PropertyInvesting.net: Property Investment News

Patrick Collinson

It was a luxury house in a good area, but it was on the market at £695,000 so David Callaghan, 43, reckoned that after negotiating hard to bring it down to £650,000 he had landed a bargain. The property market was roaring away and he was convinced the price would be £750,000 in a year’s time. So he cobbled together the money, stretching himself to the limit with a huge £485,000 mortgage, plus his deposit.

But this was autumn 2007, and this was Northern Ireland. For a brief moment in time a province that was a byword for violence transformed itself into the world’s most sizzling property market. Builders who were knocking out small estates of semis initially priced at £120,000 were selling them for £200,000 on completion six months later. Investors from the Celtic Tiger south were driving north and snapping up anything they could lay their hands on. Banks were falling over themselves to lend.

To Callaghan, and thousands of others like him, it made sense to take the largest mortgage possible. He even managed to borrow some other cash and invested in a one-bed buy-to-let in Belfast.

Then the financial hurricane struck, and with peculiar ferocity in Northern Ireland. Where David bought, just outside Newry, midway between Belfast and Dublin, is perhaps the part of the UK that has suffered the biggest property boom and bust ever recorded. In March, David put the house on the market and it eventually fetched just £240,000 – resulting in a loss of £410,000.

“We’ve been wiped out,” says Callaghan, who is married with two young children. “We gathered everything together we could and sold it. We’ve sold our car, we’ve sold everything – and managed to get £17,000. So the bank has taken that, as well as the £240,000, and we now have nothing.”

He had to sell because his income has fallen heavily since 2007 and he has been struggling to pay the mortgage and childcare. “I was getting ill with it, and my wife was stressed and it was affecting our marriage. It was hanging over us like a cancer. I was having to borrow from her dad. Now we’re renting, and are much, much happier. I feel like I’ve got out of jail.” The buy-to-let in Belfast has also gone, but it wasn’t as bad an investment as the house in Newry. It only fell in value by half, not two thirds.

Claire Dempsey is another victim. She was a single woman in her mid-20s earning not much more than £20,000 a year when, in 2006, her bank offered her an interest-only loan of eight times her income. She scraped together another £23,000 from her savings and from her parents to buy a small semi for a total of £183,000. After falling pregnant and being unable to maintain the mortgage, she eventually sold it for just £65,000.

A recent tepid recovery in prices in Northern Ireland, largely in Belfast, has done little to remove the blight of negative equity. According to HML, a subsidiary of Skipton building society that handles mortgage administration for many other lenders, the number of London homes where the mortgage is higher than the value of the property is just 219 – down 99.8% in the past four years. But in Northern Ireland the figure has actually gone up since 2011, from 44,000 to more than 56,000 households with mortgages.

At Digney Boyd, one of Newry’s biggest estate agencies, director Bronagh Boyd remembers one of the fanciest properties to hit the market in 2006: a 7,000 sq ft new-build (a typical semi is 1,000 sq ft) that the developer wanted to market at £980,000. She refused to value it above £650,000. But eventually it did sell, for more than £900,000, paid for by a mortgage Boyd understands was in excess of £800,000. And now? “We sold it recently for £225,000,” she says.

The peak of the boom was in 2006. “We were doing 10 surveys a day. I was running from house to house like Anneka Rice. Now we mostly do what we call ‘shortfall sales’,” Boyd says. “We have people coming in who bought for, say, £200,000, and we say your house is worth £85,000. I’ve seen people start crying.

Boyd admits she was swept up like everyone else, recently having sold her own home at half the price she originally paid. “We all went crazy. We all started to talk in millions of pounds. Now we know the value of £100.”

Yet visitors to Newry aren’t greeted by a scene of economic desolation. The city, once in the heart of “bandit country” during the Troubles, was one of the biggest beneficiaries of the peace dividend following the 1998 Good Friday agreement.

Even on a drizzly Wednesday in August its high street is bustling, largely free of the boarded-up sites, betting shops and pound stores common in the dilapidated centres of many English towns. Major retailers have invested in huge stores on the edge of town to entice cross-border shoppers from the south. Sterling’s rise over the past year has largely killed off that trade – there are virtually no Republic-registered vehicles in the car park at the Quays mall – but the shops are instead full with visitors from across the region.

A local pharmaceutical company, Norbrook Laboratories, has become the poster boy for Northern Irish corporate success, now employing 1,500 people in the area.

Another homegrown Newry success, software company First Derivatives, expects to add a further 500 jobs over the next year. On the streets, local people say that if you want a picture of economic bleakness go to Dundalk, on the other side of the border, not Newry.

So why have property prices crashed so much, and stayed low since?

Estate agents and economists are united in pointing the finger at the banks and their lending practices. While eight times income was rare, says Boyd, six or seven times wasn’t. The British banks were joined by the Irish banks, then American sub-prime lenders, in flooding buyers with easy finance. “If I were one of the banks lending at the time, I deserve to lose my shirt. They were completely reckless, not just with their shareholders’ money, but also their customers’ lives,” says David, who borrowed from one of the major UK high street banks.

David Callaghan (like Claire Dempsey, not the interviewee’s real name) prefers to remain anonymous in part through embarrassment at what happened, and in part because he is in the final stages of extracting himself from his debts.

A successful “shortfall sale” leaves the seller virtually penniless, but not bankrupt and without their credit record shredded to pieces. Several companies have now sprung up to handle negotiations between homeowners and their lenders over unmanageable mortgage debts.

In Dempsey’s case the debt shortfall was £95,000. Conor Devine, who runs brokerage Negative Equity Northern Ireland, says he was able to prove to the bank that Dempsey had no other assets.

Like the Callaghans she scraped together what she could – it added up to £3,000 – and the bank accepted that as full and final settlement of the debt. She can’t be chased for it in future, and the debt has been cancelled on her credit record. Devine says he has helped write off £12m in mortgage debts over the past six months. Crucially, the borrower has to prove they have no other assets.

Bronagh Boyd takes a similar approach. “You can’t take feathers off a frog,” she says. “All the lenders here now have shortfall teams. But you have to make sure you get the agreement before you sell.”

Many fear that the first rise in interest rates, largely because of booming conditions in London and the south-east, could finally pull the rug from many local households struggling in negative equity. Then there’s the wider problems of the province’s economy. Around 70% of it is dependent on the public sector, and austerity cuts are expected to bite hard. But Dr Conor Patterson, who runs Newry and Mourne Co-operative and Enterprise Agency, says that his biggest fear is Britain’s potential exit from the EU.

“Newry hugely benefitted from the peace agreement. If there’s a Brexit there will have to be people controls at the border, ID checks and so on. For 60% of small- and medium-sized businesses here, their primary market is the Republic. People are only beginning to realise what an exit could do to the local economy.”

Ferryhill, County Durham

Back in November 2007 the average property in County Durham was worth £113,168, writes Emma Lunn. Now it’s just £80,811, which is 29% less, according to the Land Registry