Prime Time - 'Never buy a house again after having 100% mortgage'

gurramok

http://www.rte.ie/news/2009/0114/primetime.html (need realplayer, try realplayer alternative http://www.free-codecs.com/download/real_Alternative.htm)
EDIT : its 9min in, whole clip is worth viewing.

Watch the Portlaoise segment. Ordinary people say its worst than the 80's for job prospects.

Two people bought a house together on a 100% mortgage around the peak, they lost well paid jobs recently and still owe the excess debt after selling the house.

They have to pay 800 per month for 10 years to pay off the debt. They are now in public housing.

The 100% mortgage was obtained 'just like walking into a shop'

They bought because 'it was the right thing to do', 'the good times will last forever', 'all their friends were doing it', 'to get on the ladder before the prices go up' , 'rent was dead money' etc.

The reaction of the person at the end was that she will NEVER buy a house again.
This is a young generation scalded by the recklessness of their own decisions and encouraged to it by vested interests.

Very sad situation, i had said there should be no debt forgiveness in the other thread, i think there should be an overhaul of the bankruptcy laws as they are too stringent for people with debts.

Schuhart

gurramok wrote: »

This is a young generation scalded by the recklessness of their own decisions and encouraged to it by vested interests.

Indeed it is, or at least will be as its not over yet.

gurramok wrote: »

Very sad situation, i had said there should be no debt forgiveness in the other thread, i think there should be an overhaul of the bankruptcy laws as they are too stringent for people with debts.

I don’t understand what this amounts to in practical terms. What change do you envisage to bankruptcy laws that doesn’t involve debt forgiveness? I don’t necessarily disagree. I just don’t know what’s at issue here.

gurramok

Its too strict i think. Even if a bankrupt invokes bankruptcy, they have to pay off those debts for 12 years through whatever means they have even if its just social welfare.

As far as i know, it does not happen like that in other countries. Practically noone who has bought a house knows you cannot just hand back the keys like in the UK, there is widespread ignorance at this important information.

I think repossession is far enough for the debtor like in the UK, but they would not get away scot free in this scenario.
Maybe a blot of their credit record for 5 yrs to keep them away from getting a mortgage just like the ICB have you for 5 years if you default on a personal loan. 12 years i think is far too long, the indebted would be in middle age by then and their life ruined paying off huge mortgage debts on a house they no longer own.

It just seems too way too strict and unfair. It would prevent the person from even starting up a profitable business in year 7 as they would be refused credit for example.

buynow

Wow, is this really the case? I don't have / never had a mortgage, but in my head the worst that could ever happen with one is that you would have to give the house back. I didn't know that you would have to pay a difference to the bank.

I suppose this could explain the lack of foreclosures in Ireland compared to other places? you can't just hand in the keys.

I also wonder what the effect would be on how long it takes for the market to bottom out. With the bank's selling repossessed properties elsewhere I imagine it drives down the price quicker and gets the correction over with.

Schuhart

gurramok wrote: »

I think repossession is far enough for the debtor like in the UK, but they would not get away scot free in this scenario.
Maybe a blot of their credit record for 5 yrs to keep them away from getting a mortgage just like the ICB have you for 5 years if you default on a personal loan.

Do I take it the key point here is that if you default on a mortgage and the value of the house does not cover the debt, you want to see an amount of leniency?

That doesn't strike me as the right approach right now. Many folk are in negative equity. I'm sure that's a right pain. But I don't see how it makes it fairer to pass the costs on to the rest of society. Because its not as if the costs vanish into a black hole. If banks are left with a loss, then it just means their other customers will pay more. So people who made prudent decisions get penalised for the mistakes of others.

gurramok wrote: »

It just seems too way too strict and unfair. It would prevent the person from even starting up a profitable business in year 7 as they would be refused credit for example.

But, in fairness, its their debt to pay. Its not some arbitrary act to penalise them for no reason. In fairness, would you advance a loan to someone who had got into such difficulties in the past?

The actual effect of what you seem to be suggesting, if applied to loans to date, would be to increase the cost of credit for prudent people. I don't, on the face of it, see why they should carry this cost. Changing the basis on which folk got credit retrospectively is a recipe for a worse disaster.

The situation is unfortunate, and it might even be the first experience of unfortunate times for the people concerned. But other generations have also faced problems, and ones that were not of their own making. I'm not being smug in saying this. These are unpleasant lessons to learn, and it would be lovely if life did not involve such unpleasant events. But, indeed, some people will be saddled with debts that they freely entered into, but cannot now repay, and there is no easy road out of it for them that doesn't involve creating a very difficult road for everyone else.

Consider some of the other collateral damage. Because banks found they could stitch so many people up in debt, they now find themselves stuffed so they're less money generally in the country. So, for the sake of argument, people who have the unpleasant experience of having a child with autism - which is just a roll of the dice, and not something they particularly chose - will probably find there's less money for the services they need.

All difficult decisions. All involving people in difficult situations being told 'you'll just have to find a way'. I told that story from Electra Glide in Blue on the other thread. I really think that's all that needs saying.

Schuhart

buynow wrote: »

Wow, is this really the case? I don't have / never had a mortgage, but in my head the worst that could ever happen with one is that you would have to give the house back. I didn't know that you would have to pay a difference to the bank.

Indeed, but you understand the 'difference' is really just where the value of the repossessed house is smaller than the loan. So say you (just picking figures) took out a loan of 300k to buy a house for 330k, and default before any of the capital is repaid. If the bank only get 250k for your house, they are entitled to get the 50k from you.

The alternative, you understand, is that everyone who doesn't default ends up paying a higher interest rate to cover the 50k that's now missing.

gurramok

I see where you're coming from. Maybe if there were strict rules on awarding mortgages in the first place with 80% loan to value and 3.5 times income or something with strict regulation of the whole practice, we wouldn't have that case on Primetime.

Of course, a widespread information campaign in big writing(not tiny print) of the consequences of taking out a mortgage you cannot afford would be very helpful, just look at buynow's post

And then we could be lenient on those in debt with a reform of the bankruptcy laws.

Guess its too late now as the prudent will be punished via bank credit problems and/or taxes for the misdeeds of others but the system needs a whole reboot to start afresh to avoid sad situations of people in the program.

Schuhart

gurramok wrote: »

Of course, a widespread information campaign in big writing(not tiny print) of the consequences of taking out a mortgage you cannot afford would be very helpful, just look at buynow's post

Indeed, and even our Financial Regulator seems a little shy in highlighting this. All their ‘Do’s and Don’t’ list seems to say is

Don't default on a payment. Your home is at risk if you do not keep up payments on your mortgage or any loan secured on it. Even if your lender does not resort to repossessing your home, your credit rating will suffer and you may have difficulty getting approval for other loans.

It doesn’t seem to clearly tell you what your actual rights and obligations are – as in ‘Your lender may not only repossess your home, but pursue you for any shortfall in the loan’.

I know it might be argued that this was less critical when house prices were increasing. However, equally we had people getting 100% mortgages. It would seem to me that if you took out a 100% mortgage and defaulted early on, with perhaps some missed repayments being added to the debt, that it could well happen that the debt would not be completely covered.

So, indeed, I agree that we do need to improve financial education in the country – which is one of the jobs our Financial Regulator was meant to be doing. Again, while I know its always so clear in hindsight, it would look like telling us what a tracker mortgage is wasn’t the most important information gap.

That said, anyone who took out a tracker mortgage can presumably take comfort in the fact that their bank is crying.

dny123456

Schuhart wrote: »

That said, anyone who took out a tracker mortgage can presumably take comfort in the fact that their bank is crying.

Yep

gurramok

Maybe i'm getting a bit sentimental in my 30's:)

Watching that clip, i can relate to how a young person gets excited having the ability(credit thrown at them) to be able to 'afford' things.
I was through the mad credit phase in my 20's when i bought an overpriced 2 yr old car and never saved a cent.
I learned my lesson and thanked my stars it was only a car loan after interest costing about €10k as i know others up to their eyes with massive car loans triple the amount i had.

I know also a few who took out personal/mortgage loans in their 20's much higher than i did, thinking they can afford things when in fact its been a burden on their financial/mental health ever since and only copped on once the dreaded 30th birthday came

I just think many young people are naive in financial matters and not prudent and the bankruptcy law at present regarding mortgages is unfair for them as 12 years away from credit will hurt them badly till middle age.

Guess at the end of the day its regulation from Pat Neary who failed to regulate the financial sector to prevent the widespread personal debt that is a burden, as young uneducated people on financial matters were ruthlessly exploited by those institutions that were supposed to be regulated.

Agent J

I'm just reading the excuses they give.

"The 100% mortgage was obtained 'just like walking into a shop'

They bought because 'it was the right thing to do', 'the good times will last forever', 'all their friends were doing it', 'to get on the ladder before the prices go up' , 'rent was dead money' etc."

Talk about personal responabilty. It always someone elses fault.

If it convinces one more person that rent is not dead money then that at least is a good thing.

jd

What do people think of mortgages being Non-recourse? Is there a case to be made for it, at least for non-investment property? I agree that there are issues with personal responsibility, but looking at our wrecked economy are other issues more important?

ntlbell

on one hand I feel sorry for folks on the other i feel damn right confused

in one of the clips of a guy on the dole sitting there on his L shaped couch with a huge plasma stuck to his wall state of the art hi fi systems etc

Then the couple who had to sell up same again huge big screen tv surfing away on a laptop

with all their problems why wasn't the TV sold why do they have NTL/sky/broadband etc etc

abslotuley baffling

Schuhart

gurramok wrote: »

Watching that clip, i can relate to how a young person gets excited having the ability(credit thrown at them) to be able to 'afford' things.

In fairness, it would be inhuman not to see that side of things. Its not unlike a young person wrapping their car around a tree and ending up in an early grave. Maybe he should have been a more attentive driver. But he didn't set out to kill himself, or injure others, yet he did.

gurramok wrote: »

I just think many young people are naive in financial matters and not prudent and the bankruptcy law at present regarding mortgages is unfair for them as 12 years away from credit will hurt them badly till middle age.

I stand by 'Electra Glide in Blue'. If we move the goalposts, we're doing them no favours because we're deluding them into thinking that life is other than what it is.

gurramok wrote: »

Guess at the end of the day its regulation from Pat Neary who failed to regulate the financial sector to prevent the widespread personal debt that is a burden, as young uneducated people on financial matters were ruthlessly exploited by those institutions that were supposed to be regulated.

In fairness, that is only one element. People wanted to get the money. I'm thinking of all those stories of people including bonuses and overtime in their statements of income so they could borrow more - which isn't following the prudent advice given by the financial regulator.

Regulatory systems do need to improve. But, more than that, the basic maturity of people needs to imporve. We could have an excellent regulator, giving all kinds of sound advice, and it would just be ignored if people don't see that, at the end of the day, they are responsible if things go wrong.

Its an expensive lesson. But it simply is important that people realist that if they sign a legal document, it means something. If its all so complex, then the onus is still on you to know what you are signing. I mean, we all engage solicitors when we buy houses. The point is to make them work for the considerable fee we give them. Lets just remember to ask everyone lots of questions, so that we know what we're doing next time. Because the consequences of a mistake cannot be walked away from.

jd wrote: »

What do people think of mortgages being Non-recourse? Is there a case to be made for it, at least for non-investment property? I agree that there are issues with personal responsibility, but looking at our wrecked economy are other issues more important?

I think changing this now would be national suicide, as everyone in negative equity would avail of it. In other words, it would wreck our wrecked economy even more.

Bear in mind, our national survival depends on what we can export. If local consumer demand is depressed because of personal indebtedness, it doesn't matter that much to the general economy as so much of that stuff is imported anyway. In other words, whether you buy your knickers in Marks and Spencer in Belfast or Dublin doesn't matter that much. If you make the pair you're wearing last a bit longer, it doesn't matter either. But if we find we can sell lots of Jameson in Japan, that helps a lot.

ntlbell wrote: »

on one hand I feel sorry for folks on the other i feel damn right confused

You are not the only one who noticed. I saw it more as these symbols of past income become redundant. The unemployed journalist's 'dream house' was a McMansion in the countryside, and with his car repossessed he clearly had to cycle in to collect his dole. Yes, it was a palace. But a palace with zero market value. He can't eat his bathroom suites.

Again, all these feelings are only human. I think we can all see the importance of avoiding smugness, or of trampling needlessly on anothers pain. But the bottom line is personal responsibility. As some have said, the response to people in over their heads with mortgages should be exactly the same as someone who loses a job or is otherwise left penniless. We have social housing and social welfare. No-one will starve. Neither can anyone expect to have their debts wiped out and (as a direct consequence) paid by someone else who did not sign that contract.

Capt'n Midnight

gurramok wrote: »

I see where you're coming from. Maybe if there were strict rules on awarding mortgages in the first place with 80% loan to value and 3.5 times income or something with strict regulation of the whole practice, we wouldn't have that case on Primetime.

we would also need stricter laws on fraud and due dillengance (sp)
People should know that handing in an overinflated P60 is a an offence and the banks should check up on them. Also there should be more protection for "family" homes.

the overall effect is that there would be less money available for home buyers and so house prices would be lower. The only losers would be those trying to buy something that would stretch them too much.

instead we got a barely regulated upward spiral leaving people with 40 year mortguages so there are a lot of people who will have to weather every storm for the next two generations if they want to keep their houses

jd

Schuhart wrote: »

I think changing this now would be national suicide, as everyone in negative equity would avail of it. In other words, it would wreck our wrecked economy even more.

I should have clarified, I don't mean it should be non-recourse for existing mortgages.

Schuhart

jd wrote: »

I should have clarified, I don't mean it should be non-recourse for existing mortgages.

It would sound fine for future mortgages, and would certainly put the onus on banks to take more care in lending.

johnnyskeleton

I'm curious as to whether the bank actually expect the couple with no jobs and social housing to pay €800 a month

Firefox10

I rember when I was buying my place back in 2004, the advice I was given was to pay off as much of the mortage as I possably could and take out a tracker mortage. Tough times would be back. Of course this was all common sense to me. I was never one to be duped into this illusion of the so called celtic tiger. This was back in 2004 when I had friends at the time getting 100% mortages that they could not really afford.