Friday, Apr 17, 2009
Only 10% ? Do people really believe this stuff ?
BBC News website: Negative equity stops home moves
But it said two thirds of the 900,000 homes in negative equity had only a modest shortfall of less than 10%. That equated to an average of about £6,000 for first-time buyers in that situation, and £8,000 for the other home owners.
Posted by angonamo @ 08:22 AM (780 views) Add Comment
18 Comments
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1. uncle tom said...
Many households have secondary secured loans which I am pretty sure do not get counted when people like the CML try to tally the number of those in NE.
On its own, I don't think NE causes that many people to throw in the towel, but it acts as a catalyst to other problems.
People in NE are more likely to suffer from depression. They become entrapped in their homes, preventing them from re-locating to secure better jobs in other parts of the country. There is also the problem that people who have found their earning power greatly reduced by the economic downturn, then find that they are unable to downsize to a more affordable property.
In the 90's, people who got into NE generally took it quite badly, and hair-shirted their lifestyle until they got back into the black.
For most of them, the NE experiance was quite short-lived, with many getting their heads back above water within a year or so. This time the problem is going to be deeper and longer, and many people also have other substantial debts to worry about.
I don't think you can rule out the possibility of seeing large numbers of people with sound jobs going voluntarily bankrupt in order to 're-boot' their finances..
2. timmy t said...
It makes you wonder why mortgages over 100% are even legal. If this is the outcome with the so-called 'most brilliant minds' working in banking then God help us.
3. Alaninstockport said...
I agree with Uncle Tom. This time round negative equity is effecting established mortgage holders and not just first time buyers - when compared to the 80's. This means that the housing market is going to be stagnant for a lot longer than people are saying. I don't think we're going to see houseprice inflation return for at least five years. This will be when people have "de-leveraged" their debt and built up some savings, and after you have worked hard to achieve that debt repayment you think very carefully before going on a spending spree and accumulating yet more mortgage debt.
4. Aidanapword said...
6000 GBP for a FTB shortfall in equity is somehow not a big deal?
To move, an FTB in that situation would have to:
a) pay the transaction costs of the move (in the SE that could be anywhere near 4000 GBP)
b) raise the deposit on the next place (even 'just' 10% of the average house price is 15000 GBP - SE situation is worse)
c) raise the 6000 GBP to release them from the current place
25 000 GBP in cash would take the average person 1 year to raise (assuming: they pay 0% tax, eat nothing for the year and don't pay the mortgage on their current place at all) ... 25000 in cash will take them 250 months (or nearly 21 years!) at 100 GBP/month ... assuming the FTB can afford to save even that.
So how is NE of 6000 GBP for a FTB 'modest' I want to know?!?!?!?!?
Such unutterable tripe for the VI that is the BBC ... and I pay a licence fee for this rubbish?
Aidanapword
5. george monsoon said...
Uncle Tom, I have this vision of you being some retired financial expert, relaxing with the morning paper in loafers..
I agree with what you are saying, in that even without any negative equity, most homeowners are trapped, unable to contemplate moving because they are fighting to stay above water, servicing their other debts, high mortgage payments and general cost of living increases.
The more I watch this nightmare unfold, the more I realise how lucky I am to have resisted the urge to dive in and buy. I take cold comfort from this fact, because I know many people who have bought a first home within the last 5 years and are now starting to feel the bite.
But who is ultimately to blame for this mess? Is it Government policy? the unfettered banking practice of the last decade, or the British public, who unlike the rest of europe, just bend over and take it up the back passage without complaint.
So far, I predicted this crash (2 years later than I anticipated it would happen), I predicted the unravelling of the pound and dollar.
My next prediction is that we are going to see more and more frequent acts of civil unrest. This will be taken on board by the media who will have a field day over the events..
Our biggest threat is not terrorism (propoganda in its purest form), it is insurgency from our own people. We are living in very strange times and I really worry about my children's future.
6. shipbuilder said...
George, if you're really worried about your children's futures, then perhaps you shouldn't be seeing insurgency as a 'threat'? When do we stop dreaming that the next government are going to get us out of this and keep us out of it? When do we start to realise that the system is by them and for them? Unless something is done to change our economic and political system at a fundamental level, my children's future and your children's future is just another boom to look forward to, where the reckless, greedy and shallow rule, if they are lucky. You know it and I know it. Let's not kid ourselves.
7. bluebeach said...
George, chill.... six pints of wife beater tonight and all your worries will fade away... any predictions on the Lotto later?.... just between you and me of course :O)
8. mark wadsworth said...
The Beeb indulges in the usual Labour spin - "But the 900,000 estimated to be in negative equity now are fewer in number than the 1.5 million estimated to have been in this position more than a decade and a half ago."
Firstly, I think it's more than 900,000, surely it's half of people who bought in the last five years? (assuming avg. deposit 10% and 20% price fall, 1/2 x 5 x 76,000 buyers per month x 12 months per year) = about TWO million, but hey.
And even if it is only 900,000, that figure is going to more than double once prices have fallen another 20%.
9. george monsoon said...
My prediction for tonights lottery is big queues at the kiosks for people who still have hopes and dreams..
10. george monsoon said...
I think most of the negative equity is due to MEW, 100%+ mortgages and people who have been suckered into buying "luxury appartments"
11. timmy t said...
MW - agreed. Don't forget we only officially entered recession recently, and we are in a far worse position with this one because of the level of debt. In 18 months when we bottom out, the total amount of nequity will be huge (Assuming we don't become the next Zimbabwe).
12. uncle tom said...
George said:
"But who is ultimately to blame for this mess? Is it Government policy?"
Absolutely. A reckless lack of lending restraint leading to an unsustainable boom, compounded by a government that was so spendthrift it couldn't balance its books, even when tax receipts were at their highest.
"My next prediction is that we are going to see more and more frequent acts of civil unrest."
So far, I don't sense much genesis of this in the UK - but things could change, especially if we get a long hot summer. I reckon there's a pretty good chance of serious riots in places like Spain and Greece though, as things get hotter.
"My prediction for tonights lottery is big queues at the kiosks for people who still have hopes and dreams."
Indeed - the prole tax...
13. george monsoon said...
Uncle Tom,
You seem to be a person in tune with reality, and your posts are delivered in a way that even I can make sense of them.
A quick question, unrelated to this thread, but If a person were to take their savings out of the bank and invest them, where would you be putting your money?
Some people on here have suggested Gold as a good option, others are suggesting Oil. My thoughts are that both of these appear to be in a highly volatile state at the moment, so i could use some guidance..
14. Ah-so said...
£6,000 neg. eq. for first time buyers? Where did they get this figure from? It is meaningless, as it forgets the lost deposit, so the loss may be £20,000 in cash terms. It also forgets the repayments that the buyer has already made on the mortgage.
Also, what do they mean by first time buyers? I have only bought once, having remortgaged once. Am I a first time buyer? My parents only ever bought once. Are they first time buyers? If you bought on an 80% repayment mortgage in 2002, you will have plenty of equity. If you bought on a 100% interest only mortgage in 2007 you will have substantial neg eq. Are both figures averaged to arrive at £6,000? I am confursted.
15. bluebeach said...
George.... Bang it all on the LOTTO
16. uncle tom said...
"A quick question, unrelated to this thread, but If a person were to take their savings out of the bank and invest them, where would you be putting your money?"
It is never wise to put all your savings into a single investment, and much depends on the person's ambitions and willingness to take risks.
I don't see any dazzling stock opportunities at the moment - this may be a good year for 'selling in May and going away'
I'm a bit bearish on gold, for reasons that I've discussed many times before. Oil may be a good bet, but mining stocks probably have more promise - any business that is big on feeding China with basic commodities is likely to to be a fairly good bet at the moment.
Depending on how much cash you have to invest, it may be worth keeping an eye on industrial property that's up for grabs in your locality - the market for industrial and commercial real estate has really collapsed, and it's worth remembering that when this nation finally smells the coffee, we'll actually have to start making stuff again.
Having built houses on so much commercial land, and having such a tortuous planning process when it comes to greenfield industrial development, any industrial land that's going cheap might be a stunning buy - but be wary of contamination issues..
17. george monsoon said...
Cheers Tom.
18. Crashwatcher said...
"But who is ultimately to blame for this mess?"
Well mostly the people who are in the mess -
The bankers for lending people too much money
The borrowers for borrowing too much and buying overpriced houses
The property developers for paying their employees and contractors too much to build piles of crap
The Estate Agents for ramping up the market
Foolish 'Property Experts' who learnt nothing from the last bubble
May be the Government should have stopped it - but we don't have that much of a 'Nanny State'
What the Government are guilty of is not putting enough emphasis on teaching about speculative bubbles. They have always happened and always will happen. The general public need to be taught to recognise one before they get sucked in.