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reluctantrenter

Returning The Keys

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Strange first post for someone called 'reluctant renter' but....

I was interested to read an article from CNN on the blog the other day about about US 'mortgage holders' in negative equity taking a strategic decision to halt mortgage payments and walk away from their homes.

http://money.cnn.com/2011/06/07/real_estate/walk_away_mortgage/index.htm?iid=HP_LN

This article must resonate with many mortgage holders both in NI and in the south who are in negative equity. While there is evidence of increasing numbers of reposessions and many borrowers who are unable to keep up payments, I wonder if there are many borrowers that are able to keep up payments but choosing to throw the keys into the bank. Given that those who bought at the peak of the market with 100% mortgages are likely to find themselves in negative equity for many years to come, this must be a tempting option financially even for those who can afford to keep up payments, maybe not right now at current interest rates and relatively high rental coss but it may become more tempting as interest rates rise. There are of course many who would never consider such a move especially if they have strong ties to their home.

I have a couple of questions:

1. Are the financial / emotional implicatons for an individual harsh enough to make this something to avoid at all costs in UK / Ireland

2. is it morally acceptable for an individual to make a strategic decision to return the keys when they can afford to pay. (in my mind, I have no doubt that there is no moral imperative to continue to honour these debts - the bank took a risk , the individual took a risk - both loose out, if the bank were fool enough to commit to 100% mortgage then the borrower has less to loose).

3. Is this something we will increasingly see over the next couple of years and should it be encouraged / promoted - it would really stick it to the banks but what implication for the housing market and the banks?

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The difference is, laws in the US allow whats known as a jingle mail. I.e u stick the keys in the mail and walk

This does not exist in the uk, so u borrow 500k on a 350k house and post the keys

Now u got a 350k house, a 500k debt and a cost of the locksmith

Edited by Rozza

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The difference is, laws in the US allowwhats known as a jingle mail. I.e u stick the keys in the mail and walk

This does not exist in the uk, so u borrow 500k on a 350k house and post the keys

Now u got a 350k house, a 500k debt and a cost of the locksmith

jingle mail has been just as prevelant in recourse as non recourse states. The important part is not just the price falling low enough to believe that they wont recover but also that rent becomes far cheaper than mortgage payments, in such a scenario i have no doubt alot of people in the uk will just say Fck off and take the consequences as they have in the states

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jingle mail has been just as prevelant in recourse as non recourse states. The important part is not just the price falling low enough to believe that they wont recover but also that rent becomes far cheaper than mortgage payments, in such a scenario i have no doubt alot of people in the uk will just say Fck off and take the consequences as they have in the states

I agree, the difference being the consequences in the uk are theoretically worse... But who really knows i guess

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1. Are the financial / emotional implicatons for an individual harsh enough to make this something to avoid at all costs in UK / Ireland

As Rozza says, mortgages in the UK are 'recourse' loans (unlike American loans which may be 'non-recourse'.) Walking away from a property will leave you liable for any losses the bank suffers for years. Some sources seem to say that you are liable for up to 12 years. The source below says that six years is probably a more realistic limit.

http://www.mortgages...possession.html

2. is it morally acceptable for an individual to make a strategic decision to return the keys when they can afford to pay. (in my mind, I have no doubt that there is no moral imperative to continue to honour these debts - the bank took a risk , the individual took a risk - both loose out, if the bank were fool enough to commit to 100% mortgage then the borrower has less to loose).

Personally, I think it's a poor show to default on a debt when you can afford to pay but each to their own way ...

3. Is this something we will increasingly see over the next couple of years and should it be encouraged / promoted - it would really stick it to the banks but what implication for the housing market and the banks?

I would not consider this without getting expert advice. You might find that the banks really 'stick it' to you. I remember reading a news article about people doing this years ago during the 90s crash. Some got away with it and the banks seemed to forget the debt. Others found themselves being presented with repayment demands a decade later and in some cases, the banks used private detectives to track down the debtors! (sorry, I can't find the article now.) Overall, walking away from a UK mortgaged property seems like the nuclear option. Also, it's probably much harder to hide from the banks these days due to the wired up world we live in.

More reading:

http://www.moneyweek...e-than-americas

http://www.telegraph...ive-equity.html

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Some states in the US - California - have non-recourse laws: all the lender can recover is the sale value of the property, and it has no recourse to the borrower's other income/assets. Strangely, it does have recourse to the taxpayer! Thank you, politicians.

UK mortgages are all recourse, so any shortfall on a sale is recoverable from the borrower's income/assets. I think the same is true for Ireland. Borrower's calculation is whether or not bankruptcy is the least damaging path to follow.

The non-recourse model in the US seems to have done nothing to prevent stupid lending. And our politicians have opted for an even greater taxpayer recourse than the US, so I really have doubts about the practical effects of the distinction between recourse and non-recourse. Plus in Ireland court repossessions of residential property are almost non-existent.

The system is a mess, whichever jurisdiction you consider - impossible to predict if borrowers are best off staying with the debt or blowing it off.

In sum: the market in residential mortgages is a load of twaddle. Steer clear.

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If you are emigrating and see no need to return, then the sclaes probably tip in favour of Uk jinglemail....

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  • 312 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%



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