Is this in any way viable?

Piriz

Considering the banks potentially have 100,000s of homes on their books: if an individual can not afford their mortgage; they should be offered a lesser house (within a specific distance perhaps).
e.g. if you own a mortgage of 500,000 but you can not afford this, you should be offered a house which is worth what you can afford.. fair is fair.
This places the more expensive homes back on the market..

Granted this is not a polished idea but is it worth any consideration?

D3PO

that idea in a way already does exist in a round about way. Sell your unaffordable house and get a NE mortgage and buy a smaller property.

the idea as your framing it would get little support as nobody is going to want to be told they have to pay a mortgage on a property they are offered rather than chosen themselves. I understand the argument that if they cant afford what they ahve tough.

which is why it will only work in a NE mortgage situation if banks were creative enough i.e garanteeing a NE mortgage offer of X to the person in advance of their house sale so that they know they wont sell then be rejected a new mortgage and be left renting and carrying the residual mortgage over. Of course it is complicated further if they have a tracker but if banks had some cop on and knew how to manage their mortgage books in an efficent way it could be viable to some people.

djimi

Im strugging to see what the banks stand to gain from this?

Piriz

they get to sell the higher value properties...thus getting a bunch of properties off their books, also they achieve a mortgage payment for lower value properties...

D3PO

djimi wrote: »

Im strugging to see what the banks stand to gain from this?

they would in essence be removing somebody from an unaffrodable mortgage situation to one that is affordable, this would also generate transactions in the housing market so potentially provide them gains on their loanbook by being able to lend more to good borrowers.

For example

Family of 4 have a house in Rathfarnham with a 700k mortgage bought in 2005, paying € 2,300 a month currently with their tracker.

Due to whatever changes to their financial circumstances this is no longer affordable. They have had to restruture with the bank (so are therefore classified as being in arrears which is ludacris by the way) they are now on interest only on their tracker but eventually they will have to pay off the capical and that looks unsustainable unless things change significantly.

They now owe €630k on this mortgage and capital not reducing, house is now worth 350k.

they sell and have 280k outstanding. Bank offers them a further 200k to purchase a house. They then go buy a house in Firhouse for example and have an outstanding mortgage of 480k instead of 630k. Bank allows them keep their tracker rate so said family are now paying off interest and some capital (if not an ideal amount of the mortgage)

bank has reduced their loss on the tracker - win
bank has a couple now reducing their overall capital liability to the bank - win
family have a home that they are not stressed about being able to afford - win


Now the obvious flaw is said mythical couple probably dont want to move from their 3 bed semi D in Rathfarnham to a smaller 3 bed semi D without a playroom in Firhouse.

BUT there are always always exceptions to the rule.

Piriz

[/QUOTE]
Now the obvious flaw is said mythical couple probably dont want to move from their 3 bed semi D in Rathfarnham to a smaller 3 bed semi D without a playroom in Firhouse.

[/QUOTE]

surely they can have two options... repossession or cheap alternative...

if you can no longer afford to pay your mortgage you should be given a few options to live in a cheaper house.... if you chose that they are not good enough then go rent.. no one should be in a house they can not afford...there is plenty of cheap alternatives, council houses, poorer quality houses that can be used up.

bobbyg

What happens to the balance of the "unaffordable mortgage"? Do the banks just write it off when they have moved the people to their new home?

Ritchi

bobbyg wrote: »

What happens to the balance of the "unaffordable mortgage"? Do the banks just write it off when they have moved the people to their new home?

From the above example, they keep the excess, 280k and transfer it to the new mortgage, the total outstanding has decreased for them, but the percentage their new house is in negative equity has increased dramatically.

D3PO

bobbyg wrote: »

What happens to the balance of the "unaffordable mortgage"? Do the banks just write it off when they have moved the people to their new home?

no it gets combined with the new mortgage. so in the above mythical example said couple who originally had 630k outstanding mortgage now have an outstanding mortgage fo 480k, now you could potentially have the bank also provide some of the tracker savings to the mortgagee to sweeten the deal.

i.e drop the mortgage by a further 10k to 470k. Would still provide the bank with savings on the tracker by reducing its liability and provides a sweetener to the loanee aswell.

Jo King

Piriz wrote: »

Considering the banks potentially have 100,000s of homes on their books: if an individual can not afford their mortgage; they should be offered a lesser house (within a specific distance perhaps).
e.g. if you own a mortgage of 500,000 but you can not afford this, you should be offered a house which is worth what you can afford.. fair is fair.
This places the more expensive homes back on the market..

Granted this is not a polished idea but is it worth any consideration?

The adminstrative load on the banks would be massive. They would have to have an empty house, then try and persuade their delinquent borrowers that they should move into it.
There would be endless viewings negotiations etc.
The banks prefer to keep things simple. Repossess, sell as fast as possible through an agent. Get onto next case.