Negative equity mortgages are not the way to go

Ireland’s leading housing charity has expressed concern at recent speculation that negative equity mortgages could soon be introduced by some Irish banks. Respond! Housing Association insists that irresponsible lending and the introduction of 100% mortgages are some of the reasons 350,000 homeowners could be in negative equity by the end of the year. The housing charity maintains the Financial Regulator Matthew Elderfield should resist any attempts by banks to effectively introduce up to 125% mortgages now.

According to Respond! spokesperson Aoife Walsh we only need to look to the UK to see the experience of some banks that introduced negative equity mortgages, in particular Northern Rock and Nationwide.
“Northern Rock was widely criticised for introducing its ‘Together Mortgage’ that allowed customers to borrow as much as 125% of a property’s value. When the property bubble burst there, the bank was left with high levels of arrears and repossesions and subsequently had to rescued by the Bank of England in 2007. The last thing we need or want is a repeat of that here. More responsible lending with vigorous stress testing should be encouraged, not high loan to value mortgages that are higher risk for the banks and ultimately the Irish taxpayer.”

Respond! also questions if banks will charge higher interest rates to those receiving negative equity mortgages? The housing charity is calling on the Financial Regulator to closely monitor any new mortgage lending products introduced by banks as more than 60,000 homeowners are already struggling on a monthly basis with repayments.

“The last thing we need is a new, false housing boom. It is generally accepted that property prices still have further to go and we would be concerned about the effect a further drop in house values would have on those in receipt of negative equity mortgages. Are these mortgages more about banks charging higher rates than assisting homeowners?” asks Walsh. “Considering the vast sums of taxpayer money already used to recapitalise Irish banks, any risk taking on the part of these banks should be discouraged at all costs. The taxpayer cannot be asked to bail out Irish banks again because of irresponsible lending” concluded Walsh.