Belfast recently played host to our inaugural UK Finance Festival. As well as the chance to experience a truly inspiring venue in an equally wonderful city, FinFest provided delegates with two days of insight, discussion and networking across the range of financial services our members offer.

I had the privilege of presenting some insights on the past, present and future of the mortgage market in Northern Ireland, and here are some of the key messages from that session.

A brief history of the 21^st century

As the financial crisis of the mid 2000s took its toll, Northern Ireland - more than anywhere in the UK - saw a profound decline in its housing market.

From 2006 to 2009 first-time buyer (FTB) numbers more than halved, whilst homemover numbers fell by nearly three quarters and remortgaging by two thirds.

However, these dramatic declines were in fact not much greater than those seen across the UK. What really differentiated Northern Ireland was the fall in prices: across the UK house prices fell around 13 per cent from peak to trough. In Northern Ireland, that decrease was over 50 per cent in every region.

Chart 1: House price change from 2007 peak

Source: HM Land Registry

Five years on from that trough, prices in Northern Ireland have recovered quite significantly, though are still some 30 per cent off the peak levels - even in the best-performing areas of the country.

A unique recovery path

The severity of the price correction in Northern Ireland shaped its subsequent recovery in a completely different way to elsewhere. As the economy and labour markets regained strength, first-time buyer numbers in Northern Ireland responded. By 2018, numbers were back at the levels seen just before the crisis - there were 10,500 loans to FTBs in Northern Ireland last year, up seven per cent on 2017.

Importantly, this renewed strength happened without many of the helping hands seen elsewhere in the UK. While co-ownership (broadly similar to shared ownership schemes elsewhere in the UK) helps to support home purchases, Northern Ireland does not have its own variant of the Help to Buy Shared Equity which has been a key element of FTB activity in the other UK nations. Also, historically, first-time buyers in Northern Ireland have relied somewhat less on the Bank of Mum and Dad than most other regions of the UK.

Instead, the comeback in Northern Irish FTBs has been powered by affordability - chart 2 shows just how profoundly the market there has evolved in the last decade, in this respect. In 2007, FTBs in Northern Ireland typically needed almost 3.5 times income to support a mortgage application, almost on a par with levels seen in London. Today, price growth coupled with stagnation in incomes over much of the intervening period are such that FTBs in London and the South of England typically borrow over four times their income; in Northern Ireland, where prices are still well below those peak levels, FTBs can borrow at just over three times income, significantly lower than anywhere else.

Chart 2: FTB income multiples

Source: UK Finance Regulated Mortgage Survey

Another area where Northern Ireland has bucked UK trends is the buy-to-let (BTL) market. Since 2015 the sector has been the subject of a raft of tax and regulatory change that have combined to dampen activity levels.

Annually, BTL purchase activity at the UK level is now down over 40 per cent from its peak in 2015. However, as Chart 3 shows, there is significant regional variation: Northern Ireland is barely down on 2015 levels. In fact, activity continued to grow there in 2015, 2016, and 2017, and it only began to show any decline last year.

Chart 3: BTL house purchase loans - per cent change from 2015 to 2018

Source: UK Finance BTL Mortgage Survey

Again, the reason for this is that dramatic fall in prices which, coupled with rental demand underpinned by a growing economy and low unemployment, mean that typical yields in Northern Ireland are one to two per cent higher than those in England. Although BTL across the UK has become a less attractive investment over the past three years, there are still attractive returns to be found for Northern Irish landlords.

A recovery not yet complete

The strength in FTBs and to a lesser extent BTL purchases has been driven by lower prices following the downturn which came before. However, homemover and remortgage numbers have been slower to recover ground. These are both sectors where existing equity plays a key role, as do patterns of past borrowing, and these both bear down now on borrowers? options.

Even with all the positive signs in lending growth, it is important not to lose sight of the risks that still exist in the Northern Ireland book.

Negative equity: Northern Ireland's bête noire

The most obvious impact of a severe house price downturn is the emergence of negative equity. It is sobering but not too surprising that around six per cent of residential mortgages in Northern Ireland currently have negative, or less than five per cent equity. This is around ten times the proportion seen for the UK overall.

Chart 4: Proportion of loans in low or negative equity, December 2018

Source: UK Finance Regulated Mortgage Survey

However, this is a big improvement on the situation a few years ago. our previous analysis estimated that by 2010-2011 over half of outstanding mortgages in Northern Ireland had negative or minimal equity and, even as recently as 2015, that stood at 15 per cent.

However, lack of equity in and of itself isn't necessarily a problem for individual borrowers, unless the house value needs to be crystallised. The key touch points for this are moving house, remortgaging or, in the very small minority of arrears cases which do not recover, repossession.

Interest-only: a rapidly shrinking risk

One of the features of the pre-crunch housing boom across the UK was a significant rise in interest-only lending, fuelled in part by borrowers looking for ways to borrow more as house prices soared and affordability became ever tighter. Northern Ireland, which at the peak had some of the highest income multiples across the UK was particularly prone to this and saw over half of all new lending in Northern Ireland on an interest-only basis.

The well-trodden history since then has been of a rapidly shrinking interest-only book, with new interest-only lending now at negligible levels, alongside lenders? pro-active strategies to ensure all borrowers with interest-only loans are fully aware of the need to repay and have viable means to do so.

As a result of these changes, the interest-only book in Northern Ireland has shrunk from over one in four of all regulated mortgages outstanding in 2015 to around 15 per cent now, only slightly above the UK average.

Beware the double whammy

Like negative equity, interest-only isn't necessarily a problem, but it can potentially become one when the borrower needs to transact. In this respect, there is a nexus of risk factors that are particularly acute in Northern Ireland. Specifically, around a third of interest-only loans there have negative or minimal equity, with over half having less than 25 per cent equity.

At these relatively low levels, borrowers have more limited options when it comes to remortgaging or moving house. In the small minority of cases where interest-only borrowers do not repay fully on maturity, these lower equity stakes reduce the repayment options available for the borrower and lender to explore. For example, trading down or conversion to a lifetime mortgage will not usually be possible.

The majority of interest-only loans have some years left to run until maturity, and so have time to address any potential repayment issues. However, ten per cent of regulated interest-only mortgages in Northern Ireland are set to mature over the next four years. For these borrowers, engagement with their lender and, if necessary, exploring suitable, viable options to repay is critical.

Room for more improvement in arrears

In line with most other UK regions, Northern Ireland has seen steady improvement in arrears levels since the recovery began. However, due to the severity of the economic and housing market downturn, Northern Ireland has elevated arrears levels relative to the wider UK. Our data, albeit on a slightly different basis to those in our published UK figures, indicates some 1.9 per cent of regulated mortgages in Northern Ireland were in arrears at the end of 2018 - compared to 0.7 per cent for the UK overall.

There is therefore room for further improvement in arrears in Northern Ireland, and the positive economic and labour market trends there are favourable for this to happen. But, pockets of risk remain, including those hangovers from lending seen before the downturn. Should the positive economic environment be derailed, the recovery could find itself unwinding quickly and these risk pockets may become more immediate.

A comeback, but what sort?

Looking at the trends in new lending, it is clear that Northern Ireland has seen an impressive comeback. The question then, is what type of comeback?

Leaving aside the recent heroics of Tottenham Hotspur and Liverpool (so as not to tempt fate, as a lifelong fan), let's consider Seabiscuit, the once-underperforming thoroughbred who, with the right jockey and training, emerged to be one of the most celebrated racehorses in 1930s America. As they approached the height of success, both horse and jockey separately fell, suffering what looked to be career-ending injuries. However, defying all logic and odds, they underwent slow and sometimes painful recoveries, eventually coming back to win the biggest races in the country.

There is a compelling comparison here with Northern Ireland, emerging from a previously sluggish housing market to be the fastest growing throughout the noughties boom, only to then experience a nasty fall. Its subsequent slow but steady recovery to become, currently, the best performing UK lending market looks to complete this analogy.

However, there are other types of comeback. For example, consider a tale from the world of cycling where a spectacular comeback from life-threatening illness to win cycling's most celebrated trophy was subsequently proven to be fuelled by performance-enhancing drugs. That comeback is now remembered only in infamy as a cautionary tale.

Finally, from the world of finance, a third type: a ?dead cat bounce?. For those unfamiliar with this turn of phrase, it is based on the premise that even a dead cat will bounce on the pavement if it falls from a sufficient height, before quickly falling back to earth. It is used for a share price or market which sees a rebound after a dramatic fall but, like the eponymous cat, the rebound is based on nothing more than smoke and mirrors - its imminent final destination will also be ground zero.

So, which is Northern Ireland - wonder horse, market-on-steroids or dead cat?

Unlike that now-infamous cyclist, we have seen that the level of demand stimuli in the mortgage market is lower In Northern Ireland than elsewhere in the UK. We can argue that the recovery is largely organic and built on solid fundamentals. Northern Ireland's recovery has been a prolonged one, more or less uninterrupted since it began around 2013. If that's a dead cat, it's a very bouncy one.

Weighing all the evidence from the data, Northern Ireland looks to be most aligned with Seabiscuit - a slow and sometimes painful recovery, but a natural one which is well-placed to continue. But, like other UK markets, external events could yet derail progress and cause historic risk factors to loom large. Northern Ireland is, by its nature, disproportionately exposed to a ?no-deal? Brexit outcome but, for now, its impressive comeback continues.