May the Odds be in Your Favor...

If you are under water on your mortgage - in negative equity with a loan-to-value (LTV) ratio of more than 100 per cent - it is likely that you will only be able to move once you can clear your mortgage, otherwise the bank is likely to prevent a sale.If you are under water on your mortgage - in negative equity with a loan-to-value (LTV) ratio of more than 100 per cent - it is likely that you will only be able to move once you can clear your mortgage, otherwise the bank is likely to prevent a sale.

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Latest estimates suggest that as many as 340,000 home-owners, or one in five homes, are stuck in negative equity, writes FIONA REDDAN.

HINDSIGHT IS a wonderful thing. Looking back at the prices people paid for Irish property during the boom, it?s easy to see how unsustainable they were.

However at the time, despite warnings from everyone from the Central Bank to the Economist magazine that Ireland?s property market was a bubble which had to burst, banks and consumers ignored the advice and ploughed money into property, propping up prices until the inevitable collapse during 2008.

If this is the case, then people who purchased property as far back as 2003 with loan-to-values (LTVs) of more than 80 per cent, will discover that they owe more to the bank than what their house is worth.

Key to a recovery will be easy access to credit, but given how badly banks have had their fingers burnt in the crisis, it is likely that they will continue to use very strict criteria when it comes to lending for some time yet.

Whereas during the boom, banks were regularly lending six and seven times people?s salaries and offering a multiple on discretionary income such as bonuses and commission, they are now taking a much harder look at what people can afford.

Moreover, people?s income has been slashed due to pay cuts, higher taxes (more of which are on the way) and less discretionary income, while banks are also looking for much higher deposits to keep LTVs at about 80 per cent.

So if negative equity is here to stay, who is it a problem for and is there anything you can do about it?

YOU ARE HAPPY WHERE YOU ARE

If you are happy where you are living, at least for the foreseeable future, and can afford your monthly repayments, then being in negative equity should have no material impact on your life. If you consider your house as your home ? and not an investment ? then being in negative equity won?t be a problem as you will always need a roof over your head.

The last time negative equity made the headlines was in the UK in the early 1990s.

However, the market eventually turned around and people actually made profits on their properties when they sold them. So sit tight, be patient and things may improve again.

YOU WOULD LIKE TO MOVE HOUSE

If you are in negative equity, with a LTV of more than 100 per cent, it is likely that you will only be able to move once you can clear your mortgage, otherwise the bank is likely to prevent a sale. But there still are some options.

YOU WANT TO GET A LOAN

As long as you keep up with repayments on your mortgage, being in negative equity should have no impact on either your credit rating or your ability to borrow more money to finance a car purchase, for example.

WHAT CAN YOU DO TO GET OUT OF NEGATIVE EQUITY?

Instead of bemoaning your situation, you can take a pro-active approach to getting yourself out of negative equity. While in an ideal world property prices will simply rise again thus lifting people back into the black, this is unlikely to happen for quite some time.