Seamus has an introduction to this quarter’s DAFT report on asking prices for property across the country. This report is compiled by Ronan Lyons. The introduction is worth a read, with a key piece being:
A house in a particular estate may have sold for €350,000 because one bank was willing to lend one purchaser the money for such a transaction. The other banks provided similar mortgages to other buyers on the basis that the first transaction provided the “market value”.
The price reflects the amount of money that someone is willing to pay for a good. Value reflects the benefits that a good can offer. In most cases, these are the same but this does not have hold. Residential property provides accommodation service. As a result of the madness of the boom, we now have thousands of households paying a price for accommodation far in excess of the value they are receiving.
This reality must be addressed and the burden of the mortgage debt is largely a function of the actions
of the banks so they must offer what ever forbearance is necessary to assist households. The banks must also realise that there are thousands of homeowners who will never be able to repay the huge loans they issued to them. It is very difficult to gauge the number of unsustainable residential mortgages that need to be ended but it could be anywhere between 15,000 and 30,000. These are households who are in deep mortgage arrears and negative equity and have little prospects of recovery.
The banks must face up to losses that exist on these loans. The homeowners must accept that they will never be in a position to repay the loan and that by surrendering the property they will be able to make a fresh start. Households with unsustainable mortgages must be allowed to do so.