Negative equity-Whats the big deal?

y0ssar1an22

Hello everyone. I'm new to boards.ie, so I hope this thread is in the right place and it is not a dupllicate of an existing thread.

Anyway...
Every time you watch the news, or read the paper, or whatever; they are always talking about neg equity and how big of a problem it is.

I dont understand this at all. I buy a house for 500k and it is now valued at 300k. Why do I care? When I bought it I agreed the house was worth 500k (obviously), otherwise I would not have bought it. I accepted the mortgage repayments on a house worth 500k. Why does ot matter that the market value has dropped? In my mind (the purchaser) the house is worth 500k.

I just dont understand this at all. I mean, for years people have been (being?) taking out loans to buy cars for 30k or whatever, knowing it will immediatlely drop in value. No big deal. Why the big deal when the same happens with houses? I know the sums of money are larger, but the principle is the same.

Thanks

Corkbah

its only an issue when you try to sell the house, if you purchased at 500K and after 5yrs its worth 250K and you try to sell ...if you get the full price 250K, you'll still have to pay off the remaining 200K which was the original mortgage (assuming you paid 50K in the 5 yrs you owned it.... excluding interest.)

thats why people are annoyed because the banks are still going to make money and are not willing to simply reduce the debt owed if the house is sold after a number of years... I dont own property (couldnt get a mortgage during the boom years)

Head The Wall

Why should the bank reduce the debt? Does a garage give you the loan value of a car on trade in or what the market value of the car is

Call me Al

As well as the inability to move house with a huge noose of debt, LTV ratio is also an issue when it comes to renegotiating the interest rates on some mortgage types.

Peckham

It's a problem if you bought a house that met your needs at the time, but you now want to trade up to one that fits your growing family. However bank won't deal with you unless you can produce cash to cover the negative equity.

hmmm

y0ssar1an22 wrote: »

Why the big deal when the same happens with houses? I know the sums of money are larger, but the principle is the same.

Because an awful lot of people saw property as a one way bet, and they are now hoping to whip up a bandwagon where the taxpayer pays them for their loss.

People lost money on pensions and didn't look for the taxpayer to compensate them.
People lost their jobs and didn't look for the taxpayer to pay their old wages.
People lost money on bank shares and aren't looking for the taxpayer to pay their losses.

Yet somehow, property is a magic asset in Ireland, where you get to keep the profits, but the taxpayer is expected to pay for your losses.

Greenmachine

hmmm wrote: »

Because an awful lot of people saw property as a one way bet, and they are now hoping to whip up a bandwagon where the taxpayer pays them for their loss.

People lost money on pensions and didn't look for the taxpayer to compensate them.
People lost their jobs and didn't look for the taxpayer to pay their old wages.
People lost money on bank shares and aren't looking for the taxpayer to pay their losses.

Yet somehow, property is a magic asset in Ireland, where you get to keep the profits, but the taxpayer is expected to pay for your losses.

Share holder were paid for their shares, so no. State should have paid zero for each share and claimed ownership of the bank. Simples.

Dicky Pride

Also, it's kind of annoying when you pay 250k for a house and your new neighbours pay 95k for the exact same property.

hmmm

Greenmachine wrote: »

Share holder were paid for their shares, so no. State should have paid zero for each share and claimed ownership of the bank. Simples.

No, no they were not paid.

whatawaster

Greenmachine wrote: »

Share holder were paid for their shares, so no. State should have paid zero for each share and claimed ownership of the bank. Simples.

So if the state came in and paid €1 for every house in the country and claimed ownership of those houses you'd consider that the house owners had been paid for their assets?

Fighting Irish

Corkbah wrote: »

its only an issue when you try to sell the house, if you purchased at 500K and after 5yrs its worth 250K and you try to sell ...if you get the full price 250K, you'll still have to pay off the remaining 200K which was the original mortgage (assuming you paid 50K in the 5 yrs you owned it.... excluding interest.)

thats why people are annoyed because the banks are still going to make money and are not willing to simply reduce the debt owed if the house is sold after a number of years... I dont own property (couldnt get a mortgage during the boom years)

lol why would they?

carpejugulum

It's a problem when you thought you were a clever investor.

Farmer Pudsey

Negative equity is only part of the issue, during the boom people borrowed mortgage's over 30 and 40 years when before that 20 was considered a standard mortgage.
They also took out extra on the loan for furnishing the house as well as having excessive other loans. These were taken out when taxes were lower and wages were higher and there was no shortage of employment. all these factors have now changed.

Some of these loans are unsustainable and as we had very poor insolvency legislation this left a serious issue. In a normal economy this could have been worked through faster if proper insolvency had been in place. Also bank as banks over lend compared to borrowers ability to pay. Banks also allowed some investors to borrow on interest only loans on multiple properties. All of this put an unsustainable position in place. Along with this too much property was build and huge excess property banks are in some locations

The inability now to move this property through the system is leading to a situation that even if the banks reposses that the some borrower's will be left with unsustainable debt which they can never pay back.

jester77

Peckham wrote: »

It's a problem if you bought a house that met your needs at the time, but you now want to trade up to one that fits your growing family. However bank won't deal with you unless you can produce cash to cover the negative equity.

This is where the problem is. If I buy a house for 500k and 10 years later I want to sell and it is only worth 300k, then the banks should allow me to move the mortgage onto the new property. (Obviously taking ability to make repayments into account)

Dicky Pride wrote: »

Also, it's kind of annoying when you pay 250k for a house and your new neighbours pay 95k for the exact same property.

Is it though? If I buy a 2013 car for 50k and in 2015 my neighbour buys the same model from 2013 for 30K, should I really be annoyed that he got it for 20k less

waitingforBB

jester77 wrote: »

Is it though? If I buy a 2013 car for 50k and in 2015 my neighbour buys the same model from 2013 for 30K, should I really be annoyed that he got it for 20k less

I think people are pissed that they bought the 07 model for 50K and the neighbour gets the 13 model for 20K :-)

Farmer Pudsey

There is a big difference between negative equity on property and a car devaluing by more than you expect. usuall car loans are taken out over 2-5 years and the repayments are a lower percentage of your income, still not nice however you know that at the end of that term you can decide what to do.

With property it is totally different you may be tied to it for 30 yeras still ans see no way out.

donalg1

Like others have said it is only an issue if you want to sell it. Now a lot of people bought houses that were way above what they needed during the boom because it was the "in" thing to do and because their friend bought a lovely fancy new house kitted out with all top quality finishes and furnishings so they wanted it too.

So now they are annoyed because the value of their lovely shiny house has dropped instead of going up, many others bought houses with a view to selling them on in a few years and upgrading to a bigger house or whatever, with the idea of the house being worth infinitely more further down the line. However, what happened was the reverse the property prices fell so now they cant sell their house for a massive profit and are therefore annoyed and want the government/banks to do something about the fact their investment went the wrong way.

Basically they took a risk it didnt work and now they want the banks/government to cover their losses, however they are only losses if they sell the property.

Its like you put a tenner on a horse that is a dead cert to win the race in your opinion and a few others have said the same down the pub, so you think you cant lose, however, the horse does lose so you now go back to the bookies and ask for some sort of return on your €10.

mariaalice

I have a friend who got her a apartment in 2007, needless to say it is in huge negative equality, she met a guy 3 years ago and now they are getting married he already had a house, she had a tracker mortgage on a very good rate.

She is in the process of renting out her apartment at the moment and is getting enough to cover the mortgage and charged plus about 200 euro a month, she is happy enough with this and realised that by the time she has paid the mortgage off she will most likely have paid twice the price of the asset she has.. however her way of looking at it.. is that she has no choice, she has to live now, and most importantly its not impacting on her financially at the moment.

ardmacha

She is in the process of renting out her apartment at the moment and is getting en ought to cover the mortgage

Very unlikely that her tracker covers a situation where she is renting, rather than living, in the apartment. Perhaps she is being less than forthcoming with her bank?

mariaalice

ardmacha wrote: »

Very unlikely that her tracker covers a situation where she is renting, rather than living, in the apartment. Perhaps she is being less than forthcoming with her bank?

I don't know about that, but I would imagine it is common enought that couples meet and both of them have a property they decside to move in together... if you cant sell what choice do you have but to rent one of he properties out.

Peanut2011

The issue is not just when you "DECIDE" to sell. The issue is around the fact that these mortgages were taken out and houses are secured on the mortgage. Meaning if you don't pay your mortgage Bank takes the house.

Now I have no problem with that scenario.

The problem however starts when the person CAN'T (opposed to won't) pay the mortgage any more (lost the job, reduced income .....). He starts accumulating interest and the loan keeps getting bigger. In ideal world, the bank would take the house and that would be it.

Unfortunately with the negative equity, let's say you still owe €250k on the house and that house is now sold by the Bank for €90k, you the person that no longer has the house still has a debt of €160k....

That is the issue with negative equity for consumer.


The issue for the banks is that their books will say they have assets worth XXX but the actual worth now is YYY... Meaning when the mortgage was taken out, their books would have said they have a house worth €300k secured against the mortgage of €270k, which would mean if the mortgage is not paid, they can sell and cover the loan, however instead now, that house is worth €90k and secured against loan of €250k...

If person goes bankrupt or what ever bank will need to find the extra €160k to cover their books. Now multiply that by however many negative equity mortgages that really never have any hope or paying it in full!

That is the problem!!

SBWife

Even with no change in the mortgage holder's ability to pay and no need to sell, negative equity still impacts individual behaviour and the economy through the wealth effect. People have a higher propensity to spend when they feel that they are better off and spend less when they feel poorer. This is regardless of changes in their disposable income and ability to spend. Domestic consumer demand is a huge driver of economic growth and it's suppression as a result of the huge amounts of negative equity in the economy is impacting the potential recovery.

hmmm

SBWife wrote: »

Domestic consumer demand is a huge driver of economic growth and it's suppression as a result of the huge amounts of negative equity in the economy is impacting the potential recovery.

Taking money out of the taxpayers pocket and giving it to someone in negative equity will make no difference to the economy, there is no extra money created. Who first came up with this stupid notion?

SBWife

hmmm wrote: »

Taking money out of the taxpayers pocket and giving it to someone in negative equity will make no difference to the economy, there is no extra money created. Who first came up with this stupid notion?

I'm not suggesting that anyone do this, just explaining another reason why negative equity has an ongoing negative impact on the economy in general. I'd be very much of the alternative routes to growth school, priming the pump won't work in our small open economy, we'll just end up increasing imports along with the deficit.

2moreMinutes

hmmm wrote: »

Taking money out of the taxpayers pocket and giving it to someone in negative equity will make no difference to the economy, there is no extra money created. Who first came up with this stupid notion?

I have similar thoughts about those in serious mortgage arrears. If they are already in serious mortgage arrears (and so I assume not making full payments on their mortgages) but yet still not spending money in the local economy or in this infamous hairdressers that all politicians talk about, how is writing off a portion of their mortgage going to create extra cash in their pockets to get their hair done every month?

Going Forward

Negative Equity, another one of those snappy financial terms which has become everyday parlance since the bubble burst. Curiously unheard of before.........

It is what it is, a loss on an investment.

NE is not a reason to seek a writedown.

SBWife

Going Forward wrote: »

Negative Equity, another one of those snappy financial terms which has become everyday parlance since the bubble burst. Curiously unheard of before.........

It is what it is, a loss on an investment.

NE is not a reason to seek a writedown.

It might not have been bandied around by paddy on the street but it was a well established term prior to the Irish bubble bursting.

It's not simply a loss on investment, it's a situation where the debt associated with an asset is greater than the value of the asset. If you'd bought with cash and your property is worth half what you paid for, there's no negative equity, you'd still have equity equal to the current market value.

Tombo2001

OP

Tell you what to do.....


Buy yourself a house....

Watch it drop in value by two hundred thousand euros.....

and then come back and ask us....

.....how do I get rid of this gut wrenching feeling I have in my stomach first thing in the morning when I wake up and last thing at night before I go to bed.....

.....and experience the pure anger of encountering someone who says to you "whats the big deal buddy?".....

ballyharpat

Tombo2001 wrote: »

OP

Tell you what to do.....


Buy yourself a house....

Watch it drop in value by two hundred thousand euros.....

and then come back and ask us....

.....how do I get rid of this gut wrenching feeling I have in my stomach first thing in the morning when I wake up and last thing at night before I go to bed.....

.....and experience the pure anger of encountering someone who says to you "whats the big deal buddy?".....

Just out of curiosity, what feeling was in your gut when you bought the house?

I ask, because I had $150k in stock before the crash in '08, in the space of a month I had only 56k, I had also lost my job........... It wasn't a good feeling.......all my stocks were blue chip stocks that were supposed to go up in value or stay the same

Ryder

ballyharpat wrote: »

Just out of curiosity, what feeling was in your gut when you bought the house?

I ask, because I had $150k in stock before the crash in '08, in the space of a month I had only 56k, I had also lost my job........... It wasn't a good feeling.......all my stocks were blue chip stocks that were supposed to go up in value or stay the same

did you borrow the money to get the stocks? Are you still paying off the loss? Did you actually make any loss on the Investment?

ballyharpat

Ryder wrote: »

did you borrow the money to get the stocks? Yes I borrowed to buy about 50% of the stocks, it was an initial investment to buy a bigger house for myself, but stocks were easier than buying a house, and I was told that they would NOT go down in value, they were a sure thing-I was in NY at the time.
Are you still paying off the loss? I am still paying back some of the money I borrowed, but unlike a lot of people that bought houses, I saved for a few years to have some cash to invest, I had no notion of taking a loan for 80/90 or even 100% of the stocks :eek:
Did you actually make any loss on the Investment?obviously I made a loss, I was down 94k in a month, that is about 60%......

Ryder

ballyharpat wrote: »

Ryder wrote: »

did you borrow the money to get the stocks? Yes I borrowed to buy about 50% of the stocks, it was an initial investment to buy a bigger house for myself, but stocks were easier than buying a house, and I was told that they would NOT go down in value, they were a sure thing-I was in NY at the time.
Are you still paying off the loss? I am still paying back some of the money I borrowed, but unlike a lot of people that bought houses, I saved for a few years to have some cash to invest, I had no notion of taking a loan for 80/90 or even 100% of the stocks :eek:
Did you actually make any loss on the Investment?obviously I made a loss, I was down 94k in a month, that is about 60%......

sorry, I interpreted your post as you having lost your profit, which obviously isn't the same.....but maybe i picked you up wrong.

In any event, investing in the stock market and buying a house aren't quiet the same. You invested, expecting to make a profit....but clearly even the best stocks fall, plenty of examples. Its far harder to get an example of an Irish crash that wiped 50% of property values.

You seem shocked at borrowing 80/90% of the value? With city prices at 300-500,000 saving more than 60-100,000 would be impossible for most. This post isn't to moralise...its just to follow up with how some might be pissed at the drop, when most weren't investing on the market

StillWaters

NE is not a problem for those who bought a house suitable for their needs in a place they can be economically active, especially when most of those people have trackers so are probably paying less monthly than it would cost to rent that house.

It is a problem for the economy if they bought somewhere unsuitable because it seriously affects labour Market mobility.

timetogo

For me it's not just about NE. It's NE on top of the recession, worried about job, reduction in wages.
I don't have a tracker so my mortgage went up by €60 a month this month. That's a fair dent in the yearly wages. My house is worth (on paper) €150K less than when I bought it. Probably worth less than that if I tried to sell it.
So I can't sell my house to get something cheaper. I just have to pay it off or keep paying until I can sell it and have enough left to get a cheaper house.

I've had a pay reduction and my missus lost her job and is having no joy getting a new one. I'm meeting the mortgage repayments and will continue to do so but there isn't much left over for anything extra. We don't go out anymore, holidays are off the agenda and any stuff like car / household goods are being used until they break beyond repair and may not be replaced then.
If negative equity wasn't in the mix we would sell up and move to something cheaper.
I'm not complaining or looking for handouts. I like where we're living. Its just tight at the moment and will be for the foreseeable future.

I know a few guys in similar situations. I suppose if you multiply my experience by a few thousand you can see how the economy is affected. We have this millstone around our necks and as long as it's there it has priority. I know the high horse brigade will say this is our own fault. It is. But the results of this negative equity affect the country and will continue to do so for a long time yet.

NIMAN

NE was always mentioned in debates, TV discussions, radio shows wtc, but I never once heard anyone say that its not a problem if the mortgage can be repaid ok. It was always thrown into the chat as it, by itself, it was the main problem.

It is only a problem if you are planning to sell up, or if you can't make the repayments on your mortgage and there was the chance of the house being repossessed, which in Ireland up to now has been close to nil.

So for a lot of people, its a problem as its a major dent to their pride as they bought as asset that they thought could only ever accumulate value, but it backfired.

Farmer Pudsey

NIMAN wrote: »

NE was always mentioned in debates, TV discussions, radio shows wtc, but I never once heard anyone say that its not a problem if the mortgage can be repaid ok. It was always thrown into the chat as it, by itself, it was the main problem.

It is only a problem if you are planning to sell up, or if you can't make the repayments on your mortgage and there was the chance of the house being repossessed, which in Ireland up to now has been close to nil.

So for a lot of people, its a problem as its a major dent to their pride as they bought as asset that they thought could only ever accumulate value, but it backfired.

NIMAN it is not just an issue if you sell. like a previous poster said he is finding the repayments impossible and cannot sell and move on. There is also the issue that some people bought houses that have a long commute to work as the could not afford houses in or around Dublin especially. Since then car fuel prices have doubled. These people also find that they cannot sell even though they may be meeting the repayments with or without a struggle. There seems to be some posters that take the attitude ''it didn't happen to me because I knew better''.

Maybe they did or maybe they were lucky. However some of the present owners had waited 2-3 years saving and were finding that house prices were climbing10-20% every year. Remember the talk in the papers about the housing ladder. I do not think that some of these owners should get a free ride but I can understand the issue's involved they are more complex than you think.

December2012

But if you have no genuine need to sell - does it really matter?

Or is it just a very expensive lesson to be learned about considering your future needs and abilities instead of making decisions based on immediate requirements.

gurramok

timetogo wrote: »

I know a few guys in similar situations. I suppose if you multiply my experience by a few thousand you can see how the economy is affected. We have this millstone around our necks and as long as it's there it has priority. I know the high horse brigade will say this is our own fault. It is. But the results of this negative equity affect the country and will continue to do so for a long time yet.

Your problem is not the negative equity as per se, its your household employment situation which has resulted in things being financially tight. Talk to your bank to come to an arrangement on repayments.

NIMAN

Farmer Pudsey wrote: »

NIMAN it is not just an issue if you sell. like a previous poster said he is finding the repayments impossible and cannot sell and move on. There is also the issue that some people bought houses that have a long commute to work as the could not afford houses in or around Dublin especially. Since then car fuel prices have doubled. These people also find that they cannot sell even though they may be meeting the repayments with or without a struggle. There seems to be some posters that take the attitude ''it didn't happen to me because I knew better''.

Maybe they did or maybe they were lucky. However some of the present owners had waited 2-3 years saving and were finding that house prices were climbing10-20% every year. Remember the talk in the papers about the housing ladder. I do not think that some of these owners should get a free ride but I can understand the issue's involved they are more complex than you think.

Thats what I said, its a problem is you are trying to sell or can't make repayments on your mortgage.

NE is not an issue if you intend staying in your house and can make your repayments ok.

Farmer Pudsey

gurramok wrote: »

Your problem is not the negative equity as per se, its your household employment situation which has resulted in things being financially tight. Talk to your bank to come to an arrangement on repayments.

This is the issue that a good percentage that cannot pay loans are in. NE compounds the issue by not allowing them to sell up and change there outgoings. timetogo has the issue that he is not on a tracker and has seen his payments be about twice a tracker I imagine. Even if the bank changes payments amouts he still has the issue that even if his circumstances change he is still in an unaffordable situtation. The reality is that this is a two way issue in that the banks over lent and some people over borrowed.

In timetogo's case he may never be able to save to put kids through college, afford to pay into pension plan(not that I would encourage anyone to pay into one the way they work in Ireland). He is at the stage that he is priotising house repayments over other household expenses. You can do this for 2-5 years afer that if you cannot see an exit some sort of insolvency plan is needed

donalg1

SBWife wrote: »

Even with no change in the mortgage holder's ability to pay and no need to sell, negative equity still impacts individual behaviour and the economy through the wealth effect. People have a higher propensity to spend when they feel that they are better off and spend less when they feel poorer. This is regardless of changes in their disposable income and ability to spend. Domestic consumer demand is a huge driver of economic growth and it's suppression as a result of the huge amounts of negative equity in the economy is impacting the potential recovery.

If people are basing their spending on feelings be it feeling poor or wealthy it might not be a bad thing for them to be discouraged from spending, surely people should be spending based on their actual financial situation and not feelings. Spending on feeling is probably what got them into a negative equity situation in the first place.

People spending money they dont have wont do the economy any good either.

gurramok

Farmer Pudsey wrote: »

This is the issue that a good percentage that cannot pay loans are in. NE compounds the issue by not allowing them to sell up and change there outgoings. timetogo has the issue that he is not on a tracker and has seen his payments be about twice a tracker I imagine. Even if the bank changes payments amouts he still has the issue that even if his circumstances change he is still in an unaffordable situtation. The reality is that this is a two way issue in that the banks over lent and some people over borrowed.

In timetogo's case he may never be able to save to put kids through college, afford to pay into pension plan(not that I would encourage anyone to pay into one the way they work in Ireland). He is at the stage that he is priotising house repayments over other household expenses. You can do this for 2-5 years afer that if you cannot see an exit some sort of insolvency plan is needed

If the poster was in positive equity(market went the other way), how can the poster sell up and buy again?
A bank would not touch him with another mortgage due to the ongoing employment situation.
Considering the poster may have bought a property at 300k, you'll be looking at properties perhaps in the 450k range which means a positive equity of 150k if the market went the other way(forever rising prices). No mortgage possible based on earnings.

The other way is social welfare(Rent Supplement) but immediate disqualification because the husband works. Last option is split up and move back with their parents.

Out of all this it is preferable firstly to make an arrangement with the bank as the family's circumstances can change within a few years(new job). They can keep the house on reduced earnings as long as repayments are made.

SBWife

donalg1 wrote: »

If people are basing their spending on feelings be it feeling poor or wealthy it might not be a bad thing for them to be discouraged from spending, surely people should be spending based on their actual financial situation and not feelings. Spending on feeling is probably what got them into a negative equity situation in the first place.

People spending money they dont have wont do the economy any good either.

People almost always base economic decisions on feelings, that's why us economists call it consumer sentiment and business sentiment.* The wealth effect has an impact even when people do have money, even with high levels of disposable income, people with less equity in their homes feel poorer (it doesn't have to be negative although the effect is more pronounced when equity turns negative) and spend less. Consumer spending is a large driver of economic growth, ideally in the current situation those who have disposable income should spend it, negative equity reduces their propensity to do so.

* Thinking, Fast and Slow by Daniel Kahneman is just one of a series of books explaining how we actually make decisions rather then how a rational actor might make decisions. It's an interesting read.

SBWife

gurramok wrote: »

If the poster was in positive equity(market went the other way), how can the poster sell up and buy again?
A bank would not touch him with another mortgage due to the ongoing employment situation.
Considering the poster may have bought a property at 300k, you'll be looking at properties perhaps in the 450k range which means a positive equity of 150k if the market went the other way(forever rising prices). No mortgage possible based on earnings..

Perhaps he has a large detached 5 bedroom in a desirable neighbourhood and could take his equity and downsize to a 2 or 3 bed terrace. He has an income it's just a stretch for his current payments. He wouldn't necessarily be a bad credit risk on a smaller loan amount.

donalg1

SBWife wrote: »

People almost always base economic decisions on feelings, that's why us economists call it consumer sentiment and business sentiment.* The wealth effect has an impact even when people do have money, even with high levels of disposable income, people with less equity in their homes feel poorer (it doesn't have to be negative although the effect is more pronounced when equity turns negative) and spend less. Consumer spending is a large driver of economic growth, ideally in the current situation those who have disposable income should spend it, negative equity reduces their propensity to do so.

* Thinking, Fast and Slow by Daniel Kahneman is just one of a series of books explaining how we actually make decisions rather then how a rational actor might make decisions. It's an interesting read.

How we actually make decisions rather than how a rational actor might make decisions is exactly my point, people making rash decisions is what got them into NE in the first place, I said if they can be discouraged from making more rash decisions it would be better for everyone.

I always base my economic decisions on my financial situation and affordability and by using some common sense, for example if I want to buy something I save for it and buy it. I dont stick it on my Credit Card and pretend to myself I will pay for it later.

I certainly didnt purchase a house I could never hope to afford and base my decision on what level of mortgage I wanted on one years income in the height of an economic boom.

gurramok

SBWife wrote: »

Perhaps he has a large detached 5 bedroom in a desirable neighbourhood and could take his equity and downsize to a 2 or 3 bed terrace. He has an income it's just a stretch for his current payments. He wouldn't necessarily be a bad credit risk on a smaller loan amount.

No matter how small that loan is, the poster has a dependent which will act against him in a loan application.(nevermind any kids). Cash buyer maybe, if the poster gave us more details it would help.

SBWife

donalg1 wrote: »

I alwaysbase my economic decisions on my financial situation and affordability and by using some common sense

If that's truly the case you should head on over to your local economics department and donate your brain to the dismal science because you are one in a million.

donalg1

SBWife wrote: »

If that's truly the case you should head on over to your local economics department and donate your brain to the dismal science because you are one in a million.

Thank you.

I do however think I will hold on to my brain for the time being.

Boskowski

Peanut2011 wrote: »

The issue is not just when you "DECIDE" to sell. The issue is around the fact that these mortgages were taken out and houses are secured on the mortgage. Meaning if you don't pay your mortgage Bank takes the house.

Now I have no problem with that scenario.

The problem however starts when the person CAN'T (opposed to won't) pay the mortgage any more (lost the job, reduced income .....). He starts accumulating interest and the loan keeps getting bigger. In ideal world, the bank would take the house and that would be it.

Unfortunately with the negative equity, let's say you still owe €250k on the house and that house is now sold by the Bank for €90k, you the person that no longer has the house still has a debt of €160k....

That is the issue with negative equity for consumer.


The issue for the banks is that their books will say they have assets worth XXX but the actual worth now is YYY... Meaning when the mortgage was taken out, their books would have said they have a house worth €300k secured against the mortgage of €270k, which would mean if the mortgage is not paid, they can sell and cover the loan, however instead now, that house is worth €90k and secured against loan of €250k...

If person goes bankrupt or what ever bank will need to find the extra €160k to cover their books. Now multiply that by however many negative equity mortgages that really never have any hope or paying it in full!

That is the problem!!

Exactly that.
Bar those case where people are stymied with personal situations like break-ups, need to upscale etc it's the banks that are in trouble here. The collateral doesn't cover the mortgage as a security anymore so the banks risk has gone through the roof.

jimmycrackcorm

My sister in law bought a two bed apartment at the height of the market. Now she is starting to have a family with one kid, which is ok, but if she had another of a different sex then the negative equity becomes a big problem.

Their plan though is if that happens they will have to rent out a house and rent out their apartment.

December2012

donalg1 wrote: »

Thank you.

I do however think I will hold on to my brain for the time being.

See - future planning!