How the major fall in house prices has impacted on homeowners in Northern Ireland

The Centre for Housing Policy recently published ‘Financial Resilience and Security: Examining the Impact of Falling Housing Markets on Low Income Homeowners in Northern Ireland’.  This report was prepared by Alison Wallace, Anwen Jones and David Rhodes. Alison Wallace has kindly agreed to summarise the report for Housing Rights Service. 

Relying on equity to finance life events

Owning a home has been a major way for low income households to acquire wealth, often their only form of savings. Researchers considered owning assets to be beneficial as people could draw upon the money stored in their home if required. People had been increasingly dipping into their housing wealth to fund home improvements or fund other consumption activities. But something else was also happening.  Homeowners had also been withdrawing their housing equity at critical life moments, at times when once we had more faith in the welfare state to support us. So if homeownership was supporting people after key life events, losing that housing wealth could have important consequences.

The fallout from the market downturn

Northern Ireland experienced the housing market crash like nowhere else in the UK, and in Europe, only in the Republic of Ireland was the scale of the downturn similar. Entering homeownership is now more affordable and accessible, but the market adjustment has left many existing homeowners in a fragile state.  By 2010/11, 14 per cent of mortgagors were in negative equity with an estimated average shortfall of £35,162 at that time, likely to have worsened between 2011 and 2013 as the market continued to fall. People who were single, couples with no children, had middle income jobs or bought smaller homes near the market peak experienced negative equity most frequently, but the poorest held the greatest estimated value of negative equity.

Claims for mortgage repossessions have remained stubbornly high in Northern Ireland - whereas in the rest of the UK they have been fallen rapidly since 2009 - and claims are more likely to result in a possession order than in England and Wales. Residential mobility has been severely curtailed as property transactions had halved since 2006/7.  And Northern Ireland has the highest proportion of people unable to remortgage, some of whom are stuck on high rates.  Despite homeowners in Northern Ireland generally engaging less than their counterparts in the rest of the UK with market risks such as remortgaging, equity withdrawal, subprime or interest-only loans, the market downturn has hit them the hardest. This is prior to any mortgage interest rate rise that surely poses a further threat.

Home ownership or asset ownership?

So what role did ownership and housing assets play in this downturn? Rather than financially vulnerable homeowners drawing upon any remaining equity to manage the recession and market downturn, homeowners who drew the most comfort from their home were the ones who valued the ‘use-value’ rather than the  ‘asset-value’ of their property. Homeowners who had incorporated their housing equity into their financial planning were understandably the most anguished by the loss of housing wealth, and the loss of wealth represented a major risk to their plans. In contrast, homeowners who valued the house as a home were receiving the same ‘services’ from their property as when they bought it and regardless of their losses were largely untouched by its fall in value.  It was, therefore, the control and security of homeownership, not the assets that it can generate, that offered the greatest succour to homeowners in volatile market conditions.

Short and longer term options to mitigate the consequences of the market downturn

In the short term, support must be provided to mitigate the consequences of the market downturn and negative equity.  This will 

• help manage mortgage debt and limit the adverse consequences of repossessions, 
• enable financially secure owners to port mortgages to new properties and
• provide access to affordable loans, not least in the wake of any rate rises.

In the long term, reasserting the ‘use-value’ of housing rather than seeing homeownership as a speculative activity would contribute to taking the volatility away from housing markets. Housing equity could be used to support welfare, without undermining the positive attributes of homeownership, by exploring new methods of land or housing taxation.

Alison Wallace and the Centre for Housing Policy

Alison Wallace has been a Research Fellow with the Centre for Housing Policy since 2001, working on a range of projects relating to low income homeownership, low cost housing initiatives, self-build housing and the sustainability of marginal homeownership. She also retains an interest in systematic review methods in social policy. Previously a social housing practitioner with many years experience, she completed her doctoral research into the cultural economy of local housing markets in 2007

OFMDFM funded the Centre for Housing Policy at the University of York to consider the impact of the 50% fall in house prices on homeowners in Northern Ireland. The report found that a significant minority of homeowners have been profoundly affected by the housing market crash, but that those who valued their house as a home - rather than for its monetary value - were largely immune from the impact of the market downturn.