Cantillon: young borrowers feel mortgage squeeze

The latest figures on mortgages show clearly that younger borrowers – or potential borrowers – are still the ones caught in the squeeze. Not surprisingly, those who bought houses after 2007are more likely to be in negative equity, according to a Standard & Poor’s analysis of 100,000 loans. And there is a high correlation between negative equity and borrowers in default.

While the S&P analysis does not have an age breakdown, it is fair to speculate two groups were caught in particular: younger buyers making their first move into the market without equity from an existing home, and those who bought buy-to-lets at the peak of the boom, likely to be an older group, on average.

Negative equity is not necessarily an imposition if income covers repayments and there is an expectation that rising prices will allow for the homeowner to trade up after a period. But S&P estimates “average” negative equity here in houses in this category is over €50,000, a significant sum. Rising house prices could lift people out of negative equity, but after the post-crash spurt, price growth has slowed and now stalled on average and prices are falling in Dublin. Part of this is due to a fall-off in demand. The other key figures published yesterday, the mortgage approval figures from the Banking and Payments Federation, showed a 15 per cent annual fall in approvals in the three months to February, and a 27 per cent drop in approvals for first-timers. Fewer than 1,000 mortgages were approved for first- time buyers in February.

So one group – of young buyers – is locked out of the market, for the moment anyway, while another is deep in negative equity and, in many cases, in mortgage arrears.

Pressure will build on the Central Bank to change its mortgage rules. They may, indeed, need to be tweaked in some respects. However, the last thing we want is for a new group of first-time buyers to be tempted into the market at ever-increasing prices and with unsustainable loans.

But acting to avoid this by taking the heat out of the market means price growth slows and those already in negative equity will find it harder to climb out.