vulnerable households in the owner occupied sector affordability issues in northern ireland
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Vulnerable households in the owner occupied sector
Affordability Issues
in Northern Ireland
Owner Occupation in Northern Ireland 1974-2011
Source: Northern Ireland House Condition Survey
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1974 1979 1984 1987 1991 1996 2001 2006 2009 2011
0
10
20
30
40
50
60
70
80
90
100
Number of Dwellings Proportion of Stock
Average house price by region: Nationwide Index
Source: www.nationwide.co.uk/hpi/downloads/All_prop.xls
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000Q
1 19
74Q
1 19
75Q
1 19
76Q
1 19
77Q
1 19
78Q
1 19
79Q
1 19
80Q
1 19
81Q
1 19
82Q
1 19
83Q
1 19
84Q
1 19
85Q
1 19
86Q
1 19
87Q
1 19
88Q
1 19
89Q
1 19
90Q
1 19
91Q
1 19
92Q
1 19
93Q
1 19
94Q
1 19
95Q
1 19
96Q
1 19
97Q
1 19
98Q
1 19
99Q
1 20
00Q
1 20
01Q
1 20
02Q
1 20
03Q
1 20
04Q
1 20
05Q
1 20
06Q
1 20
07Q
1 20
08Q
1 20
09Q
1 20
10Q
1 20
11Q
1 20
12
NORTH YORKS & HSIDE NORTH WEST EAST MIDS WEST MIDS
EAST ANGLIA OUTER S EAST OUTER MET LONDON SOUTH WEST
WALES SCOTLAND N IRELAND UK
Average house price by region: CLG Index
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
Jan-
05M
ar-0
5M
ay-0
5Ju
l-05
Sep
-05
Nov
-05
Jan-
06M
ar-0
6M
ay-0
6Ju
l-06
Sep
-06
Nov
-06
Jan-
07M
ar-0
7M
ay-0
7Ju
l-07
Sep
-07
Nov
-07
Jan-
08M
ar-0
8M
ay-0
8Ju
l-08
Sep
-08
Nov
-08
Jan-
09M
ar-0
9M
ay-0
9Ju
l-09
Sep
-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep
-10
Nov
-10
Jan-
11M
ar-1
1M
ay-1
1Ju
l-11
Sep
-11
Nov
-11
Jan-
12
UK NI England Wales Scotland
NI Quarterly House Price Index: Average House Price 2003-2011
0
50,000
100,000
150,000
200,000
250,000
300,000Q
1 20
03
Q3
2003
Q1
2004
Q3
2004
Q1
2005
Q3
2005
Q1
2006
Q3
2006
Q1
2007
Q3
2007
Q1
2008
Q3
2008
Q1
2009
Q3
2009
Q1
2010
Q3
2010
Q1
2011
Q3
2011
Average House Price (£)
Source: Quarterly House Price Index
House Price Index/Retail Price Index
What the figures show… Post-boom market adjustment is well advanced and Northern
Ireland is in a more realistic position in terms of economic and household income fundamentals.
…and hide Headline figures hide local variation: stronger performance in
Belfast and wider BMA. The situation is relatively positive for first time buyers on a price-
to-income ratio, but requirements remain for higher deposits. Official base rates seem set to remain low, providing some
comfort for those who have already purchased with a mortgage, but economic conditions, reductions in real household income and high levels of indebtedness present challenges, and ‘the level of arrears is significantly higher in some parts of the UK, for example in Northern Ireland, Wales and the North of England.’ (FSA Retail Conduct Risk Outlook 2012)
Negative Equity
FSA Prudential Risk Outlook 2011: Based on residential mortgage sales between 2005 and
2010, NI had the lowest median loan-to-value at origination of all 12 UK regions (60.3%). However…
The estimated rate of negative equity (11.2%) was the highest in the UK. The UK average was 5.3%.
The indicators on ‘vulnerability to fiscal tightening’ showed areas of concern for Northern Ireland’s economy: e.g. 30% of total employment at Q3, 2010 was in the public sector (UK: 21%).
HML analysis (Sept ’11): A further 10% fall in house prices could see 30% of all borrowers in NI in negative equity; also issue of age group affected.
Negative Equity
The scale of house price decline since 2007: Speaking on BBC Northern Ireland’s Spotlight, Professor Michael Moore of Queen’s University suggested that many households will be in negative equity for the full term of their mortgage. “There is going to be no recovery in the lifetime of any of the mortgages that currently exist”.
CML, August 2011: Of an estimated 826,800 negative equity cases in the UK, around 44,000 were in NI, which had the highest estimated negative equity rate of all regions (28% of all active mortgages advanced since 2005).
Actions and Orders for Possession
Source: Northern Ireland Courts and Tribunals Service
0100200300400500600700800900
1,0001,1001,200
Q1
2003
Q2
2003
Q3
2003
Q4
2003
Q1
2004
Q2
2004
Q3
2004
Q4
2004
Q1
2005
Q2
2005
Q3
2005
Q4
2005
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Actions for Possession Possession Orders
Affordability Index
Uses a typical bank/building society annuity formula towork out the maximum price that a household with amedian household income could afford to pay, based onassumptions about a number of variables:
Maximum 35% of household income spent on mortgage costs
‘Affordable’ home: price equivalent to first quartile (25th percentile) price of all homes sold during given period.
Typical interest rate: 3% (4.5% in 2008 version) Loan-to-value ratio: 90% (95% in 2008) A 25-year repayment period (unchanged)
The ‘Affordability Gap’
An indicator of the degree of difficulty experienced byfirst time buyers in repaying their mortgages: a negative figure indicates affordability problems.
2008 2010
Median Income (£) 17,530 21,500
House price (Quartile 1, £) 149,950 100,000
Affordable price (£) 96,828 147,091
Affordability Gap -53,122 47,091
Affordable (%) 3 58
Policy Responses
Co-Ownership: Northern Ireland’s regional shared ownership scheme. Increased funding from the NI Executive to enable 600 purchases annually, to 2014/15.
Pre-action protocol on possession proceedings: introduced for all mortgage possession cases in NI October 2009.
Mortgage Debt Advice Service: Initially a two-year pilot from May 2009, 755 clients sought advice through the service and 180 received advocacy and court representation which helped prevent homelessness. Funding was subsequently secured to deliver the service until March 2015.
Policy Responses
Mortgage Rescue Scheme Out to consultation 2008; advice service and mortgage
to rent/mortgage to flexible tenure (but not for households in negative equity).
2008-2011: Ministers for Social Development bid for funds to launch financial rescue element, without success.
June 2011: Minister for Social Development “support[s] the ideals of a mortgage rescue scheme for Northern Ireland”, but emphasises that a full scheme: could cost £8.25 million over a two-year period; might only enable 72 ‘rescues’; and would impact on other budgets (e.g. health).
March 2012: Reports that Minister has no plans to introduce a mortgage rescue scheme: it would not help enough people and would be too expensive to run.
“Headwinds”
Unprecedented house price growth and subsequent sharp decline has left a legacy of negative equity among households who purchased at the height of the housing price boom.
On a price-to-income basis, affordability has improved, but in uncertain economic times, the market remains slow and many households are taking a cautious approach.
More significant level of arrears and possessions than other UK regions (HML forecast: repossession rate of 1.08% in NI in 2012, compared with 0.25% in the South West of England).
For more information:
Quarterly House Price Index: www.nihe.gov.uk/index/corporate/housing_research/completed/house_price_index.htm
House Prices and Affordability Report: www.nihe.gov.uk/house_prices_and_affordability.pdf
Research UnitNorthern Ireland Housing Executive
The Housing Centre 2 Adelaide Street
Belfast BT2 8PB
www.nihe.gov.uk