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Negative Equity in the Irish Housing Market

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  • David Duffy

    (Economic and Social Research Institute, Dublin)

Abstract

Having peaked in early 2007 Irish house prices have fallen steadily. Negative equity occurs if house price falls result in the house value being lower than the outstanding debt. Many in negative equity will be unaffected and will continue to pay their mortgage without difficulty. Negative equity can increase the probability of defaulting if it occurs at the same time as cashflow problems, possibly caused by illness or job loss. This paper estimates that 116,000 borrowers were in negative equity at the end of 2009, rising to 196,000 borrowers by end-2010. Borrowing at, or close to the price peak, high loan-to-value ratios, interest only mortgages and longer mortgage terms have contributed to higher numbers in negative equity. First-time buyers are more likely to be experiencing negative equity. The research shows that many of those who have mortgages are employed in sectors where employment prospects, to date, remain relatively robust. Policies that assist households overcome a loss in income may help lower the default rate.

Suggested Citation

  • David Duffy, 2010. "Negative Equity in the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 41(1), pages 109-132.
  • Handle: RePEc:eso:journl:v:41:y:2010:i:1:p:109-132
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    File URL: http://www.esr.ie/Vol41_1/06-Duffy.pdf
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    References listed on IDEAS

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    1. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
    2. Frances Ruane & Xiaoheng Zhang, 2007. "Location Choices of the Pharmaceutical Industry in Europe after 1992," The Institute for International Integration Studies Discussion Paper Series iiisdp220, IIIS.
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    Cited by:

    1. Kennedy, Gerard & McIndoe-Calder, Tara, 2012. "The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears," Quarterly Bulletin Articles, Central Bank of Ireland, pages 85-108, February.
    2. Cussen, Mary & O'Leary, Brídín & Smith, Donal, 2012. "The Impact of the Financial Turmoil on Households: A Cross Country Comparison," Quarterly Bulletin Articles, Central Bank of Ireland, pages 78-98, April.
    3. repec:bla:revinw:v:63:y:2017:i:1:p:95-117 is not listed on IDEAS
    4. Yvonne McCarthy & Kieran McQuinn, 2017. "Deleveraging in a Highly Indebted Property Market: Who does it and are there Implications for Household Consumption?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(1), pages 95-117, March.
    5. Cussen, Mary & Phelan, Gillian, 2010. "Irish Households: Assessing the Impact of the Economic Crisis," Quarterly Bulletin Articles, Central Bank of Ireland, pages 62-76, October.
    6. Byrne, David & Duffy, David & FitzGerald, John, 2014. "Household Formation and Tenure Choice: Did the great Irish housing bust alter consumer behaviour?," Papers WP487, Economic and Social Research Institute (ESRI).
    7. Kelly, Robert & McCarthy, Yvonne & McQuinn, Kieran, 2012. "Impairment and negative equity in the Irish mortgage market," Journal of Housing Economics, Elsevier, vol. 21(3), pages 256-268.
    8. Rock, Sarah & Ahern, Aoife & Caulfield, Brian, 2016. "The economic boom, bust and transport inequity in suburban Dublin, Ireland," Research in Transportation Economics, Elsevier, vol. 57(C), pages 32-43.
    9. Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers WP389, Economic and Social Research Institute (ESRI).
    10. McQuinn, Kieran, 2014. "Bubble, Bubble Toil and Trouble? An Assessment of the Current State of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    11. Morgenroth, Edgar, 2014. "Projected Population Change and Housing Demand: A County Level Analysis," Research Notes RN2014/2/3, Economic and Social Research Institute (ESRI).
    12. Duffy, David, 2014. "Updated Estimates for the Extent of Negative Equity in the Irish Housing Market," Research Notes RN2014/2/1, Economic and Social Research Institute (ESRI).
    13. Constantin Gurdgiev & Brian M. Lucey & Ciarán Mac an Bhaird & Lorcan Roche-Kelly, 2011. "The Irish Economy: Three Strikes and You’re Out?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 19-41, March.

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