MORE than half of those who climbed onto the property ladder between 2005 and 2007 will fall into negative equity by the end of next year if house prices continue to drop, according to new research.

Dermot O’Leary, chief economist at Goodbody Stockbrokers, expects by the end of 2009 house prices will have fallen 30% from their peak in February 2007.

This would leave some 170,000 with mortgages worth more than the value of their homes, with those who bought between spring 2006 and summer 2007 at greatest risk.

A sharp slowdown in property sales has made it difficult to gauge the scale of the slump, but O’Leary believes values are already down 20%. Sherry FitzGerald, the estate agency, said prices have dropped by 17% nationally since June 2006, and by more than 23% in Dublin.

Negative equity is a big problem for borrowers who want to move home or who fall into mortgage arrears, because they would be forced to sell at a loss.

“It’s an issue if you’re no longer able to pay the mortgage because you can’t afford to sell,” said O’Leary. “It’s a problem for those who are losing their jobs and it’s going to become a bigger problem as unemployment rises.”

More than 6% of the workforce is already unemployed and O’Leary expects this will grow to 8% next year.

Those who borrowed most or all of the prices of their homes are the most exposed.

One in three first-timers used 100% mortgages to get on the ladder in 2006, according to the Department of the Environment. This dropped to 26% last year as a slowing market caused banks to restrict availability of these loans. Lenders have now abandoned them completely.

Existing homeowners also borrowed heavily to climb the ladder during the boom. Some 17% of those who traded up in 2005 borrowed more than 90% of the cost of their new homes. Even as the market began to cool last year, 15% of those trading up borrowed more than 90%.

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