Negative Equity

I expect like everyone else he will be stuck there 'til things come right with the economy. Who knows when that will be. Contemplating any move upladder is foolish. The real problem could arise if he gets to be unemployed..... The best thing he can do is some judicious improvements to his property if he can afford it.

The bank won't release the charge until the mortgage is paid off, and you won't be able to sell the house if you can't get the charge released.

That's something I think might be different this time from the 80s crash. I suspect that the banks might allow (or the government might insist) that negative equity be moved to a new home so as to allow people to move to jobs. However, I doubt that you will be allowed to upsize.

Tim.

Why not? What if the new job is upsized (i.e. a promotion)? What if your family upsizes? This isn't just a case of the government advising people in negative equity to use condoms, but one might already have children which were small enough to share a bedroom but have grown to the stage at which propriety demands they hav one each.

Of course, negative equity need not be a bar to moving. It may prevent selling, and even if it didn't one might still not be able to afford to buy again, but one doesn't have to sell and buy. One can rent out and rent.

Not so long ago, Northern Rock were lending up to 125% of the value of the property. That doesn't happen any more. Now lenders want a pretty large deposit.

Cool, you think an extension of the practice of 100%+ mortgages is the solution to our current woes.

For what is worth I was in negative equity in the 90's when I needed to move. I saved up paid it off and rented for a few years until I had a deposit for a mortgage on my current house.

No. I think it's a least bad alternative. Forcing people to stay in the same house when they cannot get a job until they get so far behind on their payments that the house is reposessed so that they're then eligible for taypayer handouts to pay for somewhere to live rather than allowing them to find another job and move to it seems foolish to me.

Yes, and I know of people who early in the recession wanted to sell up and rent because they couldn't really afford the mortgage and were refused because there was a few thousand of borrowing they couldn't pay off (They had an interested buyer who had made an offer). Three years later, after redundancy, their house was reposessed with ten thousand plus of negative equity. Rental income wouldn't have paid the mortgage and they hadn't even got the money to put down a rental deposit to rent somewhere else anyway.

I'm not really thinking about the people who got 100%+ mortgages, I'm thinking of the people who had 75% LTV who after a 60% fall in house prices have a 180% mortgage. There's no reason to suppose they won't continue to be able to pay the mortgage but they may be forced to move, expecially if companies are consolidating and their choice is redundancy or moving to another office.

Tim.

My view has always been that it is wrong to allow banks to pursue mortgage holders for anything other than the mortgaged house. Many US states still have this in law as a consequence of the great depression, for many of the reasons you outline.

We do have a law which prevents gambling debts being pursued. It is surprising this law is not extended to the biggest gamble most people take.

The Banks could easily adjust pricing to handle this option. One only hopes that in future that auditors will make a little more effort to understand how banks are valuing their mortgage contracts.

And as the stockmarket is just gambling by another name.....

There is a difference between a person gambling with money they have and gambling with money they don't have. There is also a difference between economically sophisticated companies and banks gambling as compared to the often naive individual.

That's if there's a bank that will do that. I suspect they may be more worried about their own problems than taking on everyone else's unsecured debt.

Mortgage? He expects a mortgage? He should do standup.

I dunno about the timing, but we're headed back to minimum 25% deposits and 2.5 times earnings, just like before the bubble started. Assuming of course that after this, anybody wants a mortgage again.

By far the most likely outcome. Unless of course Crash Gordon comes to the rescue with more hundreds of billions of our money to bail all these feckless individuals out of their stupidity.

FoFP

That's something I expect too, at least to some degree. The problem is that even if you can take your bad debt with you, it's still very expensive to find all the transfer and moving costs when you have to pay cash for them.

I suspect that most in negative equity will be staying put unless the bank permits a transfer of unsecured debt *and* a new job pays all the moving costs.

FoFP

If the bank (which owns the property) permits it. I've a feeling that many won't.

FoFP

Banks do not "own the property"!

It would not be sensible for a bank to withhold permission, because to do so would likely put them in a worse position.

I'm not au fait with the legal wording, but the gist is that while you have a loan out against the property, the bank can say what you can do with the property. To me ownership is when it's yours to do with what you want. certainly I wouldn't feel as if I owned something if I was owe money on it.

That depends on where the bank thinks things will go. Tenants don't have the incentive to be as careful with property. If the bank thinks it will end up a reposession, it wouldn't want it battered about by tenants first. Then there's the issue that the sooner a reposession happens, the less the negative equity outstandng after a sale.

FoFP

"M Holmes" wrote

Only insofar as it's in the mortgage contract!

"M Holmes" wrote

You'll *never* get that. The laws of the land restrict even a freeholder...

Suppose you owed no money on anything, and that amongst various assets you owned there was one (call it item A (perhaps a house)) which was suitable for securing a loan against, and that you (I use the term "you" generically, since clearly you personally wouldn't dream of doing this) did in fact borrow against item A in order to buy something else (call it item B (perhaps a car or a boat)). Now, which of items A or B would you consider you didn't "really" own?

You may think of it as a mere legal nicety, but just because you have secured a loan against something, this doesn't mean you no longer own it. You simply agreed to comply with certain conditions of the loan. Hence why in the case of repossessions (in a positive equity situation, where the borrower has failed to keep up payments) the lender sells the house not as owner but on behalf of the owner, so any money left over from the forced sale once the debt, interest, and expenses have been discharged, the rest goes to the borrower. If the borrower didn't *own* the property, the extra would go to the lender, wouldn't it? The flip side of course is that in a negative equity forced sale (where the excess is negative), the lender doesn't just take it on the chin, but will pursue the owner for the balance which he continues to owe despite having been thrown out onto the street.

Well, there is that, which is why letting loans tend to have slightly higher interest rates than "normal" loans. But this is also perhaps because landlords embarking on a letting venture on a commercial basis from the outset may be less bothered about looking after it (and making sure their tenants look after it) to the same extent as when it's "their home" they're letting out and are contemplating moving back into at some stage.

If they're going to totally trash the place, that may influence them, but slightly enhanced general wear and tear isn't going to affect the sale proceeds by all that much, particularly at an auction sale.

Well, the opposite is as likely. If the owner gets rent coming in, it'll be more likely that he can keep up the repayments, which will

At that point I wouldn't consider that I really owned either. As you point out though, my views on debt are not mainstream. Though I expect them to be substantially more mainstream by the time we're through what's coming.

I think that's quite fair.

That's fair too.

Then surely if someone plans to "let to let" as you say, the bank would need to know to increase the interest rate on the loan? (assuming it would go along with the plan at all).

It will be interesting to observe how the banks deal with such solutions as they're offered them.

Unless we're in a deflation which causes rents to decline.

I agree with the substance of your argument though: there are many factors to be weighed against each other when looking at it from a bank's point of view.

FoFP

How did the Americans get into a position where they have no-recourse loans and we don't?

Was it a regulatory thing or did somebody offer it and all the rest felt they had to do the same to match it?

Neb