one, but it is difficult to switch to a cheaper repayment or fixed rate if you are in negative equity. Lenders are unlikely to facilitate such a switch, instead preferring a move to the standard variable rate.
A few – very few – lenders offer a negative equity mortgage under which you may transfer that negative equity to your new property. However, you will be required to pay a deposit.
A negative equity mortgage allows you to move house without having to pay off the negative equity on your mortgage.
On the down side, you may have to cough up early repayment charges on your existing mortgage and even then there could be additional fees. The interest rate on your new mortgage is likely to be higher than on your existing mortgage.
A Negative Equity NI adviser can tell if your lender and the small print of your existing mortgage permit you to make over-payments in order to reduce your negative equity. And if that is possible, it then becomes a matter of how much you are able to over-pay before incurring early repayment charges.
A Negative Equity Northern Ireland adviser can help you reach the appropriate decision with regard to moving house. If you are in negative equity, your prospects will depend on the extent of your property debt, the state of your current mortgage, the price of the home to which you are hoping to move and the size of the deposit you are able to raise.