Jump to content
House Price Crash Forum

Bbc On The Negative Equity Story


Guest KingCharles1st

Recommended Posts

Guest KingCharles1st

and smash them against a wall until they "understand what the ****** it is they are writing about.."

Negative equity stops home moves

Looking in an estate agent's window

First-time buyers have almost disappeared from the market

Falling house prices mean that two million households have either negative equity, or too little equity to finance a house move, lenders have said.

Negative equity is the situation where someone's house has become worth less than their mortgage.

Research by the Council of Mortgage Lenders (CML) said the problem would restrict the number of home sales.

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.

"Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder," said Bob Pannell, head of research at the CML.

"Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected," he added.

Ummm- lets see if we can help him work out just WHY this might be..?

Full link here

Link to post
Share on other sites
and smash them against a wall until they "understand what the ****** it is they are writing about.."

Negative equity stops home moves

Looking in an estate agent's window

First-time buyers have almost disappeared from the market

Falling house prices mean that two million households have either negative equity, or too little equity to finance a house move, lenders have said.

Negative equity is the situation where someone's house has become worth less than their mortgage.

Research by the Council of Mortgage Lenders (CML) said the problem would restrict the number of home sales.

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.

"Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder," said Bob Pannell, head of research at the CML.

"Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected," he added.

Ummm- lets see if we can help him work out just WHY this might be..?

Full link here

"Modest shortfall, 10%" is that correct?

So why :

brokers have been alarmed to see the value of clients’ homes on Halifax’s online valuation system — which is pegged to its house-price index — slashed by tens of thousands of pounds in a matter of days. Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index

And why do Land Registery figures show 23% drop in prices from 2007 ?

Are we saying that most only took out 90% or less?

I keep asking this Q but as yet am to get a reply.

If someone took at 100% on an average property at peak £200000 and the fixed rate comes to an end this summer, the lender now valued your property at 25% less, £150000, even if they will offer you a 100% (many are only offering 85% or less I believe) but if they are offering 100% does that mean you have to find £50000 or you need them to offer you a 125%? So if you borrowed 125% you would need 150% ? So if property falls another 40% (CEBR said double number of approvals or 40% falls , if double approvals falls 35%), then matters just escalate downwards is that correct? Sounds a bit different from the £6000 and £8000 quoted in this article doesn't it?

Edited by Sybil13
Link to post
Share on other sites
I keep asking this Q but as yet am to get a reply.

If someone took at 100% on an average property at peak £200000 and the fixed rate comes to an end this summer, the lender now valued your property at 25% less, £150000, even if they will offer you a 100% (many are only offering 85% or less I believe) but if they are offering 100% does that mean you have to find £50000 or you need them to offer you a 125%? So if you borrowed 125% you would need 150% ? So if property falls another 40% (CEBR said double number of approvals or 40% falls , if double approvals falls 35%), then matters just escalate downwards is that correct? Sounds a bit different from the £6000 and £8000 quoted in this article doesn't it?

Sybil, it doesn't work like that.

When a fixed (or tracker) rate mortgage deal expires, the loan does not expire. It reverts to the lenders SVR for the balance of the duration of the mortgage term.

Now whilst there are a few lenders, mostly the sub-prime/BTL ones that have high SVR rates, the reality is that most of the high street banks SVR rates range from very good to perfectly acceptable.

As an example, all Lloyds TSB mortgages have an SVR that is capped at 2% above the BOE base rate. So a person today coming off a Lloyds fixed rate deal of 5.5% taken out in 2007, would now be paying only 2.5% on SVR.

Most of the people coming off most of these fixed rate deals will be significantly better off by doing so, for the time being anyway. (The exception being a few sub prime and BTL products, but these are a relatively small percentage of total mortgages)

So your premise, that all these people with expiring mortgage deals will only be able to get a very poor rate due to restricted valuations and LTV ratios, is not actually correct at the moment. Most will be fine on the SVR, in all likelyhood for several years to come until rates really start rising.

But by the time rates do rise significantly it is highly likely that lending restrictions will have eased dramatically from where they are now, and in any case, as has been pointed out, many lenders are already allowing customers in negative equity to remortgage with them at a fixed rate, which although not a great rate at the moment, at least protects against big rate rises and subsequent defaults.

Link to post
Share on other sites
"Modest shortfall, 10%" is that correct?

From:

http://www.creditaction.org.uk/april-2009.html

According to the FSA if house prices were to fall by 30% from the end of 2007, it is estimated that over 2 million residential mortgage holders ( ~ one in four homeowners with mortgages) and 500,000 buy-to-let mortgage holders would be in negative equity.

Lloyds banking group results showed that at 31 December 2008 that 1 in 6 borrowers (> 543,000) were now in negative equity. 15 per cent of balances had an indexed loan-to-value ratio in excess of 100 per cent (HBOS had 16.8% and Lloyds TSB had 15%). An additional 13% of loans had a loan-to-value ratio between 90% and 100%.

I'll leave you to do the maths.

Link to post
Share on other sites
Despite this, the CML argues that it is myth that there is a strong link between negative equity and mortgage repayment problems.

Oh thanks for clearing up that myth.

I understood that it was a proven causal link between houses being negative equity and repossessions.

Think it was Mr Mortgage in the USA that highlighted this.

Link to post
Share on other sites
So your premise, that all these people with expiring mortgage deals will only be able to get a very poor rate due to restricted valuations and LTV ratios, is not actually correct at the moment. Most will be fine on the SVR, in all likelyhood for several years to come until rates really start rising.

But by the time rates do rise significantly it is highly likely that lending restrictions will have eased dramatically from where they are now, and in any case, as has been pointed out, many lenders are already allowing customers in negative equity to remortgage with them at a fixed rate, which although not a great rate at the moment, at least protects against big rate rises and subsequent defaults.

1st paragraph ok, except rates will start rising much sooner. As we saw, fixed mortgages rates are rising already.

2nd paragraph. No they won't. Uo until 2002, all mortgage lending was done based upon savers deposits. There was no securitisation to speak of. We are back in that situation. Your credit easing is on the presumption that we will return to post-2002 funding mechanisms on a large scale. Don't hold your breath.

Furthermore, while you are correct about people defaulting onto their lenders SVR, any new SVR loans being made are significantly higher rates. It is these that dictate house prices moving forwards, not what people are paying now.

Link to post
Share on other sites
Guest KingCharles1st

My original thoughts being purely that as there are no longer any first time buyers- it is therefore highly improbably that many will be in negative equity.

Although this reasoning does raise the question, is someone who is in Y23 of their 25 year mortgage and always lived in the same house, an FTB?

Link to post
Share on other sites

The best solution for alot of people is to declare bankruptcy as soon as possible,

(a) they will be clear before the depression is over,

(B) they should do it sooner rather than later, before they change the law.

Don't panic, but if you do be the first. If you missedd the first boat, look for as good a get out opportunity that you can.

Link to post
Share on other sites
1st paragraph ok, except rates will start rising much sooner.

Well gosh, I'm glad I have your approval. :rolleyes:

As we saw, fixed mortgages rates are rising already.

Ummm, no, not really. A couple of lenders have increased some of their fixed rate products by a whopping 0.04%. Hardly the same as rates rising markedly. For most existing SVR customers, we'd have to see base rates rise to 4% plus before any real degree of pain is felt. There is almost no prospect of that happening in the next couple of years.

2nd paragraph. No they won't. Uo until 2002, all mortgage lending was done based upon savers deposits. There was no securitisation to speak of. We are back in that situation. Your credit easing is on the presumption that we will return to post-2002 funding mechanisms on a large scale. Don't hold your breath.

Furthermore, while you are correct about people defaulting onto their lenders SVR, any new SVR loans being made are significantly higher rates. It is these that dictate house prices moving forwards, not what people are paying now.

Actually, securitisation has been around and widely used since long before 2002, but I would agree it was more prevelant in recent years.

But regarding funding levels, there is probably already sufficient funding in place to support the market at roughly a 30% discount from peak prices in terms of new sales, given that remortgage funding requirements have fallen off a cliff due to low rates and SVR's being lower than new deals in most cases. And when prices do stabilise, risk for lenders reduces dramatically and the funding markets will fire up the securitised products again. Not overnight, but it will happen within a timespan of a couple of years rather than a couple of decades.

Link to post
Share on other sites
and smash them against a wall until they "understand what the ****** it is they are writing about.."

Negative equity stops home moves

Looking in an estate agent's window

First-time buyers have almost disappeared from the market

Falling house prices mean that two million households have either negative equity, or too little equity to finance a house move, lenders have said.

Negative equity is the situation where someone's house has become worth less than their mortgage.

Research by the Council of Mortgage Lenders (CML) said the problem would restrict the number of home sales.

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.

"Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder," said Bob Pannell, head of research at the CML.

"Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected," he added.

Ummm- lets see if we can help him work out just WHY this might be..?

Full link here

:rolleyes::lol:

Calm down dear.....it's only an article! It's not a real article...... :lol:

Link to post
Share on other sites
"Modest shortfall, 10%" is that correct?

So why :

And why do Land Registery figures show 23% drop in prices from 2007 ?

Are we saying that most only took out 90% or less?

I keep asking this Q but as yet am to get a reply.

If someone took at 100% on an average property at peak £200000 and the fixed rate comes to an end this summer, the lender now valued your property at 25% less, £150000, even if they will offer you a 100% (many are only offering 85% or less I believe) but if they are offering 100% does that mean you have to find £50000 or you need them to offer you a 125%? So if you borrowed 125% you would need 150% ? So if property falls another 40% (CEBR said double number of approvals or 40% falls , if double approvals falls 35%), then matters just escalate downwards is that correct? Sounds a bit different from the £6000 and £8000 quoted in this article doesn't it?

Sara, some people have 100% mortgages, some have 90%, some have built up more equity than that. Around 30% of the houses in the country are owned outright - the clever ones have paid off their mortgage.

Clearly those in negative equity are unlikely to be those that initially had huge amounts of equity but there will still be a mix. Not all of those now in negative equity started off with zero equity. So its perfectly plausible that currently the average shortfall is only 10%. We need to see the raw data on the actual distribution to know for sure.

Of course as prices continue to fall the people with a current shortfall will see their shortfall increase, and more people will develop a shortfall.

Its worth remembering that the average shortfall may decrease in the future as prices fall further. All it needs is many more people to be on the fringe of negative equity than are already in it.

As an extreme example imagine that currently 1 person is in neg equity of 10k. The average is obviously 10k. Next month they are in neg equity of 51k (big price drops) AND another 99 people have slipped into neg equity of 1k. Total neg equity is 150k, spread across 100 people - so the average shortfall has dropped from 10k to 1.5k despite there being a huge increase in the number of people in negative equity.

Viewed that way a drop in average negative equity would be a bearish indicator, suggesting a significant increase in the number of people falling into financial difficulty. If that happens the media might well not understand - and present it as green shoots.

Link to post
Share on other sites
Sybil, it doesn't work like that.

When a fixed (or tracker) rate mortgage deal expires, the loan does not expire. It reverts to the lenders SVR for the balance of the duration of the mortgage term.

Now whilst there are a few lenders, mostly the sub-prime/BTL ones that have high SVR rates, the reality is that most of the high street banks SVR rates range from very good to perfectly acceptable.

As an example, all Lloyds TSB mortgages have an SVR that is capped at 2% above the BOE base rate. So a person today coming off a Lloyds fixed rate deal of 5.5% taken out in 2007, would now be paying only 2.5% on SVR.

Most of the people coming off most of these fixed rate deals will be significantly better off by doing so, for the time being anyway. (The exception being a few sub prime and BTL products, but these are a relatively small percentage of total mortgages)

So your premise, that all these people with expiring mortgage deals will only be able to get a very poor rate due to restricted valuations and LTV ratios, is not actually correct at the moment. Most will be fine on the SVR, in all likelyhood for several years to come until rates really start rising.

But by the time rates do rise significantly it is highly likely that lending restrictions will have eased dramatically from where they are now, and in any case, as has been pointed out, many lenders are already allowing customers in negative equity to remortgage with them at a fixed rate, which although not a great rate at the moment, at least protects against big rate rises and subsequent defaults.

Thanks for your help, as I have explained before I do my best to understand but its not always easy. Not sure I still fully understand but I am getting there. Coventry were one of the 1st to offer 100% deal to their existing customers coming off a fixed rate deal:

Coventry Building Society has thrown a lifeline to customers in negative equity after becoming the first lender to offer re-mortgage deals worth 100 per cent of a property’s value.

Coventry customers who took out loans of up to 125 per cent of their property’s value would have been forced to revert to the lender’s standard variable rate (SVR), currently 4.74 per cent, after their mortgage deal expires.

At present, homeowners in negative equity – where more is owed on the mortgage than the value of the property – are unable to secure a mortgage deal elsewhere, as all lenders are now demanding equity of at least 10 per cent, and up to 40 per cent, for the most competitive deals.

Now Coventry is offering existing customers coming to the end of their mortgage deal a new five-year fixed-rate at 4.99 per cent, worth up to 100 per cent of a property’s loan-to-value (LTV). The deal comes with no booking or arrangement fees

Thousands of customers who took out Halifax’s cheap two-year deals immediately before the credit crunch in 2007 are now applying to the bank for a “transfer deal”.

However, brokers have been alarmed to see the value of clients’ homes on Halifax’s online valuation system — which is pegged to its house-price index — slashed by tens of thousands of pounds in a matter of days.

Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index

So what you are saying is that ALL borrowers no matter how much they borrowed can transfer to the lenders SVR but to get a better deal, or fixed deal you need some equity in your property, is that correct?

But with the Coventry deal for instance , their new fixed rate 5 year deal would ONLY be open to people whose mortgage was 100% LTV which would mean they would have taken out at 75% mortgage originally or have for instance on an average property in 2007 - £200000, £50000 to put down to now get a 100% mortgage 5 yr fixed , is that correct?

Edited by Sybil13
Link to post
Share on other sites
So what you are saying is that ALL borrowers no matter how much they borrowed can transfer to the lenders SVR but to get a better deal, or fixed deal you need some equity in your property, is that correct?

Basically, yes, if they're on a usual mortgage product.

For example, I took out my mortgage in 2007 at a fixed rate of 5.34% for 2 years, followed by SVR for a further 23 years. SVR at the time was 6.74%.

In "the old days", at the end of the fixed period people would switch to another deal to avoid the higher SVR rate.

However, now

(1) people in negative equity or low LTV find they can't switch, but

(2) SVRs are now lower. Mine will revert to 2.5% when the period ends next month - nice while it lasts

The big question is.....how long will the SVRs stay low, though.

Fixed rates with my lender are now between 5.0% and 7.3% depending upon your LTV. That's a big difference from 2.5%, and a huge range!!!

Link to post
Share on other sites
Thanks for your help, as I have explained before I do my best to understand but its not always easy.

No problem.

So what you are saying is that ALL borrowers no matter how much they borrowed can transfer to the lenders SVR but to get a better deal, or fixed deal you need some equity in your property, is that correct?

Absolutely correct. Spot on.

And the most important thing to remember with this is that the majority of mainstream high street banks (where most people have their mortgages) have an SVR rate that is around 2% to 3.5% above BOE base rate. This used to be the worst rate available, but is now better than most of the current tracker deals or fixes available. So whilst base rates stay below 5%, there will not be a big tsunami of people being crunched by affordability constraints. And the prospect of BOE base rates rising above 5% in the next couple of years is slim to none.

an average property in 2007 - £200000, £50000 to put down to now get a 100% mortgage 5 yr fixed , is that correct?

Many, but not all, lenders are now stating that their customers may get trapped at some point in the future when rates rise, and so are offering fixes to existing customers even if they are in negative equity.

The more cynical among us believe that these banks are actually more concerned with the fact that their customers on SVR are now paying several percentage points BELOW what they would if they were on a fix, and so are "hard selling" them into taking out another fix with much higher rates by using the fear of rising base rates as a sales driver.

Either way, most existing customers are reasonably OK for now.... they can either fix with the existing lender at around 5%, or chance it and stay on SVR at around 2.5% for now, but higher over the next few years.

Link to post
Share on other sites
Coventry Building Society has thrown a lifeline to customers in negative equity after becoming the first lender to offer re-mortgage deals worth 100 per cent of a property’s value.

Coventry customers who took out loans of up to 125 per cent of their property’s value would have been forced to revert to the lender’s standard variable rate (SVR), currently 4.74 per cent, after their mortgage deal expires.

At present, homeowners in negative equity – where more is owed on the mortgage than the value of the property – are unable to secure a mortgage deal elsewhere, as all lenders are now demanding equity of at least 10 per cent, and up to 40 per cent, for the most competitive deals.

Now Coventry is offering existing customers coming to the end of their mortgage deal a new five-year fixed-rate at 4.99 per cent, worth up to 100 per cent of a property’s loan-to-value (LTV). The deal comes with no booking or arrangement fees

Have I missed something? :blink:

I understand that interest rates will likely raise in the future, but is this that great an offer looking at the numbers? What if interest rates go lower?

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    No registered users viewing this page.

  • 439 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.