Irish Consumer Debt

We Irish have borrowings of €147 billion in mortgages held by 645,000 mortgage holders, and €34 billion in other borrowings. This does not include the personal liabilities of small business owners’ personal liability. The most indebted group are under 40s with children.

With property price falls of 40% from 2007 levels, about 196,000 mortgages are in negative equity including about 125,000 first time buyers. – ESRI October 09 –

If the drop in values gets to 50%, the number in negative equity would be 350,000

Ireland may be heading for a debt crisis with household incomes down 10%, unemployment up to 430,000 when variable rate mortgages may be increased by 1%.

The effect of a 1.5% mortgage increase on an average dual income household is a reduction of 8.5% in disposable income.

So an increase in mortgage rates may be socially catastrophic. Banks have increased bad debt provision by 300% since 2007. 6,400 people stopped paying their mortgages over one year ago.

Possible solutions for broke householders are (1) Government to take equity in house (2) govt takes outright ownership and lease back to residents with rent payments coming off the loan. (3) reduced interest rates and extended mortgage periods can also be used to avoid house repossessions.

As I wrote before, I tried unsuccessfully to get Richard Bruton to adopt a policy of a 15% write off in recent mortgages of first time buyers as part of the NAMA process. He said that this would cost €7 billion and was not a wise move. I still disagree. I put people before banks. Minister Brian Lenihan was happy to handout €7 billion to the banks in overpayment on market value. However, it may be better to be more conservative and run with a government equity stake in houses and see how that works socially.

This is not as crazy or as unusual as it seems. We used to give grants to first time buyers of new properties and we give interest relief now on mortgages which costs millions.