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