Negative equity-Whats the big deal?

December2012

jimmycrackcorm wrote: »

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.

There's nothing wrong with having young brothers and sisters share a room.

riclad

ITS a problem, if a young couple bought a 1 bed apartment,for 230,
its now worth 110k.
IF they want to have kids, the,ll have to rent the apartment, and rent a house.
And the,y have to pay tax on the rental income.
People bought houses,in the boom, they never expected the value to fall by
50- 60 per cent.
IF people are put off having children, eventually it has a negative effect on the economy.
Negative equity ,means people can,t sell up, move to an area that have jobs.
And now we have the ridiculous situation where ,the hse is helping some people,
pay a 140k, mortgage ,on a house thats worth 75k.

behan29

I bought a 3 bed semi in 2007 and returned home from the u.k. I worked extremely hard for my deposit, I paid €275000 at the time. There s no off street lights and now I can buy the house beside for €60000. Why bother anymore.

riclad

ITS a bad situation, but most people who are in negative equity bought houses in finished estates.
so you bought at the peak, prices started to fall in 2008.
People who bought in unfinished estates should get an extra tax credit.
How much would it cost to put up streetlights, maybe 10k?
maybe the residents group should ask the council to do this first.

_Kaiser_

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.

jimmycrackcorm wrote: »

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.

Where does family planning come into this?

I mean surely before someone decides to start a family they should take stock of how practical that really is - especially in an economic climate of uncertainty, increasing taxes and reduced services/benefits, unemployment and so on.

To me that would include questions like..

- Can we afford this? If one partner gives up their job to raise the child, can we manage on the other income or can we afford child care if we both continue to work? How secure are our jobs? What if one or both of us were laid off?
- Have we the necessary support to help if needed? (friends/family/daycare)
- Is our house/apartment big enough or suitable for a baby?

.. to name just a few. If the answers to these aren't positive well then maybe it's worth reconsidering or delaying the decision to start a family after all.

That might not be "romantic" but considering how unemployed single mothers are castigated on forums like this for having lots of kids that the taxpayer then has to support through increased benefits, housing etc, it's worth noting that the same principle applies.

The Corinthian

y0ssar1an22 wrote: »

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.

The problem is not the negative equity itself, but the circumstances under which people took on debts.

Someone with a stable job and affordable mortgage, who bought in 2007 will be in serious negative equity by now. However, if their intention was that they would leave the home 'feet first', then it's not a big deal. Sure, that it may have lost anything between 40% and 80% of it's value will grate, but ultimately they'll get that back in time, even if it takes thirty years.

One of the biggest issues though, which often does not seem to get discussed, is the circumstances behind many mortgages and this makes a lot more difference than any negative equity.

For a start people stretched how much they borrowed to the limit; 100% plus mortgages started appearing and people took them. Even lower mortgages were often at the limit of what people could afford - during a boom economy.

And this stretching is important, because it presumed that they would always be able to afford the investment. They would never lose their jobs. Their pay would never stagnate or drop. Taxes would never increase. Neither would the cost of living.

And this is a logic I always thought insane. You get a mortgage with a lifespan of 20 years and presume that things will not change. Think about it; you buy in 2007 and your income and expenditure will either remain the same or improve up until you pay it off in 2027.

But 20 years is a long time; for example what was the economy like 20 years prior to 2007, in 1987? Higher unemployment than now, one in three emigrating, significantly higher taxes. And it occurred to no one taking out these loans that we could never return to those days? In fact we've not - for all the complaints, we're actually better off than in 1987.

So the trouble that many are in aren't really down to negative equity, from what I can see. They're ultimately down to the fact that they couldn't afford the long term mortgages they took in the first place.

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.

The irony is that if you're seeking trade up, you're better off now than during the bubble.

Consider doing so during the bubble, from a small apartment, valued at €300k, to a house, valued at €600k; cost of doing so to you is €300k. Now consider you buy the apartment during the bubble and seek to trade up to the house after the bubble bursts and values drop by 50%. Your apartment is now in negative equity to the tune of €150k, yet the house is now valued at €300k; cost of trading up to you has dropped to €150k.

Now this does not guarantee that you'll get a bank to agree to give you a new mortgage, as your ability to pay that may also have changed. However, technically, even though you've lost money on the smaller property, you're overall better off now when trading up than you were during the bubble.

donalg1 wrote: »

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.

Borrowing or using credit is not always a bad thing. However, forgetting that loans must be repaid, that in doing so you are tying yourself into repayments that you need to be sure you can afford in the future or that it may not make financal sense to borrow in the first place, is.

SBWife

The Corinthian wrote: »

The irony is that if you're seeking trade up, you're better off now than during the bubble.

Consider doing so during the bubble, from a small apartment, valued at €300k, to a house, valued at €600k; cost of doing so to you is €300k. Now consider you buy the apartment during the bubble and seek to trade up to the house after the bubble bursts and values drop by 50%. Your apartment is now in negative equity to the tune of €150k, yet the house is now valued at €300k; cost of trading up to you has dropped to €150k.

Now this does not guarantee that you'll get a bank to agree to give you a new mortgage, as your ability to pay that may also have changed. However, technically, even though you've lost money on the smaller property, you're overall better off now when trading up than you were during the bubble.

I'd calculate the cost of trading up to still be €300k, the hypothetical owner needs to pay off €150k of negative equity and the come up with a further €150k to move to the larger property.

The Corinthian

SBWife wrote: »

I'd calculate the cost of trading up to still be €300k, the hypothetical owner needs to pay off €150k of negative equity and the come up with a further €150k to move to the larger property.

Not really. You're selling your apartment for €150k, thus still owe the bank €150k (as you can only repay half of the €300k) and bought the house for €300k. Total mortgage is now €450k.

Had the bubble not burst, you'd have sold your apartment for €300, owed the bank nothing (but repaid the €300k) and bought the house for €600k. Total mortgage is now €600k.

Now, of course the above model is very simplistic; it ignores fees, payments and interest. It presumes that the price of your apartment has remained static between purchase and sale (although the price of the house would have also kept up with such price changes). And that price drops were a uniform 50%.

Importantly it presumes that a bank would not demand you clear your initial mortgage before getting a new one. Given this, if they did, it would have more to do with your perceived ability to afford a greater mortgage than any negative equity.

Overall, the point is that when trading up, the drop in value on a larger property is going to be greater than on a smaller one. As such, I've known people (with stable, well paying jobs) who have openly admitted that they're ironically better off trading up now than they were prior to the bubble bursting. And they have.

jimmycrackcorm

Kaiser2000 wrote: »

Where does family planning come into this?

I mean surely before someone decides to start a family they should take stock of how practical that really is - especially in an economic climate of uncertainty, increasing taxes and reduced services/benefits, unemployment and so on.

To me that would include questions like..

- Can we afford this? If one partner gives up their job to raise the child, can we manage on the other income or can we afford child care if we both continue to work? How secure are our jobs? What if one or both of us were laid off?
- Have we the necessary support to help if needed? (friends/family/daycare)
- Is our house/apartment big enough or suitable for a baby?

.. to name just a few. If the answers to these aren't positive well then maybe it's worth reconsidering or delaying the decision to start a family after all.

That might not be "romantic" but considering how unemployed single mothers are castigated on forums like this for having lots of kids that the taxpayer then has to support through increased benefits, housing etc, it's worth noting that the same principle applies.

Well the problem is that, in this case all those other conditions were considered, the one unforeseen was the Negative Equity possibility when purchasing. I don't think many people foresaw that...

Another purchaser mentioned about young siblings sharing a room, which is fine, but I cannot imagine negative equity disappearing by the time an kid being born now becoming a teenager.

Anyway the point is: NE is a problem in some cases.

SBWife

jimmycrackcorm wrote: »

Another purchaser mentioned about young siblings sharing a room, which is fine, but I cannot imagine negative equity disappearing by the time an kid being born now becoming a teenager.

It depends how long the mortgage was for. If the principal was borrowed over 20 years by the end of year 14 about 60% of the principal would be paid back, that means unless the property is still 60% below it's purchase price (assuming no down payment; a 100% mortgage) there would be positive equity in the apartment.

Remember that negative equity means the principle owing on the mortgage is greater than the value of the property, not that the property is worth less than was paid for it. A property can worth less than it's purchase price and not be in negative equity, for example, if the buyers upgraded from a smaller place during the boom and used the realised equity from their first property as a deposit on the second property.

Tombo2001

jimmycrackcorm wrote: »

Well the problem is that, in this case all those other conditions were considered, the one unforeseen was the Negative Equity possibility when purchasing. I don't think many people foresaw that...

Another purchaser mentioned about young siblings sharing a room, which is fine, but I cannot imagine negative equity disappearing by the time an kid being born now becoming a teenager.

Anyway the point is: NE is a problem in some cases.

I reckon 18 months ago I was in 50k of negative equity, but a house sold there last month that would put me at about break-even.

The Corinthian

jimmycrackcorm wrote: »

Well the problem is that, in this case all those other conditions were considered, the one unforeseen was the Negative Equity possibility when purchasing. I don't think many people foresaw that...

They get into long term mortgages and it does not occur to them that somewhere along the way they might have a little unplanned accident? I suspect then that many people are idiots.

Then again, given the number of people who got mortgages that they could just about pay during an economic boom period and it didn't occur to them that somewhere along the way their economic situation would not be as rosy, I think we already established that many people are idiots.

Anyway the point is: NE is a problem in some cases.

That may well be the case, but so far, all I've seen is that it is being cited as a problem when in reality the problem is that their ability to afford debt in the first place.

When is negative equity the problem - only real scenario I can think of was someone looking to flip (possibly multiple) properties in the short term.

Tombo2001

The Corinthian wrote: »

They get into long term mortgages and it does not occur to them that somewhere along the way they might have a little unplanned accident? I suspect then that many people are idiots.

Then again, given the number of people who got mortgages that they could just about pay during an economic boom period and it didn't occur to them that somewhere along the way their economic situation would not be as rosy, I think we already established that many people are idiots.

That may well be the case, but so far, all I've seen is that it is being cited as a problem when in reality the problem is that their ability to afford debt in the first place.

When is negative equity the problem - only real scenario I can think of was someone looking to flip (possibly multiple) properties in the short term.

For me the ugliest part of the collapse of the Celtic Tiger, apart from the bankers who keep their top jobs, was the "told you so" merchants, the hindsight wizards who just heaped misery upon the misery that was already there.

There had never in the history of the state been a collapse in house prices like the one we've seen in the past 7 years. Nothing that came anywhere even close.

Yet if you didnt know what was about to happen, then you are an "idiot"....not only have you sufferred a massive loss in your net worth......you are also an IDIOT!!!!!!!!

books4sale

Corkbah wrote: »

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)

If I lent you 500k for whatever, i'd want my 500k back + interest.

I lent you money, I didn't purchase equity.

Why should I cover your losses? that's your problem.

creedp

Tombo2001 wrote: »

For me the ugliest part of the collapse of the Celtic Tiger, apart from the bankers who keep their top jobs, was the "told you so" merchants, the hindsight wizards who just heaped misery upon the misery that was already there.

There had never in the history of the state been a collapse in house prices like the one we've seen in the past 7 years. Nothing that came anywhere even close.

Yet if you didnt know what was about to happen, then you are an "idiot"....not only have you sufferred a massive loss in your net worth......you are also an IDIOT!!!!!!!!

Have to agree with this sentiment. If someone is being advised by an expert that property is a pretty sure thing and even if property prices don't increase at the same rate in the past they will never go down (might at worst case scenario have a soft landing .. not athan any expert advisor advised this!) what would you expect people to do? It seems that the advised are the idiots while the advisors are to a large extent the revisionists! If this is not the case we'd better advise everyone not to take expert tax advice from an accountant, expert legal advice from a solicitor, etc, etc.

srsly78

creedp wrote: »

Have to agree with this sentiment. If someone is being advised by an expert that property is a pretty sure thing and even if property prices don't increase at the same rate in the past they will never go down (might at worst case scenario have a soft landing .. not athan any expert advisor advised this!) what would you expect people to do? It seems that the advised are the idiots while the advisors are to a large extent the revisionists! If this is not the case we'd better advise everyone not to take expert tax advice from an accountant, expert legal advice from a solicitor, etc, etc.

Sorry nope, there was plenty of warning from experts going back as far as the nineties. Remember all that talk about the economy overheating? Remember how it was dismissed by politicians and property cheerleaders?

Do we all now understand what is meant by an overheated economy?

Tombo2001

srsly78 wrote: »

Sorry nope, there was plenty of warning from experts going back as far as the nineties. Remember all that talk about the economy overheating? Remember how it was dismissed by politicians and property cheerleaders?

really?

that there is revisionism.

the vast bulk of experts were saying property was a worthwhile investment.

of course there were a few naysayers, but that applies to everything and all walks of life.

what I would say is...
....there was a vast cohort of 'experts' recommending to buy (or that there would be nothing more than a soft landing......all the vested interests plus quite a few independent economists in the universities etc....

there was a small minority who were saying, no avoid property.....e.g. McWilliams.....cant think of too many others.

But the problem with the latter group is that they had been bears, as you say, since the mid-90s......they had been wrong for a decade before they became right....

I cant think of anyone who specifically said to put on the brakes at the time when they should have been applied.....i.e. 2002/2003.....

creedp

srsly78 wrote: »

Sorry nope, there was plenty of warning from experts going back as far as the nineties. Remember all that talk about the economy overheating? Remember how it was dismissed by politicians and property cheerleaders?

Do we all now understand what is meant by an overheated economy?

Hindsight is wonderful isn't! There were warnings plus there were the cheer leaders from every sector in the economy. Remember the wonderfully insightful TV/Radio ad "What's a tracker mortgage?" It seems to me the cheer leaders were by far in the majority - do you believe in global warming? There seems to be a significant minority of experts who don't. Are you betting on the outcome?

srsly78

The ESRI themselves were warning about this as far back as 2000. There is a clip from rte showing it but I don't have the link to hand.

The media were a big part of the cheerleading, but there was plenty of warning. The only surprise was that the good times lasted as long as they did.

Tombo2001

srsly78 wrote: »

The ESRI themselves were warning about this as far back as 2000. There is a clip from rte showing it but I don't have the link to hand.

The media were a big part of the cheerleading, but there was plenty of warning. The only surprise was that the good times lasted as long as they did.

I havent used this phrase before but I finally found the right moment.....

......ROTFL

srsly78

Yes it is quite funny, the government ignored the advice of their own economists.

draiochtanois

This post has been deleted.

The Corinthian

Tombo2001 wrote: »

For me the ugliest part of the collapse of the Celtic Tiger, apart from the bankers who keep their top jobs, was the "told you so" merchants, the hindsight wizards who just heaped misery upon the misery that was already there.

Really? For me one of the ugliest part of the collapse of the Celtic Tiger is all the people who maintain how they're blameless victims.

Like the one's who stretch their credit so they buy something that they ultimately can barely afford, then when something that anyone with any cop-on would see as a serious risk (such as a couple fscking like rabbits might end up getting pregnant) they try to claim that they could never have foreseen it coming.

The "told you so" merchants are the ones who did bother to consider the possible consequences, rather than running headlong into buying property they could barely afford because everyone else was, and who are fed up listening to the bleating of those who didn't as they try to convince everyone that they're innocent victims.

There had never in the history of the state been a collapse in house prices like the one we've seen in the past 7 years. Nothing that came anywhere even close.

No, there has never been something like this before in the history of the state. Then again, there have been other periods when unemployment was far worse, salaries lower (even by today's standards) and taxes higher (60%+).

Yet if you didnt know what was about to happen, then you are an "idiot"....not only have you sufferred a massive loss in your net worth......you are also an IDIOT!!!!!!!!

One is an idiot if they didn't bother to think it through properly, and clearly many did not. And one is a worse idiot if they then abdicate responsibility for not thinking it through properly and thus fail to learn from the experience.

Tombo2001

The Corinthian wrote: »

Really? For me one of the ugliest part of the collapse of the Celtic Tiger is all the people who maintain how they're blameless victims.

Like the one's who stretch their credit so they buy something that they ultimately can barely afford, then when something that anyone with any cop-on would see as a serious risk (such as a couple fscking like rabbits might end up getting pregnant) they try to claim that they could never have foreseen it coming.

The "told you so" merchants are the ones who did bother to consider the possible consequences, rather than running headlong into buying property they could barely afford because everyone else was, and who are fed up listening to the bleating of those who didn't as they try to convince everyone that they're innocent victims.

No, there has never been something like this before in the history of the state. Then again, there have been other periods when unemployment was far worse, salaries lower (even by today's standards) and taxes higher (60%+).

One is an idiot if they didn't bother to think it through properly, and clearly many did not. And One is a worse idiot if they then abdicate responsibility for not thinking it through properly and thus learn to learn from the experience.

All depends on your point of view.....and it sickens me to think of people who borrowed more than they could afford and have now done some stitch up deal with the banks to stay in a lovely house and pay interest only on it.

Having said that, I just dont think its nice to kick people when they are down.

Apart from the nastiness of it.....its the smugness....."look how clever I am"......

Your definition of an idiot........

if I was sick, and I went to a doctor, and the doctor misdiagnosed me and I followed that wrong advice.....then I would be the idiot by your framework.....

draiochtanois

This post has been deleted.

The Corinthian

Tombo2001 wrote: »

Having said that, I just dont think its nice to kick people when they are down.

I'm not kicking people because they're down, I'm kicking them because they trying to tell us that it's not their fault they're down.

Apart from the nastiness of it.....its the smugness....."look how clever I am"......

That's the thing though, I don't believe that being prudent is 'clever' - it's just common sense.

If during a boom I get a mortgage which is already crucifying me every month, do I really bank on this boom lasting for the rest of the lifespan of this mortgage? Do I ignore the numerous signs (and no one can deny these were present) that we are in a bubble which sooner or later will burst and only listen to the advice that will justify my desire to buy? Do I not even consider, for example, that my partner and I may end up having an unexpected bundle of joy appear in the next few years and what this may do to my ability to pay off my mortgage?

I would have thought any of the above are not terribly clever questions to ask oneself before making what is likely to be the single greatest financial commitment of my life. Just common sense.

if I was sick, and I went to a doctor, and the doctor misdiagnosed me and I followed that wrong advice.....then I would be the idiot by your framework.....

Yes, if you'd not bothered to do any homework yourself on what the doctor diagnosed and from that sought a second opinion, then you would be an idiot.

Presuming that's a fair comparison, of course. Who is the doctor in the property transaction? The developer? No, they're just selling you something. The bank? Nope, they're also selling you something. Politicians? The media?

Anyhow, regarding the OP. I've yet seen how NE is so bad in the long run. Pretty much any problem being associated with it is in reality about the ability for one to afford a loan, not the NE per say or because they want to liquidate their property assets - and property has never been the most liquid of assets.

SBWife

Corinthian - do some reading on the wealth effect and you'll see why it's detrimental to eonomic growth, it also reduces labor force mobility which can have an additional negative impact. Saying it only matters if a person can't pay or needs to sell is a little bit naive.

The Corinthian

SBWife wrote: »

Corinthian - do some reading on the wealth effect and you'll see why it's detrimental to eonomic growth, it also reduces labor force mobility which can have an additional negative impact. Saying it only matters if a person can't pay or needs to sell is a little bit naive.

I'm quite familiar with wealth effect. Could you please explain how you feel this is relevant to the discussion?

SBWife

Have you read the title of the thread?

The wealth effect is just one of the ways negative equity impacts the economy overall explaining why even if people can pay and don't need to sell their negative equity is in fact a big deal.

The Corinthian

SBWife wrote: »

Have you read the title of the thread?

The wealth effect is just one of the ways negative equity impacts the economy overall explaining why even if people can pay and don't need to sell their negative equity is in fact a big deal.

Yes, and I have repeatedly pointed out that compared to other factors NE is a far smaller way that this happens and that too much emphasis is being put on it when in reality it is people's ability to afford debt in the first place.

ballyharpat

draiochtanois wrote: »

This post has been deleted.

Yes it is pretty naive, just as it is pretty naive to invest in a house/property thinking that it will go up in value or remain at the same value because an expert said so......oh wait, that's exactly what people that bought houses that are in negative equity say......

creedp

ballyharpat wrote: »

Yes it is pretty naive, just as it is pretty naive to invest in a house/property thinking that it will go up in value or remain at the same value because an expert said so......oh wait, that's exactly what people that bought houses that are in negative equity say......

I suppose its also naive to believe investment expersts that investing in a pension will provide you with a sufficient income on retirement or even cover the amount you invested. Why would anyone be so foolish to invest in a pension? There are many, many people in this country who after 20/25 years will own a house outright which will then allow them to live mortgage/rent free for the remainder of their lives. Its not all bad news .. of course some people are in dire straits but that does not mean that buying a house financed by a mortgage is a universally bad decision.

The Corinthian

creedp wrote: »

I suppose its also naive to believe investment expersts that investing in a pension will provide you with a sufficient income on retirement or even cover the amount you invested. Why would anyone be so foolish to invest in a pension?

You get good experts and bad ones, and even the good one's will get it wrong upon occasion. When Telecom Eireann was privatized, my broker advised it as a long term investment. In the end, I put a few grand into it and watched it shrink over time, until it eventually got de-listed, leaving me with about a third of my investment and some Vodafone shares.

Moral of the story; just because someone is an expert, that doesn't mean that they are omniscient. Indeed, most people are supposed to be 'experts' in their chosen trades or professions and in reality we all know that we're not infallible in those, so why do we expect other 'experts' to be so? Caveat emptor.

Its not all bad news .. of course some people are in dire straits but that does not mean that buying a house financed by a mortgage is a universally bad decision.

I don't think so either. In twenty years, the price will have surpassed the purchase price again. In the meantime, they may be lumbered with negative equity, but that can be managed and one can even, ironically, be better off if looking to trade up.

Assuming, of course, that they did not overstretch themselves to begin with, and there lies the problem, not with the NE. That's where I see the problem; people who could just about afford the property they bought, when times were good, now can't, that times are bad, and are caught in a trap.

Yet there are also those who are in NE, but did not overstretch themselves and can still pay off their mortgages, less comfortably than before, but still comfortably enough. Because of this they have more options, such as increasing their mortgage and trading up - taking advantage of the greater price drops in those properties.

So, negative equity is no doubt a major issue, but it's really not why so many people are presently 'trapped'. I saw so many people spending as much as they earned or even more, during the Tiger, with some odd expectation that it would last forever. It didn't, disposable incomes dropped beyond what they'd planned for and that's what trapped them. NE was just the icing on the cake.

Farmer Pudsey

Negative Equity is an issue if the loan is unsustainable. What I mean by that is that while you may be able to pay it leaves no spare money. you can put up with this lifestyle for 2 or 3 years however you must see daylight at the end of the tunnel not the lights of an on coming train.

Some people can manage and live frugally however other people cannot, even in good time these people are not happy however they could manage.

gaius c

mariaalice wrote: »

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.

How much negative equity is she in? Has she done the sums to work out if she would be better off swallowing the loss now rather than paying it off many times over her working life?

gaius c

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?

People who want the taxpayer to cover their losses on BTL apartments in nowheresville.

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?".....

I think that's a pretty severe case of buyers remorse you have there. I spent the noughties at parties listening to the same folk telling me how much their house had appreciated by.

Kaiser2000 wrote: »

Where does family planning come into this?

I mean surely before someone decides to start a family they should take stock of how practical that really is - especially in an economic climate of uncertainty, increasing taxes and reduced services/benefits, unemployment and so on.

To me that would include questions like..

- Can we afford this? If one partner gives up their job to raise the child, can we manage on the other income or can we afford child care if we both continue to work? How secure are our jobs? What if one or both of us were laid off?
- Have we the necessary support to help if needed? (friends/family/daycare)
- Is our house/apartment big enough or suitable for a baby?

.. to name just a few. If the answers to these aren't positive well then maybe it's worth reconsidering or delaying the decision to start a family after all.

That might not be "romantic" but considering how unemployed single mothers are castigated on forums like this for having lots of kids that the taxpayer then has to support through increased benefits, housing etc, it's worth noting that the same principle applies.

In fairness, do you really want to live in a society where nobody has children because they are being pinned to their lapels to pay rent/mortgages?

Tombo2001 wrote: »

really?

that there is revisionism.

the vast bulk of experts were saying property was a worthwhile investment.

of course there were a few naysayers, but that applies to everything and all walks of life.

what I would say is...
....there was a vast cohort of 'experts' recommending to buy (or that there would be nothing more than a soft landing......all the vested interests plus quite a few independent economists in the universities etc....

there was a small minority who were saying, no avoid property.....e.g. McWilliams.....cant think of too many others.

But the problem with the latter group is that they had been bears, as you say, since the mid-90s......they had been wrong for a decade before they became right....

I cant think of anyone who specifically said to put on the brakes at the time when they should have been applied.....i.e. 2002/2003.....

There is none so blind as he who will not see. Bacon report was in 1999. Was buried by all and sundry. The great AAM purge of the bulls/bears was in the early noughties. The property pin was in full swing around 2004-2005. Plenty of people were aware that something was badly wrong despite the media onslaught saying otherwise.

Farmer Pudsey wrote: »

Negative Equity is an issue if the loan is unsustainable. What I mean by that is that while you may be able to pay it leaves no spare money. you can put up with this lifestyle for 2 or 3 years however you must see daylight at the end of the tunnel not the lights of an on coming train.

Some people can manage and live frugally however other people cannot, even in good time these people are not happy however they could manage.

What if you're struggling to pay the mortgage after paying for your foreign holidays and sending the kids to private schools? Do you think that negative equity is the problem then?

riclad

She,s lucky she,s on a tracker.
IF you borrow 100k, from a bank on a mortgage ,you,ll pay at least 200k, If you do,nt know that you should,nt be allowed take out a mortgage.
I don,t have much sympathy for btl buyers,
people were buying houses for 150k,
Renting them for 1k per month,
even in the boom , that made no sense.
EG the rent did,nt even cover the mortgage cost.
Either they were very stupid or they thought prices will rise for ten years,
And i,ll make a big profit, when i sell the house.
how can she swallow the loss,?
Most banks won,t let you sell up ,if you are in negative equity,
unless they are sure you can pay off the mortgage,
MOST areas, prices are down by 50 per cent since 2007.
Huge negative equity , loan is probably 140,
apartment is worth maybe 85k.

Farmer Pudsey

gaius c wrote: »

What if you're struggling to pay the mortgage after paying for your foreign holidays and sending the kids to private schools? Do you think that negative equity is the problem then?

No I would not agree with that. Or having a BMW or Merc parked out side the door. A foreign holiday is not a crime however spending 7K on a trip to Florida is not a runner. We have to be reasonable you can sustain a frugal lifestyle for few years however you have to live as well.

Godge

Farmer Pudsey wrote: »

No I would not agree with that. Or having a BMW or Merc parked out side the door. A foreign holiday is not a crime however spending 7K on a trip to Florida is not a runner. We have to be reasonable you can sustain a frugal lifestyle for few years however you have to live as well.

Sell and rent. Then you can live the free life and spend all round.

Nobody has a right to own property. The rural Irish attitude to property is what has landed us in this mess. So many thought they could have the 3000 sq. ft. house with the granite worktops and marble tiles and that it would be easy to pay for it or else believed they could become property moguls just like that. Well life ain't easy. Those of us that have been around for a while realise life isn't as good.

Farmer Pudsey

Godge wrote: »

Sell and rent. Then you can live the free life and spend all round.

Nobody has a right to own property. The rural Irish attitude to property is what has landed us in this mess. So many thought they could have the 3000 sq. ft. house with the granite worktops and marble tiles and that it would be easy to pay for it or else believed they could become property moguls just like that. Well life ain't easy. Those of us that have been around for a while realise life isn't as good.

Most NE owner occupiers( to distinguish from BTL) have not got option of selling and renting. The reason is than any residual debt will follow them. There main other issue is that we have now two bankruptcy law in Ireland one for the rich go to England or the US rent an apartment or get your wife to buy a house and apply over there and walk away after 1-2 years.

And the second for ordinary Joe's who are afforded the moral hazard of personnel insolvency this is another Irish answer to an Irish problem.

I personally believe that house ownership is a good thing for society. As generally when you get older you own your house and have no expense for accomdation. This prevents homelessness and it also prevents dependancy on the state to provide you with housing in your old age.

Not everyone build massive houses and a lot of people that have massive house debt are people that paid over the odds in urban setting or in rural holiday area's.

Icepick

Farmer Pudsey wrote: »

I personally believe that house ownership is a good thing for society.

Evidence shows it's the opposite. It prevents mobility and it helps create bubbles.

Geuze

Farmer Pudsey wrote: »

.

I personally believe that house ownership is a good thing for society. As generally when you get older you own your house and have no expense for accomdation. This prevents homelessness and it also prevents dependancy on the state to provide you with housing in your old age.

Many successful societies with high employment have much lower rates of owner-occupancy than us.

The Dutch and Germans and Swiss have lower owner-occupancy rates than us, but they don't have more homelessness or people being housed by the State than us.

Rightwing

y0ssar1an22 wrote: »

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

Negative Equity isn't a problem, just give them back the keys & walk away, it worked for the developers.

The Corinthian

Icepick wrote: »

Evidence shows it's the opposite. It prevents mobility and it helps create bubbles.

Well, whether home ownership is good or ill for society is a somewhat more complex question.

Lack of labour mobility is a negative in terms of capitalism - indeed one can argue that families are just as bad if not worse, because not only do they limit labour mobility, but also consumption as a family will pool resources rather than consume them individually. Yet most societies consider the family unit as a positive.

As for creating bubbles, well all markets have the capacity to do that - remember that one of the first and most infamous bubbles was not in property, but flowers.

Given this, the Irish attitude towards owning property is more extreme than most other European nations and, importantly, it became a symbol of success during the Celtic Tiger, a fashion and also a short-cut to super-normal profits. But if it wasn't property, it would have been something else for the lemmings to all jump on.

creedp

The Corinthian wrote: »

Given this, the Irish attitude towards owning property is more extreme than most other European nations and, importantly, it became a symbol of success during the Celtic Tiger, a fashion and also a short-cut to super-normal profits. But if it wasn't property, it would have been something else for the lemmings to all jump on.

Its not just homeownership though - for many owning multiple investment properties both at home and abroad was the true symbol of success during the Celtic Tiger. How many investment properties do you own was a essential topic of conversation in the pub/restuarant/party during those heady days. If the Irish stuck to home ownership (something they were culturally familiar with) the mortgage crisis would be somewhat less than it is now.

MadsL

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.

I had some shares I paid $50 for that were bought back by the company at $2

Annoying, yeah. Did I get a dig out? No.

riclad

I Think the big deal is if too many people spend most of their wages on mortgages ,they cant buy stuff in shops, more shops, close down,
more people on the dole,it creates a vicious circle.
The economy gets worse, house prices fall, more people find they are in negative equity.
NEW taxes coming in mean people spend less in shops.
Ben dunne was on the radio, says more people should go to the uk,
declare bankruptcy and start over, with zero debts.
I do,nt think that s practical for someone in negative equity ,but in a good job, with 2 young kids.
Are they going to go to the uk, and work in mcdonalds ?
Will they be able to come back here and get back into the same job ,
with the same wage in 9 months?
That,s unlikely.

hmmm

riclad wrote: »

I Think the big deal is if too many people spend most of their wages on mortgages ,they cant buy stuff in shops, more shops, close down,

The big deal is that these people want to take money out of one person's pocket and put it into theirs. Of course people spending less money means a worse economy, but unless someone can find a pot of gold we have no way to deal with it.

Ben dunne was on the radio, says more people should go to the uk,
declare bankruptcy and start over, with zero debts.

This UK threat is completely overblown. UK courts are already cracking down on bankruptcy tourists, and for the majority of Irish people going to the UK is not an option - particularly as it would involve giving up their job.

gaius c

riclad wrote: »

I Think the big deal is if too many people spend most of their wages on mortgages ,they cant buy stuff in shops, more shops, close down,
more people on the dole,it creates a vicious circle.
The economy gets worse, house prices fall, more people find they are in negative equity.
NEW taxes coming in mean people spend less in shops.
Ben dunne was on the radio, says more people should go to the uk,
declare bankruptcy and start over, with zero debts.
I do,nt think that s practical for someone in negative equity ,but in a good job, with 2 young kids.
Are they going to go to the uk, and work in mcdonalds ?
Will they be able to come back here and get back into the same job ,
with the same wage in 9 months?
That,s unlikely.

So take the money from people who still have money and give it to those who don't so that they can spend it and get the economy moving again? Only problem is that the people who you have taken the money from now have less money to spend so "the economy gets worse, house prices fall, more people find they are in negative equity".

The Corinthian

What I find amusing is that when you ask about social welfare payments, many of those looking for debt forgiveness will take the opposite stance, instead favouring a hawkish approach to spongers and fraudsters.

One thing that one should remember about 'moral hazard' is that it's not entirely a philosophical concept, as it also involves a practical aspect. Just as generous social welfare can create the 'moral hazard' of rewarding indolence and encourage people not to seek work but stay on benefits and assistance, debt forgiveness rewards recklessness. Why should one be careful with their investments then? If it pays off, I get to keep the money; if not, I'll get bailed out; and this will be the only lesson learned in the future, just as generous social welfare's lesson is that it pays not to work.

If you want to take a stance for the greater good, you'd want to avoid teaching such values within society, not actively encourage them.

And before someone claims innocence and tells us they weren't being reckless, the reason they're in the mess they're in is not because of negative equity, but because they recklessly borrowed to a level that was barely viable in a boom economy, let alone a recessionary one. Those who borrowed within their means are not trapped, even though they suffer negative equity - I sympathize with them, but they're not the one's who'll benefit from any debt forgiveness, because they can still afford their debts.