Housing Bubble Bursting

SimpleSam06

patrickolee wrote:

The reason they have given him a discount on his payments is that he represents less of a risk.

I have to say, I can't see any reason for a lending institution (which is a for-profit business) to lower its profit margin unless there was a risk of a competitor taking that business away. It just wouldn't make any sense. Still, on that footing, if thats what they are doing, it does lower the longer term cost of paying for a house. At what point does a lender re-evaluate their profit margin? 30% paid off and positive equity?

iguana

Deleted User wrote:

The valuation was purely a means to lower my interest rate, meaning I could easily 'overpay' my mortgage and therefore take years off the term.
I don't want to sell, hence my original point that negative equity is irrelevant to me because of that.

But if prices do drop significantly can't the bank insist on another valuation, value it at lower price and stick you on a higher interest rate? It's got to work both ways.

SimpleSam06

iguana wrote:

But if prices do drop significantly can't the bank insist on another valuation, value it at lower price and stick you on a higher interest rate? It's got to work both ways.

That could get very nasty, given the way things are going...

SkepticOne

On the issue of lower margins for those with significant equity, a few years back Bank of Scotland shook up the market by offering lower rates but only for those with (IIRC) above 40% equity in their homes. Less risk gimeant they could afford lower margins in order to get the business. Higher risk such as sub-prime entails higher margins.

patrickolee

Sigh, I give up. post deleted

SimpleSam06

patrickolee wrote:

Anyone hear a credibility bubble burst? I'm guessing you don't have a mortgage Sam?

Er, the full sentence was

I have to say, I can't see any reason for a lending institution (which is a for-profit business) to lower its profit margin unless there was a risk of a competitor taking that business away.

Why did you feel the need to cut that short? And how exactly does that sentence affect my credibility?

iguana

iguana wrote:

But if prices do drop significantly can't the bank insist on another valuation, value it at lower price and stick you on a higher interest rate? It's got to work both ways.

No, it doesn't work that way iguana.
The bank didn't insist on a valuation, I knew I'd built up equity and could access a lower rate. No bank is going to shout that you can save money, it's up to the borrower to educate themself.

So I approached the bank on the premise that there's plenty of other lending institutions out there offering lower loan-to-value ratio interest rates...

Seriously though, how many of the regular posters on here have a mortgage, or ever had one?
I'm just curious.

Gurgle

SimpleSam06 wrote:

I have to say, I can't see any reason for a lending institution (which is a for-profit business) to lower its profit margin unless there was a risk of a competitor taking that business away.

Theres always a risk of a competitor taking the business away.

AFAIK some lenders are still paying legal fees for customers to switch their mortgage.

Their 'perfect' customer has significant equity in their home, which is the situation of the majority of people in Ireland. If you only owe 70% of the property value, then their loan is completely safe.

Lenders don't base their financial decisions on the predictions made in this thread.

Favourite Slave wrote:

Seriously though, how many of the regular posters on here have a mortgage, or ever had one?

I think you'll find a lot of them are waiting for prices to return to the sensible and sustainable levels of 1986 before they invest in property.

And its gonna happen any day now

chump

Deleted User wrote:

Seriously though, how many of the regular posters on here have a mortgage, or ever had one?
I'm just curious.

Why don't you create a thread and ask people there. This thread is about a property bubble bursting or not - the status of the posters should bear little relevancy as it should be the content and execution of the arguments that matter.

SimpleSam06

Gurgle wrote:

I think you'll find a lot of them are waiting for prices to return to the sensible and sustainable levels of 1986 before they invest in property.

Well to put it another way, if the only people who were allowed to comment on the housing bubble were the ones up to their nostrils in a mountain of ever-heavier debt, it would become something of a one sided discussion, no? In fact you might say they are the least qualified, since they bought the party line and made the problem worse.

Not that we don't appreciate the odd snipe from the wings by the few remaining bulls, the only worse thing than a weepy mortgagee hug-fest would be a bear echo chamber.

Gurgle wrote:

And its gonna happen any day now

It started happening over a year ago. Or are we still landing on a soft blanket of government pillows, somehow?

patrickolee

Sigh, I give up. post deleted

SimpleSam06

patrickolee wrote:

We found out earlier that one did not know about the widespread lenders practice of offering better rates based on reduced risk! And then when it was explained to him, refused to accept it.

Er, I accepted it alright, just questioned your notion of getting "rewarded" for market forces beyond your control. The bank manager is not your friend. The company that you owe hundreds of thousands of euros to - its not your friend either. Real Estate Agents are not your friend.

My point was that they wouldn't be dropping their profit margins unless they were afraid competition would take away their business. I have to say that in 2000+ posts in this thread alone, I hadn't heard of it. Its a useful and valuable piece of information, and raises a similar question about negative equity. If you are in negative equity, ie, high risk, whats to stop a lender increasing their rates, because they know no one else will touch you? I mean what are you going to do, refuse to pay? You agreed to variable rates, and you get what you signed up for.

This notion of not asking questions when you don't know something is the hallmark of the ignorant, and produced the property bubble. I mean, do you really think you scored a point or something?

patrickolee wrote:

A fairly basic and fundamental principle of any market, never mind the obvious housing/mortgage market.

Shelling out "rewards" by cutting your profit margins for anything isn't part of any business model. If you think that to be the case, I'd love to buy something from you.

patrickolee wrote:

What else don't they know? Are they just uninformed whiners hoping blindly for a crash and echoing whatever they hear or read which supports their blind hope. Or are they people who know about the market and are making reasonable comment about its current state?

I'll say it to you again Patrick: You go put all your money in property, and leave us to our dodgy figures, and we'll meet back here in three years to see how we all got on. Hows that sound?

I wasn't trying to get anyone's back up asking who actually has any experience (positive or negative) of a mortgage. I'm curious more than anything else.

I also think it's worth making the point that not every recent buyer is "up to their nostrils in a mountain of ever-heavier debt" as seems to be the general presumption here.
There's no question that there has been a slowdown in the property market and of course there are some people feeling the squeeze (just as there are plenty up to their neck in credit card/car loan debt) but as many if not more are doing just fine.

Anyway, I leave you guys to it.

information

SimpleSam06 wrote:

If you are in negative equity, ie, high risk, whats to stop a lender increasing their rates, because they know no one else will touch you? I mean what are you going to do, refuse to pay?

Yes, thats what happens people refuse to pay and hand the keys to the bank and leave.
Anyone with knowledge of property crashes would know this is what happens

SimpleSam06 wrote:

Shelling out "rewards" by cutting your profit margins for anything isn't part of any business model. If you think that to be the case, I'd love to buy something from you.

It is part of nearly every successful business model.
It is used to attract and retain valuable customers.

chump

patrickolee wrote:

I think it's a fairly reasonable question to try and establish poster credibility. We found out earlier that one did not know about the widespread lenders practice of offering better rates based on reduced risk! And then when it was explained to him, refused to accept it. A fairly basic and fundamental principle of any market, never mind the obvious housing/mortgage market.

What else don't they know? Are they just uninformed whiners hoping blindly for a crash and echoing whatever they hear or read which supports their blind hope. Or are they people who know about the market and are making reasonable comment about its current state?

Probably a bit of both I'd say.

Ah right - so if someone has a mortgage it means they're informed, credible and reasonable.

Good post

daveirl

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ntlbell

daveirl wrote:

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The cayman islands?

iguana

Deleted User wrote:

No, it doesn't work that way iguana.
The bank didn't insist on a valuation, I knew I'd built up equity and could access a lower rate. No bank is going to shout that you can save money, it's up to the borrower to educate themself.

So I approached the bank on the premise that there's plenty of other lending institutions out there offering lower loan-to-value ratio interest rates...

Have you got that as a fixed rate, variable or tracker? If it's either of the latter the bank can change those depending on their terms or changes to the ECB. You can of course change borrower but in a situation where property has come down in price you won't have the same negotiating power.

If it's fixed your deal is safe for the lenght of the term but when it ends it will be up to the banks what deal they will make with you.

Deleted User wrote:

Seriously though, how many of the regular posters on here have a mortgage, or ever had one?
I'm just curious.

Quite a lot of people do and there are a number of threads including one sticky where people have discussed it. Thinking that a price drop is imminent/happening isn't the sole reserve of people who can't afford a house.

dochasach

Deleted User wrote:

I wasn't trying to get anyone's back up asking who actually has any experience (positive or negative) of a mortgage. I'm curious more than anything else.

I also think it's worth making the point that not every recent buyer is "up to their nostrils in a mountain of ever-heavier debt" as seems to be the general presumption here.
There's no question that there has been a slowdown in the property market and of course there are some people feeling the squeeze (just as there are plenty up to their neck in credit card/car loan debt) but as many if not more are doing just fine.

Anyway, I leave you guys to it.

I agree that there may be a tendency for mortgage owners to talk up the value of their financial holdings and renters to express hope that the housing market market will eventually return to a sensible multiple of average income so they and their children aren't priced forever out of the market.

I held a 15-year mortgage for nearly a decade, paid off a good portion of the loan. I was a landlord for a few years, I sold up and if you ignore tax, mortgage interest, maintenance and inflation (as most specuvestors do), I made a 40% profit and more importantly, lived in a solid house in a safe neighborhood during those years.

But when I turned from seller to buyer and saw the insanity of the housing market here, I decided to sit this one out. Sure I missed a couple of years of potential huge gains (which would have only been realized if I had sold during those crazy years). I also missed out on the runup of pets.com, beanie babies and Florida time-share condos. It turns out I sold within a few months of the peak of my home market. Hindsight is wonderful, but there is a risk and cost to anchoring yourself to a location when your job might move to Prague or Bangalore tomorrow morning. There is also a cost in time, quality of life and personal risk associated with moving to the dodgy far-flung estates where I could afford to buy vs the safe and enjoyable neighbourhoods where I can afford to rent. So add me to the list of those who have owned a mortgage and yet who believe this market has gone south. Mizu already had a survey thread for this topic and surprisingly, owners seemed almost as likely to be bearish on Irish property as renters.

iguana

information wrote:

Yes, thats what happens people refuse to pay and hand the keys to the bank and leave.
Anyone with knowledge of property crashes would know this is what happens.

That will only happen here if the sale price of the house matches the debt. If not people will swiftly find that the bankruptcy laws in Ireland are very, very strict.

The_Conductor

iguana wrote:

That will only happen here if the sale price of the house matches the debt. If not people will swiftly find that the bankruptcy laws in Ireland are very, very strict.

Yup - its not like in the States or even in the UK, where you can declare yourself bankrupt and simply walk away from the debt. Here you can have your future earnings garnished by court order and a restriction put on any credit agreements you are allowed to enter into in the future. The maximum you are allowed for a credit card allowance is only 500 Euro. Bankruptcy laws in Ireland are nothing to be sniffed at.......

To be quite honest you could argue that they are overly in favour of the creditor- to the extent that its virtually impossible to ever dig yourself out of the hole you are in. Perhaps its a future area that may be open to reform, as a lot of people even those with low levels of personal debt, increasingly find themselves in difficulty.

SimpleSam06

information wrote:

Yes, thats what happens people refuse to pay and hand the keys to the bank and leave.
Anyone with knowledge of property crashes would know this is what happens

Anyone with any knowledge of mortgages should know that you can't just hand over the keys to the bank if your house value is less than what you owe. You pay what you owe.

information wrote:

It is part of nearly every successful business model.
It is used to attract and retain valuable customers.

The only time businesses do this is whats known as a "loss leader", where you offer a lower price on one product in the hope that customers stay and buy more. That has nothing to do with the lending business however.

PS: We'll miss you Patrick! I guess there were one too many jibes about how he invested all his money in property... Maybe he really did! :eek:

patrickolee

SimpleSam06 wrote:

PS: We'll miss you Patrick! I guess there were one too many jibes about how he invested all his money in property... Maybe he really did! :eek:

smccarrick wrote:

Guys, usual forum rules apply- feel free to attack the post, but not the poster. Anyone breaking this rule will be banned from this forum.

FYI Sam I don't have any money invested in property and nor will I. All my investments are equity based... good luck to ya buddy.

daveirl

daveirl wrote:

This post has been deleted.

Why to my parents' house, of course!

Am I, my extended family and friends all unsual in that we'll inherit property?

Beta2

SimpleSam06 wrote:

The only time businesses do this is whats known as a "loss leader", where you offer a lower price on one product in the hope that customers stay and buy more. That has nothing to do with the lending business however.

I think you may have got your wires crossed simple sam. An example of what information is on about is :

Today I got a renewal quote for Quinn-Direct, I've been a customer of theirs for 3 years, their quote was 600euro. I shopped around and found hibernian were quoting 520euro for the same sevice. I then rang quinn-direct to tell them i was leaving and they reduced their original quote to 500euro, to keep my custom.

With it being so easy to switch banks / mortgage providers, any time you're in a position to leave my current mortgage provider for a better deal, you should inform them you intend to leave and there is a very good chance they'll try to match or beat what their competitor is offering.

If you have a low loan to value ratio and another mortgage provider is offering a deal on low loan to value ratio mortgages, then you are in a bargaining position with your current mortgage provider.

Its fairly common in a lot of businesses.

I think everybody should shop around for a better mortgage deal every couple of years.

SimpleSam06

Beta2 wrote:

I think you may have got your wires crossed simple sam. An example of what information is on about is...

...If you have a low loan to value ratio and another mortgage provider is offering a deal on low loan to value ratio mortgages, then you are in a bargaining position with your current mortgage provider.

Yup, that's exactly what I said. Its not a "reward" of some sort, as I picked up Patrick was saying, its just negotiation from strength. I see no reason why the inverse would not also apply, however.

daveirl

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patrickolee

Ah simple... I see where you got confused now...

patrickolee wrote:

The reason they have given him a discount on his payments is that he represents less of a risk. If he stops making payments for whatever reason, the bank will definitely still get all their money back. If you are in negative equity land and you stop making repayments, the bank will have to take a loss. Risk reward.

It was that last part that got you...'Risk Reward'? Its just a common term used, to indicate that the more risky something is, the higher the reward. The lower the risk, the lower the reward. Sorry if it was confusing, I should really have expanded it out fully. Anyway, good luck to you in your journey.

daveirl

daveirl wrote:

This post has been deleted.

I don’t plan to have my home repossessed.
Neither am I relying on my parents for financial security.

Thing is, daveirl, that everyone’s individual circumstances are different and that’s something that gets lost in this thread.

For example, I bought my home by myself with no financial help from anyone.
I meet my mortgage repayments easily.

When my fiance, who earns more than me, moves in we’ll be sharing those repayments and in a position to pay more off the mortgage.
Neither of us want to sell my house, but in the event that we do he will retain first time buyer status.
Long term we’d both like to move to where he is from, as his parents own land with full planning permission for three homes.
My parents own their home in Dublin.

So, to reiterate, not every mortgage holder is quaking in their 100% mortgage boots, staring into the abyss of recession.
Of course the best made plans and all that... but everything in life is a risk, from smoking those fags to taking out that mortgage.
You have to roll with the bad as well as the good.
It’s not rocket science — millions of people have managed it through property crashes and recessions.

SimpleSam06

patrickolee wrote:

Its just a common term used, to indicate that the more risky something is, the higher the reward. The lower the risk, the lower the reward.

Sigh. It really is amateur night around here. "Risk/Reward" (note the slash):

Comparison of the returns which can be earned from different types of financial instruments (bank deposits, bonds, shares, unit trusts, investment trusts, property) and the risks that are attached to them.

Which bears little to no resemblance to your interpretation of it.

Maybe you meant risk-return tradeoff? Or maybe risk-reward ratios? Are there any more common terms you'd like to add to the economics lexicon?

What is it with bulls and these long goodbyes, anyway?