Negative equity-Whats the big deal?

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.

The Corinthian make a point that a lot of people are missing in this debate, its an example of the law of unintended consequences.

The fact that we have not had large scale repossessions has changed the mind set of a lot of Irish people in regrades to mortgage debt and debt in general.

We use to be the sort of people who would live on porridge in order to pay our mortgage, but now there has been a subtle but noticeable change in attitude to paying debt.

clairefontaine

MadsL wrote: »

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.

Yeah well you see, unfortunately you are not a big bank in the pockets of politicians who can then tax your people to pay for your massive cock up.

And not only will the people who took out the shares being paying in massive taxes, but the people who were cautious and did not take the risks will also be paying for the cocked up risks you took.

KELTICKNIGHTT

im always amused here when i see certain posts. specially when i can see the poster who started this thread has no idea lol ,

most people just bought a house or built it as i did ,, didn't build a big place as some did, was average by what some did in ireland
when things where ok, a mortgage was about the same or less than renting a place per month , hence built a house,, even doe about 40% was my own money i put into it, right now even with taking it to current value , its 57% less value now that it was in high of so called celtic tiger which i didn't see personally.

So with loss in value, the mortgage is more than the value of the house which is funny when you see i have 40% of my money it too, so i guess it could be worse But can't sell it as i need certain amount to clear my mortgage and work is down 60% so less income, so for now I'm stuck

till such time maybe if ever when things might get better,
With new property taxes etc coming, there's not much difference anymore to owning a house or renting, In some ways , specially now, maybe depending on circumstances
So maybe the idea of owning a house in Ireland is not as good a prospect as once was , so maybe renting will take the lead
As far a getting a loan for a car is totally different thing all together , house use to hold value and car never did and a house is the biggest commitment any person will ever take in there lifes
normal people didn't cause the mess we have today , banks and developers and others did

SBWife

KELTICKNIGHTT wrote: »

normal people didn't cause the mess we have today , banks and developers and others did

Maybe they did. They bought the houses the developers were building and selling, they agreed the loan terms for 100% mortgages over 30 and 35 years. If "normal" people had said in 2003-2004 for fecks sake Dublin is a small city on the periphery of Europe I shouldn't be paying more for an apartment then I would in
NYC then it would have been more difficult for the bubble to continue to inflate.

I'll admit there was disinformation circulated by so called experts but it didn't take a rocket scientist to read the name of the bank or estate agency on the screen and maybe discount the information/opinion based on the fact they had skin in the game. But at the end of the day whether it was because of greed, a herd mentality, wanting to adhere to cultural/societal norms or just stupidity "normal people" played a huge part in causing the mess.

I'd hope that by taking some responsibility for this mess and its horrific human cost, in terms of stress, fear and devastated lives, "normal" people could help prevent a similar situation from recurring.

I do feel sorry for SOME people, however I was listening to Joe Duffy yesterday and the discussion was about people not being able to pay the mortgage etc the usual very sad stories.

BUT

This guy phones in and says after numerous adjustments form the bank the bank has now advised him to sell his house he was not happy with this because he wanted either debt write off or part of his mortgage parked and then written off!!! i.e he wanted to keep his house while the bank take a 50% write down on the loan they gave him. Then there was the woman who is not happy because she lives too far from her work/parents and some how wants her mortgage to disappear so she can buy where she grew up!!

The Corinthian

KELTICKNIGHTT wrote: »

So with loss in value, the mortgage is more than the value of the house which is funny when you see i have 40% of my money it too, so i guess it could be worse But can't sell it as i need certain amount to clear my mortgage and work is down 60% so less income, so for now I'm stuck

With all due respect, if your home is now worth 43% of the original price and you already were able to pay of 40%, it's not as if that "certain amount" to clear your mortgage is going to be gigantic. If so, you've lost the money you put into the property personally but it would appear that negative equity is not really your problem.

More importantly, it sounds as if you didn't account for the possibility of losing employment, or seeing a big decrease in income from your employment. Did you think that the good times would never end? That you could never lose your job or work dry up? How long is your mortgage for? Ten years? Twenty? And it never occurred to you that economies and circumstances can drastically change over the lifespan of the debt?

I'm curious to know because it's not as if you needed the benefit of hindsight to consider these things, at the time.

The Corinthian

The Corinthian wrote: »

With all due respect, if your home is now worth 43% of the original price and you already were able to pay of 40%, it's not as if that "certain amount" to clear your mortgage is going to be gigantic. If so, you've lost the money you put into the property personally but it would appear that negative equity is not really your problem.

More importantly, it sounds as if you didn't account for the possibility of losing employment, or seeing a big decrease in income from your employment. Did you think that the good times would never end? That you could never lose your job or work dry up? How long is your mortgage for? Ten years? Twenty? And it never occurred to you that economies and circumstances can drastically change over the lifespan of the debt?

I'm curious to know because it's not as if you needed the benefit of hindsight to consider these things, at the time.

I do not agree with that sort of reasoning if everyone behaved like that, nobody would ever take out a mortgage because they would be too many unknows, nobody can say that they will never be unemployed or that the circumstances will never change, you can make a certain amount of preparation for the future, but you will never account for every eventuality.

The people I have issue with are those who are paying their mortgage with a struggle but are still paying it, yet somehow think they should get debt write down because they are struggling/in negative equity. Its as if people have forgotten that for the vast majority of family's balancing finances is a struggle and that is NORMAL.

The Corinthian

mariaalice wrote: »

I do not agree with that sort of reasoning if that was the way everyone thinks nobody would ever take out a mortgage because they would be too many unknowings, nobody can say that they will never be unemployed or that the circumstances will never change, you can make a certain amount of preparation for the future, but you will never account for every eventuality.

I'm not suggesting people should take the extreme road of zero risk - thus never investing, as zero risk is unattainable. However, there is a difference between getting a mortgage that stretches you to the limit in even a best-case scenario and one that contains margins of error, considering that you may end up in negative equity or that your income (especially if self-employed) could end up a fraction of what it is during a boom.

According to KELTICKNIGHTT, (s)he isn't even in negative equity; sure, they've lost the money they invested directly into it, but that's not a debt (I presume) and once you calculate the drop in value you actually find they are nominally 3% in positive equity - I say nominally as once you consider interest and other costs, they're probably running at a loss overall.

However, that loss isn't likely to be very big, so you have to ask questions as to why they to were so tight on their calculations when getting the mortgage in the first place that the 'certain amount' to clear their debt is unattainable, even though it's likely not that large (based on what we've been told).

I get and, and when this was going on, got the impression that people were seriously overextending themselves. They could afford a three-bed apartment comfortably, but instead went for a four-bed house that they could just about afford at the time - we all came across such people during the boom. There was no margin of error, no contingency plan, nothing to fall back on.

You will never account for every eventuality, but a lot of people didn't seem to account for any eventuality.

The people I have issue with are those who are paying their mortgage with a struggle but are still paying it, yet somehow think they should get debt write down because they are struggling/in negative equity. Its as if people have forgotten that for the vast majority of family's balancing finances is a struggle and that is NORMAL.

The World owes us a living; we have a long tradition of that philosophy in Ireland.

wonder88

Do people think that high house prices is a good thing for the country? If you can pay your mortgage negative equity should not matter to you, unless you considered your house as an investment. Now you have a problem, just like the person who purchased shares in the Irish banks, a problem for you but not for society as the state can't compensate people for investments that go wrong.
There is something wrong with a country that has a population density to size of Ireland, having it citizens spending such a high % of their income on housing. But it seems that people can't accept this, especially after so much resources having been spent on supporting high property prices, from rent allowance to mortgage interest relief and numerous other financial supports from the state. It seems now that we are going to reward people who refusing to pay back loans that they freely sign up for. This is not to say that there are people who are in genuine difficulty, but write downs on their loans should be the very last resort and only for a tiny few.

clairefontaine

'Im not a homeowner so forgive my ignorance, but is there insurance you can buy in case you lose your job, get very ill and cant work, or the government imposes a gigantic universal social charge on your paycheck which makes it really hard or impossible to pay your mortgage?

While unemployment or illness maybe a reasonable risk calculation, crazy over inflated confiscation of funds by the government for corporate welfare is not a reasonable risk consideration.

Ryder

wonder88 wrote: »

Do people think that high house prices is a good thing for the country? If you can pay your mortgage negative equity should not matter to you, unless you considered your house as an investment. Now you have a problem, just like the person who purchased shares in the Irish banks, a problem for you but not for society as the state can't compensate people for investments that go wrong.
There is something wrong with a country that has a population density to size of Ireland, having it citizens spending such a high % of their income on housing. But it seems that people can't accept this, especially after so much resources having been spent on supporting high property prices, from rent allowance to mortgage interest relief and numerous other financial supports from the state. It seems now that we are going to reward people who refusing to pay back loans that they freely sign up for. This is not to say that there are people who are in genuine difficulty, but write downs on their loans should be the very last resort and only for a tiny few.

can you name a bank that extends loans to buy shares? are there many examples of people taking out loans to buy 200,000+ worth of shares?...any examples?

comparing negative equity AND inability to pay, due to loss of income, to gampling on stocks is revisionism at its best. mainstream advice in the boom was that property investment (not speculation) was prudent. a lot of the arguements against this now are from a minority who saw the bubble and a majority who could not get a mortgage.

in any event i think the horse has bolted and gone out of sight on this one...if you were in distress, you would need to be crazy to surrender your house and spend the rest of your life throwing a percentage into the banking hole considering the secret write downs and tourist defaults that have already gone down

faceman

An issue with negative equity and discussions about it is that people look at it in exclusivity without considering other factors. There are always reasons why negative equity occurs and generally, its because of a recession. Nobody wants a recession, even punters who don't own a house

Another issue with discussions on negative equity is the 'me vs you'debate, the 'why should i pay for your sins' argument which is pointless as it has no relevance to the cause or solution for the problem. If my neighbour gets cancer as the result of smoking, I don't begrudge tax payers money being used to help him.

The tabled insolvency solution that the government is going to sign into law is weak, unbalanced and won't address the issue. I expect that we are going to see further bailing out of the banks in the years to come.

wonder88

In reply to Ryder, an example of loans to buy shares would be Anglo-Irish bank to Séan Quinn and an even better deal to a group of 10 of their most trusted borrowers know as the "golden circle". They even got a better deal than the Quinns, in that their loans were only backed by the value of the shares; in other words non-recourse. Whatever you say about Quinn it seems that he was never an insider in the Irish elite. It seems that a lot of people who borrowed and speculated to accumulate by buying houses now want their loans to be non-recourse as well. It looks like some will be sucessful, but it is only going to maintain housing at such an expensive level in Ireland. My opinion is that expensive housing is not good for any society.

Ryder

wonder88 wrote: »

In reply to Ryder, an example of loans to buy shares would be Anglo-Irish bank to Séan Quinn and an even better deal to a group of 10 of their most trusted borrowers know as the "golden circle". They even got a better deal than the Quinns, in that their loans were only backed by the value of the shares; in other words non-recourse. Whatever you say about Quinn it seems that he was never an insider in the Irish elite. It seems that a lot of people who borrowed and speculated to accumulate by buying houses now want their loans to be non-recourse as well. It looks like some will be sucessful, but it is only going to maintain housing at such an expensive level in Ireland. My opinion is that expensive housing is not good for any society.

that's your example? Seriously?

There's undoubtedly people who speculated as opposed to simply bought a home - really easy to separate the two,,,,if there's a will

Moral hazard and strategic default are the new buzz words, with little evidence for their existence, but are used to manipulate public opinion. Bottom line is that sticking plaster solutions to the problem are destined to fail

K-9

clairefontaine wrote: »

'Im not a homeowner so forgive my ignorance, but is there insurance you can buy in case you lose your job, get very ill and cant work, or the government imposes a gigantic universal social charge on your paycheck which makes it really hard or impossible to pay your mortgage?

While unemployment or illness maybe a reasonable risk calculation, crazy over inflated confiscation of funds by the government for corporate welfare is not a reasonable risk consideration.

My understanding is they usually last a year, come with the usual T & C's and if I'm correct, cover interest only. Could be wrong on the interest part though.

KELTICKNIGHTT

The Corinthian wrote: »

With all due respect, if your home is now worth 43% of the original price and you already were able to pay of 40%, it's not as if that "certain amount" to clear your mortgage is going to be gigantic. If so, you've lost the money you put into the property personally but it would appear that negative equity is not really your problem.

More importantly, it sounds as if you didn't account for the possibility of losing employment, or seeing a big decrease in income from your employment. Did you think that the good times would never end? That you could never lose your job or work dry up? How long is your mortgage for? Ten years? Twenty? And it never occurred to you that economies and circumstances can drastically change over the lifespan of the debt?

I'm curious to know because it's not as if you needed the benefit of hindsight to consider these things, at the time.

you seem to have got this wrong very much

i said i put 40 % of my money into the house which included the price of site which at time sites where very over priced , but which then i lose more than 40% , and as of now my house is 54% worth less sinse 2009, as now my house in negative , , i wouldn't get enough to pay off mortgage , so my 40% gain was lost.

as far as you comment about hindsight , a bit of a silly comment to make to be realistic when you don't know all the facts and figures which i'm defo not going to put on a public forum.
my house in negative due to downturn of property prices , i know some are in worse negative value , as far as putting in if employment was less , i did put that in ,, but a huge drop in value wasn't foreseen and no did unless you have a crystal ball lol

no one situations are as easy as you like to portray

theres lots of negatives to consider and alot things happened the biggest is the negative equity specially by a large amount
regards

KELTICKNIGHTT

The Corinthian wrote: »

I'm not suggesting people should take the extreme road of zero risk - thus never investing, as zero risk is unattainable. However, there is a difference between getting a mortgage that stretches you to the limit in even a best-case scenario and one that contains margins of error, considering that you may end up in negative equity or that your income (especially if self-employed) could end up a fraction of what it is during a boom.

According to KELTICKNIGHTT, (s)he isn't even in negative equity; sure, they've lost the money they invested directly into it, but that's not a debt (I presume) and once you calculate the drop in value you actually find they are nominally 3% in positive equity - I say nominally as once you consider interest and other costs, they're probably running at a loss overall.

However, that loss isn't likely to be very big, so you have to ask questions as to why they to were so tight on their calculations when getting the mortgage in the first place that the 'certain amount' to clear their debt is unattainable, even though it's likely not that large (based on what we've been told).

I get and, and when this was going on, got the impression that people were seriously overextending themselves. They could afford a three-bed apartment comfortably, but instead went for a four-bed house that they could just about afford at the time - we all came across such people during the boom. There was no margin of error, no contingency plan, nothing to fall back on.

You will never account for every eventuality, but a lot of people didn't seem to account for any eventuality.

The World owes us a living; we have a long tradition of that philosophy in Ireland.

Some people did live beyond there means , but most didn't , so shouldn't paint everyone with same brush ?.. plus hindsight is a great but too many negative things caught most people out .
Also property was very over priced which was fueled by developers and banks , then some people went beyond there means but a lot didn't .
I did state i lost 54-57 % which means im in negative, the 40% was taken up with buying the sites and other negatives , specially when i said the house is worth less than i owe than the mortgage and not worth selling currently I I see others lose more than me ..
I also said we fractured in loss in employment but no one could fact in the huge negative loss every property lost sense .

I also said there not much difference between renting or paying a mortgage now specially when you consider all the new taxes and charges coming . so seem to rent might be a better option now
most people in this country who are trying to keep and pay for there family home , between recession and negative value on there home and employment , There's no easy solution here and this new insolvency solution don't see it as being better , Only worse option the government thought up, and looks like the government is helping look after the banks interest more than the home owners who really don't own there homes any ways ,
And even with the new insolvency solution the government is bringing out , the bank has last word .

Ryder

Ryder wrote: »

can you name a bank that extends loans to buy shares? are there many examples of people taking out loans to buy 200,000+ worth of shares?...any examples?

comparing negative equity AND inability to pay, due to loss of income, to gambling on stocks is revisionism at its best. mainstream advice in the boom was that property investment (not speculation) was prudent. a lot of the arguments against this now are from a minority who saw the bubble and a majority who could not get a mortgage.

in any event i think the horse has bolted and gone out of sight on this one...if you were in distress, you would need to be crazy to surrender your house and spend the rest of your life throwing a percentage into the banking hole considering the secret write downs and tourist defaults that have already gone down

I do not think it just a question of why should some one else pay for your "sins" as you put it.

It is always going to be the tax payer who funds it one way or another, it is not going to come out of the banks profit (if they are making any ). Thus you have someone who is paying their mortgage ( with a struggle ) looking at someone else getting a large write down on the mortgage.

They are being hit twice because they won't get the write down on their own mortgage and their tax's will got up to fund the write down of someone else's mortgage.

If people are given a write down on their mortgages there should be consequences for them, such as severely restricting their access to credit for a very long time. I think in that way you could avoid the moral hazard argument.

faceman

mariaalice wrote: »

If people are given a write down on their mortgages there should be consequences for them, such as severely restricting their access to credit for a very long time. I think in that way you could avoid the moral hazard argument.

Why? Under existing bankruptcy laws you'd do less time in prison for committing a bank robbery.

Penalising people for "a very long time" has wider implications for the economy, consumer spending and bankruptcy tourism. That's why other countries don't penalise people as harsh.

Moral hazard is only an issue if someone goes out with the intention of not paying and getting debt relief. That's more a fraud issue (although its not defined as fraud) in my opinion. The equivalent of a what reckless trading is to a company director.

SBWife

I'd consider the 6 years under the proposed personal insolvency regime a long time.