Are You in Denial?
Recent statistics show that over 60,000 mortgages in NI are in negative equity and under water. It is also foreseen that as interest rates are set to rise, likely next year, that a further 1 in 8 mortgages are going to become unaffordable, leaving a lot of people lurking in murky waters.
Most distressed borrowers are unable to talk about their personal debt problems, most of which is as a result of property related debt. Property related debt refers to debt incurred by credit cards or loans to meet unaffordable mortgage payments and also mortgages in negative equity.
Distressed borrowers go through a number of different key stages when they find themselves in these circumstances, but the first stage that they all must acknowledge and overcome is denial. While there is debt denial, there can be no solution.
Mr Tony Boorman of the Financial Ombudsman Service was discussing recently the mortgage repossessions statistics and he quoted that "many of the cases where people face losing their home have been heartbreaking to deal with – but could potentially have been avoided".
People need to surface from their denial. By default rather than design, most distressed borrowers are unaware of the financial options available to them. It is important when seeking advice that the borrower educates themselves on all of the options available to them. It is also essential to seek the best professional advice and get the right team behind them. Mr Tony Boorman sums this up perfectly, advising that "if money is tight, you should never be afraid to ask for help or guidance. Speak up sooner rather than later; there's a lot that can be done to help before things get out of hand".
The fact remains that the NI property market is a bit like a river. Your house, like a vessel, flows down that river in whatever direction the river takes. Without question, the Banks support the river and dictate its flow. One of the major problems at the moment is access to finance. The Banks need to strengthen their capital positions and clean up their riverbed from the reeds of legacy debt. The Banks will still dictate the river, but with clearer direction due to increased finance access and the free flowing rate of recovery.
There has been increased activity at the surface of the market. First time buyers are accounting for over 50% of new mortgage approvals with an average funding value of £72,000 in NI. It is largely reported that sales are up and mortgage lending is up, but only at this depth of the market. The fact remains that as more people are applying for mortgages, the approval rate has also declined.
With so many mortgages in negative equity and a foreseeable increase in the interest rate due to affect the ability to repay existing mortgages, if the legacy debt is not addressed and people do not obtain real solutions then the Banks of our river may just bust again.