Sell Now Before Interest Rates Hit 9% On Ne Homes

[Mikhail Liebenstein]

Ok this link and comment was mentioned in one of the other posts, but I think it deserves its own thread.

The comment comes from the following BBC Online story. http://news.bbc.co.uk/1/hi/business/8025856.stm

Basically if you are in Negative Equity, the advice is sell now. Interest rates on mortgages in NE going to 9%

The bit I love is this:

It is true that retail sales have grown by a miniscule 0.3% but that is just a reflection of the fact that people in work have seen a sharp reduction in their mortgage payments. Those out of work are still spending their redundancy packages.

The problem is that interest rates will have to rise to attract investors who have to fund our huge borrowing requirement. It is expected that those in negative equity will see their variable mortgage rates rise to 9% in the next 12 months. When that happens people will struggle to repay their mortgages. Green shoots may wither if we get a late frost. That frost is a cut in public spending and rising interest rates.

[Rachman]

Mike, the problem is, how do you sell in NE - the banks don't let you if you can't find the cash to pay off the NE - and most of the hardest hit - the ones you put it all into the house, don't have that out...... - or do they borrow on their credit cards, then just go bust ? Recourse loans mean it's not as easy as just chucking the keys back.

[waitingscot]

Cool. I hope it turns out that way, although I wonder what inflation rate will go with it.

Ok this link and comment was mentioned in one of the other posts, but I think it deserves its own thread.

The comment comes from the following BBC Online story. http://news.bbc.co.uk/1/hi/business/8025856.stm

Basically if you are in Negative Equity, the advice is sell now. Interest rates on mortgages in NE going to 9%

The bit I love is this:

Edited May 2, 2009 by waitingscot

[redwing]

Growing numbers of people are looking to fix their monthly mortgage payments for five years or more, after concluding there is only one way for interest rates to go – and that's up.

Read more here at the Guardian

But as you read further, you'll see that the LTV restrictions and lending fees for longer term mortgages are pretty daunting.

There won't be many, if any, NegEq homeowners remortgaging onto a long term fix. They'll definitely get stuck on the SVR which looks OK for now.

This is going to get messy in a year of so.

[geoffps]

Mike, the problem is, how do you sell in NE - the banks don't let you if you can't find the cash to pay off the NE.

Are you sure about that? I think that if someone acknowledged to the bank that they had NE but they would pay it off over time after the house was sold but the bank wouldn't allow the sale then any further NE should be for the bank's account.

[MRMX9]

I thought we were talking about homes in Newcastle here i.e. the north east. Who wants to buy there!

[SeenItAllBefore]

Growing numbers of people are looking to fix their monthly mortgage payments for five years or more, after concluding there is only one way for interest rates to go – and that's up.

Read more here at the Guardian

But as you read further, you'll see that the LTV restrictions and lending fees for longer term mortgages are pretty daunting.

There won't be many, if any, NegEq homeowners remortgaging onto a long term fix. They'll definitely get stuck on the SVR which looks OK for now.

This is going to get messy in a year of so.

Laura's BBC diary entry suggests she agrees with this

Everyone knows that the real bloodbath for small companies and jobs happens at least six months after the technical end of recession - which will only serve to provide the banks with another round of writeoffs to look forward to just when they are stabilising.

Of course she's right, as anyone who remembers the last recession will know. I can't see how the worst is over for the property market if this is what we have to look forward to.

[Rachman]

Are you sure about that? I think that if someone acknowledged to the bank that they had NE but they would pay it off over time after the house was sold but the bank wouldn't allow the sale then any further NE should be for the bank's account

Eh. If I owe £100K and the house is only worth £80K, the bank will let me just sell and promise to pay them the £20K when I could (or on an unsecured basis) - there is NO way a bank would go for that except in very exceptional circumstances. They have security - it's for them and it's a millstone for you. They would rather you were paying way above SVR as you are in arrears and be in hock to them - letting you off is not an option.

Anything else would be insane - we'd all just take the p1ss.

[19 year mortgage 8itch]

Basically if you are in Negative Equity, the advice is sell now. Interest rates on mortgages in NE going to 9%

What a crock of shit. Who exactly will be paying 9%? There are so many trackers out there with different terms, how can 9% be pinpointed? The SVRs that borrowers will fall onto are also all set at different rates, as seen here: http://news.bbc.co.uk/1/hi/business/7711689.stm

A base rate prediction is needed for it all to make any kind of sense.

[geoffps]

Eh. If I owe £100K and the house is only worth £80K, the bank will let me just sell and promise to pay them the £20K when I could (or on an unsecured basis) - there is NO way a bank would go for that except in very exceptional circumstances. They have security - it's for them and it's a millstone for you. They would rather you were paying way above SVR as you are in arrears and be in hock to them - letting you off is not an option.

Anything else would be insane - we'd all just take the p1ss.

The bank's security is a house worth £80k, the other £20k is already unsecured. If you sell the house and give the bank the cash you have improved their position.

If the bank wont let you sell and 18 months later the house is only worth £65k I imagine a court would have sympathy with the home owner who is able to demonstrate that the actions of the bank have lost a further £15k.

[wild card]

This article is spot on IMHO

Most of the lenders have short sale departments for NE sales to be negotiated.

They will only talk to you when you have a serious offer on your property and the outcome of these talks means agreeing to pay all of the remaining balance as a personal loan.

So if you do not meet the criteria for a personal loan to repay the outstanding balance after the sale then there is no sale.

HBOS say they are offering up to 120% remortgages on a case by case basis. To date I have not heard of anybody actually being offered this deal.

Any headlines of help offered to NE people are word only soundbites and are currently useless and unlikely to change.

For those who choose to stay in NE properties now here are only two real options - stay where you are and pay (regardless of rates and changes to monthly payments) or handback the house, declare Bankruptcy and rent.

Anybody on an interest only mortgage who can’t afford to change to repayment or has no long term strategy for the final pay off is in big trouble.

For many bankruptcy is the only way out of NE. This will also mean that it is unlikely that you will be able to buy again for several years.

When the rates go up it will affect the affordability calculations used by lenders and house prices will have to drop to have any activity in the mortgage market at all.

Big problems for the future.

[uptherebels]

The bank's security is a house worth £80k, the other £20k is already unsecured. If you sell the house and give the bank the cash you have improved their position.

If the bank wont let you sell and 18 months later the house is only worth £65k I imagine a court would have sympathy with the home owner who is able to demonstrate that the actions of the bank have lost a further £15k.

Yes you would think that would be the case, but It doesn't work like that. At least it didn't in the early nineties anyway. They will not sanction a sale, even if the asking price is more than the amount owing, but the selling price is likely to be less. I have the tee shirt.

[happy_renting]

A base rate prediction is needed for it all to make any kind of sense.

Agreed, but until recently mortgage rates tracked base rates pretty closely. Now, perhaps for the first time ever, there is a disconnect between base rates and loan rates of all types, including mortgages. We can no longer rely on base rates as a good indicator.

[wild card]

Uptherams you are correct.

I did think that with the tax payer ownership of the banks that this time things would be different.

But they're not.

[19 year mortgage 8itch]

Yes you would think that would be the case, but It doesn't work like that. At least it didn't in the early nineties anyway. They will not sanction a sale, even if the asking price is more than the amount owing, but the selling price is likely to be less. I have the tee shirt.

Didn't you know its different this time?

[interestrateripoff]

This is one of the major problems that so far has been given little consideration.

It's also another reason why a lot of people are hoping the housing market gets "fixed" and prices return back to "normal", trouble is there normal isn't the market equlibrium, this is going to be a major fiscal drag on the economy for potentially several decades.

[HXO]

Agreed, but until recently mortgage rates tracked base rates pretty closely. Now, perhaps for the first time ever, there is a disconnect between base rates and loan rates of all types, including mortgages. We can no longer rely on base rates as a good indicator.

Because base rates are at their lowest ever it stands to reason that the banks would not follow them down, especially given the calamitous state of their books, but wait and see what happens on the way up, the 9% is, I would imagine, referring to an average SVR.

[Hip to be bear]

Interesting to see what the banks economists take is on this. If they reckon prices are going to come down and stay down, they are likely to welcome the early sale. Their security is non existant once NE kicks in and only likely to get worse.

I keep thinking that the Govt will need to find some way of providing competitively priced loans to those in NE, who are struggling to remortgage with their current lenders. Without such a scheme, the carnage will be unbelievable. How this will be done most cost effectively I do not know. Any thoughts?

[Sybil13]

The bank's security is a house worth £80k, the other £20k is already unsecured. If you sell the house and give the bank the cash you have improved their position.

If the bank wont let you sell and 18 months later the house is only worth £65k I imagine a court would have sympathy with the home owner who is able to demonstrate that the actions of the bank have lost a further £15k.

Except of course we are probably looking more at the property is now valued at £150000k and the people owe £200000k that is the difference this time round is the amount of money owing.

I can't find the quote right now, but wasn't this one of the fears, that lenders will want people that have slipped into negative equity and are more likely to default out of their homes out now whilst they can still come out of it having clawed back some capital from them?

Edited May 2, 2009 by Sybil13

[Mikhail Liebenstein]

What a crock of shit. Who exactly will be paying 9%? There are so many trackers out there with different terms, how can 9% be pinpointed? The SVRs that borrowers will fall onto are also all set at different rates, as seen here: http://news.bbc.co.uk/1/hi/business/7711689.stm

A base rate prediction is needed for it all to make any kind of sense.

If base rates start climbing again, which is highly likely given the mess at the treasury then 9% SVRs will become all the rage. For evidence see this link which thanks to Durch was posted earlier:

http://www.dailymail.co.uk/debate/article-...tle-whisky.html

One permanent secretary complained about the Budget, saying the Chancellor's financial figures do not add up. He said: 'We either need spending cuts, or a larger departmental budget. We are in a situation where the official figures are just not deliverable.' Another civil servant is even gloomier. 'We are moving towards a crisis which can only be resolved by an emergency statement to the House of Commons in the autumn,' he warned. Other Treasury officials are pressing for the setting up of an emergency committee to investigate the need for drastic cuts in public spending. But No 10 will not permit such a move. This, in turn, has led to a growing dread inside the Treasury that the Debt Management Office (which sells gilts for the Treasury) will be unable to fund the budget deficit on international markets. In all this, there is one crucial contrast between what is happening now and the final months of Callaghan and Major's administrations.

So as HPC predicted months ago, we are going to see a Government borrowing crisis and this will bring out the famed Bond Vigilantes. At which point expect interest rates to hit a new high.

[D.C.]

That's a great link. (Maybe the beeb isn't all bad. )

Perhaps they are growing a pair and challenging Labour's authority over them. Either that or know that in a years time the bosses will be the blue team not the red and are just shifting sides quietly.

[19 year mortgage 8itch]

If base rates start climbing again, which is highly likely given the mess at the treasury then 9% SVRs will become all the rage. For evidence see this link which thanks to Durch was posted earlier:

http://www.dailymail.co.uk/debate/article-...tle-whisky.html

So as HPC predicted months ago, we are going to see a Government borrowing crisis and this will bring out the famed Bond Vigilantes. At which point expect interest rates to hit a new high.

We know all this. Plucking randon scary figures out of the air is hardly the mark of good journalism, just good story telling.

Base rates at what? 6%? to make that 9% prediction correct would bring carnage to the housing market in today's environment. Did you see my link? 48% of mortgages on variable discount/tracker/SVR rates. Unemployment, economic slowodwn, higher rates, government benefits paying/guaranteeing mortgage interest, ouch.

Then there's the personal debt stats, www.creditaction.org.uk, there's more to worry about than Neg Eq

[Liquid Goldfish]

Eh. If I owe £100K and the house is only worth £80K, the bank will let me just sell and promise to pay them the £20K when I could (or on an unsecured basis) - there is NO way a bank would go for that except in very exceptional circumstances. They have security - it's for them and it's a millstone for you. They would rather you were paying way above SVR as you are in arrears and be in hock to them - letting you off is not an option.

Anything else would be insane - we'd all just take the p1ss.

legally they can't stop you selling if yuo are in NE as long as you sell for the best availabel price

the lender even has to pay your costs of sale out of the proceeds if you can't afford to pay them yourself

[scrappycocco]

Even though I have a small mortgage, I really wish rates would go up so I would have some incentive to put money aside for the future instead of wasting it on useless crap like I'm doing.

[the_duke_of_hazzard]

The heat is being turned up ever so slowly. We'll soon find out who's nearest the fire...