Sunday, Dec 20, 2009
Pleading for more bailouts
Irish Independent: Government can defuse negative equity time bomb
Irish house prices may be down 50% from their peak by the end of 2010, leaving one in five homeowners in negative equity. To say that someone should just sit tight and love their home does not take into account the Irish way of buying houses - the so-called property ladder. The property ladder philosophy is that people started out by buying a small apartment or starter home and then traded their way up. It was a system that worked well for us for many years. But negative equity threatens to destroy that system by destroying mobility.
Various options that could help. Creative 125% or 50-year mortgages would allow more people to hang on to their homes. The Government should abolish stamp duty for one year, or at least allow owners to write off their losses against stamp duty.
15 Comments
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1. drewster said...
The only useful change I can think of is allowing people to move house even if they have negative equity, as long as they move to a house of equal or lesser value. At the moment that's all but impossible, which is a burden on the economy through reduced labour mobility.
2. hpwatcher said...
well, perhaps the buyers should have been a bit more careful in the first place
3. will said...
I am sure the banks will ensure that those who are trapped in negative equity will have a means of paying up in the long term.
Welcome to the world of slavery - with our bank slavemasters.
4. quiet guy said...
"To say that someone should just sit tight and love their home does not take into account the Irish way of buying houses -- the so-called property ladder"
Will somebody please whisper into Brendan O'Connor's ear that the housing bubble was not a uniquely Irish phenomenon.
It is striking that almost all of the solutions offered by O'Connor involve the perpetuation of the debt rather than liquidation:
"the last thing we want is for the banks to end up owning half the small houses and apartments in the country and competing with each other to sell them off in fire sales."
Painful for some but just imagine a country where the proles could afford to buy their own home! The horror! The horror!
5. Jim Green said...
Ireland, Latvia, Greece, Iceland - all stuffed? And with the IMF chomping at the bit to stuff them even more. But here's a radical presecription: stuff the creditors instead. All those debt mountains are just accounting book entries anyway. Why let real people, real economies and societies suffer for the sake of numbers in bank computers?
6. clockslinger said...
That's the free market there for you, Brendan. Presumably the main complaint about the size of ones mortgage when houses were rising at 15% pa was "I wish I'd borrowed more".
7. dill said...
The property ladder has no rungs left. But a way could be found to transport 'negative' debt in the future, I don't doubt.
8. drewster said...
To be fair his main prescription isn't a bad idea. Abolishing stamp duty would be a win-win; it's a bad tax, it's uneconomic, it puts some people off moving house even if moving would allow them access to better-paid jobs. However it won't make house prices bounce up.
A one-year cessation of stamp duty would be terrible though. It would bring forward demand for house-moving services (estate agents, surveyors, removals men, etc.) and produce a mini-boom, but after the year ends there would be an equivalent slump, because everyone who was going to move in 2011 decided to move in 2010 instead to qualify for the tax break.
9. This comment has been removed as it was found to be in breach of our Blog Policies.
10. alan said...
When the UK house prices drop in 2010 and our rates rise, the UK may be in a slightly better position. We have had a year to pay down debts. Whenever I've discussed the subject with others, they tell me they are paying down their mortgages as quickly as they can.
Hitting a brick wall is really bad, but if you've put your foot on the brake for a while before you hit, then the impact isn't as severe!
I would like to think these negative equity fears would make people more cautious next time, but I think we've stopped learning from our mistakes - too much concentration on passing exams in our education system, I say (others say its greed)!
11. quiet guy said...
Sometimes I wish you weren't so fair Drewster :)
You can make a case for aboloshing stamp duty but note this bit "At the very least, we need to let people in negative equity write off their losses against stamp duty" i.e. skew the taxation system in favour of property speculators.
12. crunchy said...
I see that the distant policy which will bring about the abolition of property rights still remains a mystery.
4. quiet guy, So close.
13. jallan said...
I've always rented my home and I probably always will, I don't think I will ever be able to comfortably afford a mortgage. In my view people who are in negative equity don't have a right to trade up, why should a bank lend a person more money when they can't pay off their current mortgage. I am stunned at this article, the journalist wants the banks to give people bigger mortgages for bigger houses when they have outstanding debts from their previous mortgages. Why not just ask the banks to give people mansions and big salaies for life, for free. People with mortgages have been living the good life, now it is the turn of the tennent to enjoy the good life and whatch all these people living the bad life.
14. crunchy said...
11. jallan
The paradox of a democracy brought about by anglo-american illegal and unelected leaders serving the governing banks.
This is how it works http://www.youtube.com/watch?v=VebOTc-7shU
15. jallan said...
14. crunchy said...
Thanks I enjoyed that video, it had a lot of interesting points.