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First-time buyer activity boosts Northern Ireland recovery


Published: 24 May 2016 | Author: Derek Wilson

The Northern Ireland property market, in many ways the definitive example of boom-and-bust in the UK in the last decade, is continuing to show signs of recovery.

The past few quarters have seen rises in all types of lending but what really started to push the recovery in 2013 was an increasing number of first-time buyers entering the market. Pre-recession they accounted for 32% of house purchase activity in 2007 but, by 2015, this proportion had risen to 57%.

Home-owner house purchase lending in 2014 and 2015 totalled £1.3 billion, which, while not near the peak lending level of £2.9 billion in 2006, is significantly up from the £810 million advanced in 2012. The totals in 2014 and 2015 were also the highest since 2007. Borrowing by first-time buyers in the past two years has totalled £660 million annually, at a similar level to 2007. Borrowing by home movers declined sharply during the recession but now totals £680 million, similar to 2008 but significantly below the peak level of £2.1 billion in 2006. Remortgaging has also increased in 2015, up 45% by volume and 57% by value on 2014, and now at its highest level since 2010.  

Chart 1: Total number of loans advanced for home-owner house purchase in Northern Ireland per quarter

Chart showing total number of loans advanced for home-owner house purchase in Northern Ireland per quarter

Source: CML Economics

Download the data

The continued low interest rate environment, ready availability of mortgage finance, and stronger affordability levels (compared to the UK overall) mean that consumer confidence in the housing market appears to be rising. 

The dizzying heights of 2006 and 2007 were followed by a number of difficult years but 10 years on from the housing peak, times are changing and it may finally be possible to view the market with more optimism. However, the effects of the recession, particularly the issue of negative equity, means that Northern Ireland still lags behind the rest of the UK in its recovery.

Still coming to terms with legacy issues

Negative equity has been a barrier to progress and the biggest problem in the Northern Ireland property market since the recession. According to the property debt company Negative Equity NI more than 60,000 homes in Northern Ireland were in negative equity last year.

The mean average amount held by home-owners in negative equity in Northern Ireland was £35,162 in 2014, twice that of the UK overall. At the height of the recession, the then regulator, the Financial Services Authority, suggested that more than 60% of borrowers in Northern Ireland who had taken out a mortgage since 2005 had become mortgage prisoners, with 57% unable to re-structure their debt.

These problems are improving but it has been a slow process. 

In the period of 2012/13, 1,942 repossession cases were lodged at the Northern Ireland Courts and Tribunals Service. This has fallen year-on-year to 1,100 in 2015/16. The number of cases where repossession was completed peaked in 2013/14 at 1,629, but since then has dropped significantly to 622 in 2015/16. Historically low interest rate levels and the commitment of lenders to avoid repossession wherever possible have helped keep possession rates low across the UK.

Both the government in Northern Ireland and the financial sector have worked together to try to tackle the most pressing issues in the market. The repossessions taskforce was set-up in 2014 and came up with a series of recommendations on how to improve the problems caused by negative equity and repossession.

It suggested a more comprehensive advice service for borrowers in arrears and that lenders should try to develop options like mortgage porting to help people in negative equity. Lenders were encouraged to explore innovative forbearance options being used in other jurisdictions and consider making them available in Northern Ireland. And they were encouraged to develop an assisted voluntary sale option and offer it to customers at an early stage.

The government was also encouraged to develop a Mortgage Options Hub to improve support available to those at risk, explore the feasibility of a mortgage rescue scheme in Northern Ireland, increased funding for the Mortgage Debt Advice Service and to continue to fund the Housing Possession Court Duty Scheme. The implementation period is still ongoing but the results have been positive so far.

Chart 2: Enforcement of Judgments Office, Northern Ireland courts and tribunals service repossession cases lodged and completed

Chart showing Northern Ireland repossessions

Source: Enforcement of Judgments Office, Northern Ireland Courts and Tribunals Service

House prices slowly recovering

Encouragingly, house prices have recently been rising slowly but steadily. According to the Northern Ireland Residential Property Price Index (NI RPPI), average house prices bottomed out in the first quarter of 2013 and, since then, prices have risen for twelve quarters in a row. The first three months of 2016 saw the first quarter-on-quarter decrease in NI RPPI in 3 years. There was a 1% decrease on the fourth quarter of 2015 but still a year-on-year gain of 5.9%. House prices are on average 5% higher than in the first quarter of 2005.

At the height of the market in the third quarter of 2007, the NI Residential Property Standardised Price was £224,670. At its lowest, in the first quarter of 2013, it stood at £97,428. In the first quarter of 2016, the figure was £117,524, an average of £20,000 in three years.

Chart 3: Northern Ireland residential property price index Q1 2007 - Q1 2016

Image showing Northern Ireland residential property price index Q1 2007-Q1 2016

Source: NI Residential Property Price Index

The rise of the new home-owner

The recovery process has been slow, but it has been progress nonetheless, and the CML predicts activity in the UK mortgage market to continue its modest upward trajectory through 2016 and 2017.

The annual number of residential transactions in Northern Ireland totalled just over 29,000 in 2007, but this dropped to roughly 11,000 annually between 2008 and 2011. The market has recovered from this stagnation and seen a substantial increase in sales since then. Between 2012 and 2014, the number of transactions increased each year, rising to 21,200 in 2014 and 21,171 in 2015. The first quarter of 2016 saw 5,300 sales and, given that a lull in activity in the winter months means that the first quarter is usually the slowest of the year , we expect transactions to increase further again in 2016.

The possibility of higher rates means borrowers will have to prepare, but the move to higher rates is likely be a slow progression over a number of years and the stress-testing rules introduced as a result of the mortgage market review in 2014 will help ensure loan repayments remain affordable.  

As in the UK overall, supply issues persist

Bringing about an increase in the supply of housing has been a persistent challenge facing the whole of the UK, and Northern Ireland is no different. The Regional Development Strategy identified the need in 2007 for an estimated total of 190,000 dwellings over the period 2008-2025. This equates to approximately 11,200 new homes a year. The Social Housing Development Programme has also set a target in the period of 2015/16 is to deliver 1,500 to 2,000 new social homes.  

This will be no easy task as housing supply in Northern Ireland has declined significantly since the recession. In 2005/06, more than 15,100 new private dwellings were started, but by 2013/14 this was down to 4,400. The number of completions peaked at 17,800 in 2006/07.

However, the number of dwellings in Northern Ireland is now growing again. There were 771,133 dwellings in Northern Ireland in mid-2015, a rise of 3,755 (0.5%) from 2014 (767,378). And residential planning applications in 2014-15 totalled 7,339, a rise of 16% on the previous year.

Northern Ireland currently suffers from the absence of an up-to-date development plan identifying land for homes, including social and affordable housing. This is likely to be rectified soon with many councils taking up new development plans but it has been estimated that it could take until 2020 for all authorities to adopt these plans. The recent establishment of the Housing Supply Forum, set up as part of the Northern Ireland Housing Strategy, also promises to help introduce new ways to increase housing supply in Northern Ireland.


Comparing the market to conditions in 2007 gives a distorted view of progress because the mortgage market then was anything but normal. But we have seen progress and growth since the recession. We may never get back to the levels we saw in 2007 – and may not want to – but we are reaching normality.