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Coming soon: negative equity mortgages

  • 21-06-2010 05:37PM
    #1
    Closed Accounts Posts: 39,019 ✭✭✭✭


    This post has been deleted.


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Comments

  • Closed Accounts Posts: 9,364 ✭✭✭ei.sdraob


    This post has been deleted.

    Yes this is a good idea

    since it demolishes the main argument the Matt Cooper's "NAMA for Reckless & Gullible Fools" brigade has

    that people in negative equity cant move home if they need to get job etc ....



    aside: funny how negative equity is not a problem for people who get a car loan for a new car and are straight away in "negative equity" by few grand the moment they put a number plate on and their "negative equity" grows over time ... oh i forgot "house prices can only ever go up" :D


  • Closed Accounts Posts: 10,007 ✭✭✭✭thebman


    Its going to be a necessity. I think it will be good as it will keep house prices somewhat stable in areas people want to live while making the ghost estates truly empty if implemented properly.

    I think it will probably turn out bad as banks will limit it very strictly and try not to let the above occur as they won't house prices in crap areas go down too much as it isn't in their interest.


  • Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    thebman wrote: »
    Its going to be a necessity. I think it will be good as it will keep house prices somewhat stable in areas people want to live while making the ghost estates truly empty if implemented properly.

    I think it will probably turn out bad as banks will limit it very strictly and try not to let the above occur as they won't house prices in crap areas go down too much as it isn't in their interest.

    I think the opposite would be the case. This is based on the assumption that a negative equity mortgage will not advance any additional credit to the borrower which i think is going to be a pretty obvious condition.

    If implemented the borrower will be incentivised to sell their house in a decent location and move to cheaper accomodation, e.g. partially sold developments, to try to reduce or eliminate their negative equity and hopefully reduce their mortgage to reflect their newly lowered earning power. Obviously some of these developments are so far from civilisation that they will never be filled (unless they are taken over during the upcoming Chinese invasion :)), but i reckon there will be upward pressure on cheaper homes and downward pressure on more expensive homes.


  • Closed Accounts Posts: 10,007 ✭✭✭✭thebman


    Scarab80 wrote: »
    I think the opposite would be the case. This is based on the assumption that a negative equity mortgage will not advance any additional credit to the borrower which i think is going to be a pretty obvious condition.

    If implemented the borrower will be incentivised to sell their house in a decent location and move to cheaper accomodation, e.g. partially sold developments, to try to reduce or eliminate their negative equity and hopefully reduce their mortgage to reflect their newly lowered earning power. Obviously some of these developments are so far from civilisation that they will never be filled (unless they are taken over during the upcoming Chinese invasion :)), but i reckon there will be upward pressure on cheaper homes and downward pressure on more expensive homes.

    Maybe but many people won't go to live in those estates unless they have no choice and can't make repayments on existing mortgage I imagine.

    Most people able to afford their mortgage will want to move into the more expensive areas.


  • Registered Users, Registered Users 2 Posts: 1,623 ✭✭✭lubo_moravcik


    I'm in negative equity, and although i can afford to pay my mortgage i would love to be able to sell up under this proposal and move closer to the city. i do'nt mind moving into a smaller place, apartment would even do just to get out of the country and back to normal living.


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  • Closed Accounts Posts: 1,914 ✭✭✭danbohan


    This post has been deleted.


    i think we may have a lot 90 year olds still paying mortgages in the future at this rate.


  • Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    danbohan wrote: »
    i think we may have a lot 90 year olds still paying mortgages in the future at this rate.

    I assume that they wouldn't change the term of a mortgage or increase the total amount owed, it just let's you transfer your negative equity to another property of a similar or lesser value.


  • Closed Accounts Posts: 1,914 ✭✭✭danbohan


    Scarab80 wrote: »
    I assume that they wouldn't change the term of a mortgage or increase the total amount owed, it just let's you transfer your negative equity to another property of a similar or lesser value.

    yes probably , but what if house you move too continues to fall in value your negative equity will continue to increase ?. but overall it probably is one way to bring some freedom of movement to people who could remain trapped in negative equity for many years , and its a bit realistic unlike the nama type2 put forward by matt cooper n friends


  • Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    danbohan wrote: »
    yes probably , but what if house you move too continues to fall in value your negative equity will continue to increase ?. but overall it probably is one way to bring some freedom of movement to people who could remain trapped in negative equity for many years , and its a bit realistic unlike the nama type2 put forward by matt cooper n friends

    If your house continues to fall in value you would most likely be in the same situation as if you hadn't moved assuming a general decrease in the property market as opposed to an area specific decrease.

    I think it's the best (only?) solution out there to the problem, allows people to move if they want and to downgrade if they find that they can no longer afford their mortgage. Can't see any rational argument against it other than "where's my free money?" and "we need to borrow to stimulate the economy".


  • Closed Accounts Posts: 1,914 ✭✭✭danbohan


    Scarab80 wrote: »
    If your house continues to fall in value you would most likely be in the same situation as if you hadn't moved assuming a general decrease in the property market as opposed to an area specific decrease.

    I think it's the best (only?) solution out there to the problem, allows people to move if they want and to downgrade if they find that they can no longer afford their mortgage. Can't see any rational argument against it other than "where's my free money?" and "we need to borrow to stimulate the economy".


    dont worry the ''wheres my free money brigade '' will be along shortly!


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  • Registered Users, Registered Users 2 Posts: 27,644 ✭✭✭✭nesf


    danbohan wrote: »
    yes probably , but what if house you move too continues to fall in value your negative equity will continue to increase ?. but overall it probably is one way to bring some freedom of movement to people who could remain trapped in negative equity for many years , and its a bit realistic unlike the nama type2 put forward by matt cooper n friends

    Negative equity is only a problem if you want to move really. If someone avails of such a mortgage and moves to a home they can realistically live in for the long term then a short term increase in negative equity isn't a big problem so long as they can continue to repay the loan.


  • Registered Users, Registered Users 2 Posts: 12,089 ✭✭✭✭P. Breathnach


    danbohan wrote: »
    i think we may have a lot 90 year olds still paying mortgages in the future at this rate.

    That's not necessarily a bad thing. The alternative is having their 65 year old children getting impatient about their inheritance.


  • Registered Users, Registered Users 2 Posts: 1,049 ✭✭✭Dob74


    This post has been deleted.


    This is another terrible idea. It will just force prices higher and will lead the banks into more finanical trouble.
    But when you have the taxpayer to bail you out, sure any ole scam is worth a try.


  • Closed Accounts Posts: 3,212 ✭✭✭Jaysoose


    ei.sdraob wrote: »
    Yes this is a good idea

    since it demolishes the main argument the Matt Cooper's "NAMA for Reckless & Gullible Fools" brigade has

    that people in negative equity cant move home if they need to get job etc ....



    aside: funny how negative equity is not a problem for people who get a car loan for a new car and are straight away in "negative equity" by few grand the moment they put a number plate on and their "negative equity" grows over time ... oh i forgot "house prices can only ever go up" :D

    Sigh...really expected better from you but then repeating the same smug comments over and over will get your post count up i suppose. Well done.


  • Closed Accounts Posts: 9,364 ✭✭✭ei.sdraob


    Jaysoose wrote: »
    Sigh...really expected better from you but then repeating the same smug comments over and over will get your post count up i suppose. Well done.

    Nothing intelligent to post on the subject itself no?

    This allows people to move homes and take their debt with them so can continue to repay it (and hell maybe in 10-20 years time they be back in positive equity, well so goes the NAMA plan), how is that a bad thing?? as an added bonus it puts a stake trough the nonsense arguments of the likes of Matt Cooper


  • Closed Accounts Posts: 3,212 ✭✭✭Jaysoose


    ei.sdraob wrote: »
    Nothing intelligent to post on the subject itself no?

    This allows people to move homes and take their debt with them so can continue to repay it (and hell maybe in 10-20 years time they be back in positive equity, well so goes the NAMA plan), how is that a bad thing?? as an added bonus it puts a stake trough the nonsense arguments of the likes of Matt Cooper

    Now thats better, no need for sarcastic comments and attempts at humour comparing car loans to mortgages...snort snort..guffaw.

    What does smug taste like by the way?


  • Registered Users, Registered Users 2 Posts: 3,375 ✭✭✭kmick


    Example
    Current Mortagage 250k
    House Value 150k
    Negative Equity Carried Forward 40%

    New House Price 250k (Assuming buyers can afford roughly the same thing but in fact it will be bigger/better location than current property)
    Loan (say 85%) 212,500
    Plus Negative Equity 100,000
    Total Loan 312,500
    Negative Equity Carried Forward 32%

    Makes sense to me if you need a bigger place for a growing family or want to escape the daily commute from Cavan.


  • Registered Users, Registered Users 2 Posts: 68,173 ✭✭✭✭seamus


    Jaysoose wrote: »
    Now thats better, no need for sarcastic comments and attempts at humour comparing car loans to mortgages...snort snort..guffaw.

    What does smug taste like by the way?
    Any chance you could add some content to the discussion at some point?
    danbohan wrote: »
    yes probably , but what if house you move too continues to fall in value your negative equity will continue to increase ?
    But if they pay off the loan, there's no problem. I imagine most people in negative equity who have no intention of moving, actually couldn't care less. So likewise, someone who can move into a more appropriate long-term accomodation with their negative equity won't really care quite so much if it continues to drop in price.

    The car loan comparison is in fact apt. Negative equity or no, it's still a debt which is being repaid and will eventually be repaid. Negative equity isn't an eternal noose around someone's neck which only dissipates when property prices start to increase.
    Loan (say 85%) 212,500
    Plus Negative Equity 100,000
    Total Loan 312,500
    Negative Equity Carried Forward 32%
    This is actually something which will need to be clarified when these loans are made available. Most people won't have a deposit saved up to move into a new home. So the mortgage will need to be the purchase price + the negative equity. There won't be any equity put into the sale by the homebuyer. That is, if the purchase price is €250k and you mention a loan for €212.5k, where is the other €37.5k coming from? Nobody will have that saved up, because traditionally you used the proceeds from your current home sale to fund the deposit on your new home.


  • Closed Accounts Posts: 9,364 ✭✭✭ei.sdraob


    Jaysoose wrote: »
    Now thats better, no need for sarcastic comments and attempts at humour comparing car loans to mortgages...snort snort..guffaw.

    What does smug taste like by the way?

    I forgot houses are "special", yes its that sort of thinking that got us into this mess, ever heard of renting btw? :rolleyes:

    And yes comparing the 1st and 2nd most important purchases in a persons life (when borrowing is involved) is quite apt

    both are a product made out of materials and labour with various selling points/variables, both depreciate over time, both are used to make your life better and more productive

    oh i forgot houseprices can only ever go up :rolleyes:


  • Closed Accounts Posts: 3,212 ✭✭✭Jaysoose


    ei.sdraob wrote: »
    I forgot houses are "special", yes its that sort of thinking that got us into this mess, ever heard of renting btw? :rolleyes:

    And yes comparing the 1st and 2nd most important purchases in a persons life (when borrowing is involved) is quite apt

    both are a product made out of materials and labour with various selling points/variables, both depreciate over time, both are used to make your life better and more productive

    oh i forgot houseprices can only ever go up :rolleyes:

    Were did i say houses are special? i have heard of renting and have rented so im not sure what your getting at but knock yourself out.

    Comparing buying cars and houses is like comparing apples and oranges and are COMPLETELY different no matter how many times you say it and using one to make a point about the other is distorting reality in the extreme but then whatever keeps you happy.



    If people in negative equity have the opportunity to better their situation thriough a scheme like this then im all for it, they must face the reality of their situation and accept responsibility for the mortgages they have taken though as i feel people need to pay their own bills but then thats just me.


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  • Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    kmick wrote: »
    Example
    Current Mortagage 250k
    House Value 150k
    Negative Equity Carried Forward 40%

    New House Price 250k (Assuming buyers can afford roughly the same thing but in fact it will be bigger/better location than current property)
    Loan (say 85%) 212,500
    Plus Negative Equity 100,000
    Total Loan 312,500
    Negative Equity Carried Forward 32%

    Makes sense to me if you need a bigger place for a growing family or want to escape the daily commute from Cavan.

    I would doubt very much if banks are going to extend additional credit to borrowers in negative equity. I would expect that the total amount that could be spent on a new property would max at the sales price of the current home.


  • Registered Users, Registered Users 2 Posts: 68,173 ✭✭✭✭seamus


    Scarab80 wrote: »
    I would doubt very much if banks are going to extend additional credit to borrowers in negative equity. I would expect that the total amount that could be spent on a new property would max at the sales price of the current home.
    I'm not so sure. What you're doing in that case is forcing the borrower to move to an entirely different area - likely one which is less desirable or outside of the major urban areas and where house prices are less likely to be stable. If I have an apartment in Dublin 14 which I can sell for €250k, there's no way I can buy a 3-bed house in the same area for that money. So I need to move to Tallaght or Clondalkin or even out to a commuter town in Navan, where house prices will take longer to stabilise.

    On the other hand, if you allow the borrower to stay within a more desirable area, but change to a more desirable home type, then long-term you're looking at a more stable asset, even if the size of the mortgage is larger.

    I imagine they're not introducing these loans willy-nilly. The banks have spotted that in the short to medium term, family homes will bounce and apartments will continue to flounder because we have far too many of them and far too many which are inadequate for anything but rental accomodation. So convincing people to move from apartments will stabilise their loan book, even if it does inflate it.


  • Posts: 5,250 ✭✭✭ [Deleted User]


    Scarab80 wrote: »
    I would doubt very much if banks are going to extend additional credit to borrowers in negative equity. I would expect that the total amount that could be spent on a new property would max at the sales price of the current home.
    I guess that is the only way to make this work without increasing the amount lent. If people have managed to save some cash from redundancies or whatever I guess they could trade up.


  • Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    seamus wrote: »
    I'm not so sure. What you're doing in that case is forcing the borrower to move to an entirely different area - likely one which is less desirable or outside of the major urban areas and where house prices are less likely to be stable. If I have an apartment in Dublin 14 which I can sell for €250k, there's no way I can buy a 3-bed house in the same area for that money. So I need to move to Tallaght or Clondalkin or even out to a commuter town in Navan, where house prices will take longer to stabilise.

    On the other hand, if you allow the borrower to stay within a more desirable area, but change to a more desirable home type, then long-term you're looking at a more stable asset, even if the size of the mortgage is larger.

    I imagine they're not introducing these loans willy-nilly. The banks have spotted that in the short to medium term, family homes will bounce and apartments will continue to flounder because we have far too many of them and far too many which are inadequate for anything but rental accomodation. So convincing people to move from apartments will stabilise their loan book, even if it does inflate it.

    Whatever judgements banks make about the security or otherwise of certain asset classes will be made largely irrelevant by new regulation. See yesterdays report from the financial regulator. They don't go into detail at the moment but it is clear that there is going to be greater restricition on lending limits and stress tests.
    We anticipate that, as part of a series of legislative amendments following the restructuring of the Central Bank, we will be given broader regulatory powers which would include the ability to prescribe lending limits.

    Therefore if someone qualified for a certain loan under the old unregulated system, under the new system they will qualify for a lot less, especially if they have suffered pay cuts since they took out their mortgage. Remember that the fall in property values will only benefit first time buyers, people already in the market will have to finance their negative equity in new loans.

    I would imagine that it would be possible to get increased credit on a ne loan if someone's personal circumstances have improved dramatically but these will probably be in the minority.

    Also remember that banks have a vested interest in moving people out to the country into unsold housing estates as this money will be offsetting losses on their development book.


  • Closed Accounts Posts: 1,914 ✭✭✭danbohan


    Scarab80 wrote: »
    If your house continues to fall in value you would most likely be in the same situation as if you hadn't moved assuming a general decrease in the property market as opposed to an area specific decrease.

    I think it's the best (only?) solution out there to the problem, allows people to move if they want and to downgrade if they find that they can no longer afford their mortgage. Can't see any rational argument against it other than "where's my free money?" and "we need to borrow to stimulate the economy".


    interesting article here http://trueeconomics.blogspot.com/, , he does not seem very impressed


  • Registered Users, Registered Users 2 Posts: 2,458 ✭✭✭OMD


    ei.sdraob wrote: »

    aside: funny how negative equity is not a problem for people who get a car loan for a new car and are straight away in "negative equity" by few grand the moment they put a number plate on and their "negative equity" grows over time ... oh i forgot "house prices can only ever go up" :D

    Of course negative equity is a problem for people buying a car and especially for the bank lending the money. That is why the rate of interest is so much higher on car loans than on house loans.


  • Registered Users, Registered Users 2 Posts: 2,458 ✭✭✭OMD


    danbohan wrote: »
    interesting article here http://trueeconomics.blogspot.com/, , he does not seem very impressed


    This guy doesn't have much of a clue about much. Look at some of his other blogs. He cannot even understand basic maths. I really wouldn't listen to much of what he says


  • Closed Accounts Posts: 1,914 ✭✭✭danbohan


    OMD wrote: »
    This guy doesn't have much of a clue about much. Look at some of his other blogs. He cannot even understand basic maths. I really wouldn't listen to much of what he says


    funny enough i would put a lot more weight in what he says than our politicians , bankers or tethered economists !


  • Registered Users, Registered Users 2 Posts: 2,458 ✭✭✭OMD


    danbohan wrote: »
    funny enough i would put a lot more weight in what he says than our politicians , bankers or tethered economists !

    Try reading what he says. You will soon change your mind. That doesn't mean I trust everyone else, just I don't trust him.

    Even the example he gives here, he chooses a person who bought a property above average price, at the peak of the market, that has fallen more than the average and after only 4 years in this above average property they need to move to a bigger place. Yes it happens but hardly the people this measure is aimed at (if it ever goes ahead).


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  • Registered Users, Registered Users 2 Posts: 215 ✭✭dean21


    This is a scam by the banks to fool people in to giving up there trackers.
    If you move house you will have to take out a new mortgage and hence the banks will be making a profit on you.
    Hold on to you trackers and say where u are living and enjoy everday that you have the banks by the balls


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