# Joint incidence of Negative Equity and Mortgage Arrears



## Brendan Burgess (18 Oct 2011)

If a borrower is in arrears, but has positive equity, it's a problem, but not a huge problem. 

If a borrower is not in arrears, but is in negative equity, it's a problem, but not a huge problem. 

It's a huge problem if a borrower is in arrears and negative equity. 

I had assumed that most people in arrears were in negative equity, but a paper published by Tara Calder of the Central Bank provides new data on this. 

[broken link removed]  Section 5.5



> The situation is more serious for the 24,000 borrowers who have accumulated at least three months of unpaid mortgage repayments on their mortgage loans. Of this group, it is the 11,600 borrowers who are simultaneously at least three months in arrears on their mortgage loans
> and in negative equity that are the most troubling cases, from the borrower, lender and policy perspective.


11,600/24,000 =  48% 

*At the end of December 2010, 48% of mortgages provided by the Irish covered institutions to  owner occupied and residential investment properties which were in serious arrears were also in negative equity. *

However, as of October 2011, more people are in arrears and house prices have fallen further, so a greater proportion of the sample is in negative equity. 

I don't know how to estimate this, but let's say that as of now, 75% of those in arrears are in negative equity. 

Of course, negative equity varies from a LTV of 101% to 200%. Low levels of negative equity are not a serious problem. 

*My best guess is that as of October 2011, 50% of those in arrears of at least 90 days on their home loans are in at least 125% LTV. *
If anyone has a better way of estimating this, I would be very interested in seeing it. 
*
With around 50,000 homes in arrears, that means that there are about 25,000 families in serious arrears and serious negative equity.*


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## Brendan Burgess (18 Oct 2011)

*Potential problems with the data
*1) It underestimates house price falls 


"By mid 2011, Irish house prices were almost 43 per cent below their peak levels of early 2007."


I think that most people would disagree with this   estimate and assume that average house prices have fallen by between  55%  and 60%

2) It uses arrears levels as of Dec 2010. The 90 day plus arrears levels have risen from 44,000 to 55,000 i.e. by 25%

3) It refers to the covered banks only. The arrears levels in the foreign owned banks may be higher. 

4) it combines homes and residential investments.  The problems for residential investments would be higher

5) This refers to 90 days plus arrears only.  If those in arrears of less than 90 days were included, the figure would be higher.

6) This refers to arrears only and doesn't cover the 40,000 mortgages which have been rescheduled but which are not in arrears.


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## RIAD_BSC (19 Oct 2011)

Brendan Burgess said:


> It's a huge problem if a borrower is in arrears and negative equity.
> 
> I had assumed that most people in arrears were in negative equity, but a paper published by Tara Calder of the Central Bank provides new data on this.
> 
> ...


 
Brendan, unless I've made a horrid mistake, your interpretation of the figures is way off. The Central bank report is saying that 48% of people who are in arrears are also in NE. It is not saying that 48% of all mortgages are in both arrears and NE, as you state above.

24,000 are in arrears... of these, 11,600 are in NE. Hence the 48%. I can't see where you got your assertion that 48% of *all* mortgages are both in arrears and NE.


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## Brendan Burgess (19 Oct 2011)

RIAD_BSC said:


> Brendan, unless I've made a horrid mistake, your interpretation of the figures is way off. The Central bank report is saying that 48% of people who are in arrears are also in NE. It is not saying that 48% of all mortgages are in both arrears and NE, as you state above.
> 
> 24,000 are in arrears... of these, 11,600 are in NE. Hence the 48%. I can't see where you got your assertion that 48% of *all* mortgages are both in arrears and NE.




Hi Riad

Yes, that is exactly what I meant to say.  I had not meant to suggest that 48% of borrowers were in arrears. Thanks for pointing it out.

I have now amended it to read as follows:

"*At the end of December 2010, 48% of mortgages provided by the Irish  covered institutions to  owner occupied and residential investment  properties which were in serious arrears were also in negative equity. "*


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