Saturday, Dec 13, 2008
Don't worry they wont invoke it!!!
BBC News: Abbey explains mortgage warning
Abbey sent a letter telling mortgagors if their home's value had fallen so the amount borrowed was more than 90% of its value they could have to pay a lump sum to reduce it.
"After it sent the letters the Abbey said it had no plans to invoke the clause forcing borrowers to do that." - er then why send it?
Posted by techieman @ 08:56 AM (884 views) Add Comment
15 Comments
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1. Eternal Sceptic said...
Reality will shortly impinge on the masses. This letter would not have been drafted, let alone dispatched, unless they aim to enforce it. My guess would be around easter 2009, by which time cheap supermarket beer and endless runs of coronation street will no longer be able to paste over the cracks for Joe public. Prices for property will continue to crash while unemployment soars. Bankers will still receive obscene bonuses and pensions, as do failed public sector workers. When the minority still earning a wage for a proper job realise how much dross they have to support, there will undoubtedly be ructions. Jusrt to make the picture complete I can foresee several plausible scenarios where power will be rationed along with fuel and food. Happy Xmas: it may be the last.
2. a saver said...
Ooh GB won't like this! What harebrained scheme will he implement to protect those poor homeowners who overborrowed?
3. Ketha said...
The BBC were a little unfair in reporting this as second billing news item. It's a flexible mortgage, one which you can overpay and underpay. It's a logical step and i'll be the letter was sent automatically.
4. plato said...
This looks like another hint of troubles brewing at Satander. Restricting future loans in a falling market is not unreasonable as this whole concept was based on rising property values. The lump sum however is a bit of a shocker and looks like a means of clawing back over the top lending on false valuations in the first place, which looks a bit 'after the fact' to me. Saying that; the clause in the contract does cover this eventuality so technically Abbey have the right.
I'm sure government will apply pressure to ensure this doesn't materialise, but this opens the possibility that customers may be in for some kind of deferral at the end of the day, so effectively - even more debt.
5. down wave said...
They are pulling the Rug from under mortgagor's feet and it will morph into a flying carpet.
6. mark said...
from my understanding of small print over the years, if your houses value falls and is lower than your mortgage then you are in theory in default, well thats my understanding of the fine print....
7. crunchy said...
Looks like ABBEY are bricking it.
Gordon?
8. wiltshire said...
Of course they'll use this clause if they get the chance. Lenders would hope to never have to use such a clause because if they do they're going to be in serious financial pain themselves and must not see any short term easing of market conditions. But this is going to be the mother of all house price crashes and lenders are going to have to get pretty strict if they're going to survive. If it does get to this point at least it will be another sharp lesson about borrowing within your means.
9. little professor said...
MARGIN CALL!!!
10. plato said...
mark @ 10:45
We need an expert on this: "if your houses value falls and is lower than your mortgage then you are in theory in default"
The fact is that the mortgage exceeds the value, wiping out the LTV originally agreed. If it is stipulated in the first place that should this occur the difference must be made up within a certain period,then it is not a theory but a fact. The theory part comes as to whether any action is actually taken in this respect. Has there been a precedent?
11. str 2007 said...
Well having been quite vocal on here over 6 months ago about margin calls I have to get word in on this one.
As far as I'm aware regular mortgages don't have a margin call clause.
Flexible type mortages do however - it's part of the deal. Everyone gets very upset, but that was the deal.
In practice I doubt these will get called in the end I suspect they're just testing the water.
However, BTL mortgages most certainly do have margin call contracts and these are (or at least should be) viewed as businesses. These I believe will be invoked and should be, otherwise lenders aren't protecting their businesses.
Where the trouble will come is when BTL margin calls are made and Landlords have to release capital from their main residence to meet these margin calls.
As the Post yesterday with Raja the factory worker and his 40 properties demonstrates, there is no way alot of margin calls will be successful. However some will and the ones that will pay are the middle class families with perhaps 1 or 2 BTL's.
To sum up - this I believe is a test to judge reaction from general public and government - Abbey will relinquishe this battle - then go for the BTL brigade.
Alot like gaining planning permission for a house - apply for 6 houses, come down to 3, then settle on the 1 you originally wanted (and wouldn't have got if you asked for 1 inthe fiurst place).
BTL margin calls by June 2009 - latest.
12. paul said...
The reason why the couple are so upset is because it has 'brought home' to them the fact that their property is declining in value. Before they received this letter, many homeowners were in denial ("but our area is different"), now they've got proof in their hands that their property is going down in value.
13. crunchy said...
8. wiltshire said...If it does get to this point at least it will be another sharp lesson about borrowing within your means.
I think it's more a case of lending within the banks means. The bank could be hinting to Government that they should step in and cover any short fall in equity, in order to allow banks the freedom of not repossessing if the owner cannot raise the cash..
14. it_is_going_with_a_bang said...
"But Abbey says it has no plans to use the clause to force borrowers to do so.
However, it did not guarantee that it would not do it in future."
or
I won't today but I might tomorrrow.
Reading the article I would say the Abbey have every intention of implementing the clause if they feel they want to - which is why they sent the letters out.
There is nothing automated about it - I would have thought more a point of Law that they need to warn there customers well in advance of implementing the clause.
15. str 2007 said...
See gardiniadotnets FORBES ARTICLE re: DEVALUATION post at 10.20 on main board (not this thread) for a possible solution to negative equity.
Could have serious implications to us if it was implemented.