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tomandlu

Negative Equity Afflicts Half A Million Households

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Real lives ,real people......

Shafiq Caan, for example, bought his house in West Yorkshire near the peak of the market in 2008.

He paid £115,000, with the help of a £95,000 mortgage. But now that the house is only worth £75,000, he cannot sell it. Unless he pays back the difference of £20,000 to his lender.

So, like thousands of others, he decided to rent the property out. But since his lender has increased his repayments, the rent he receives does not cover the mortgage.

"I am paying £250 a month extra, which is barely affordable," he told the BBC.

Truly scary. Sums of money in regards to housing, are spoken about as if they are of little consequence in the media sometimes. Yet 20k is a lot of money and £250 extra !

Now where are the experts to tell him housing is affordable with such low interest rates.?

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Edited by GinAndPlatonic

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A question.

A house price bubble inflates to reach three times the long term average, relative to wages, leaving millions in negative equity and then deflates to twice the long term average. Is there still a bubble?

The present government would argue that there is no bubble if prices are below the highest ever achieved.

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I'm slightly puzzling over the 1% figure for London. How the hell is anyone in negative equity in London?

2007 shared ownership new build on the London fringe ought to square that circle.

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More propaganda from the vested interest of the BBC.

I'm struggling with that one. In what way is it 'propaganda'? and how, if it was, does it serve any vested interests? (which is sort of the same question)

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How can one be paying a mortgage for 6 years, and still owe what he did when he took it out?

Sounds like a savvy investor wy

Isn't that how mortgages often work, even repayment ones.

You only start to begin paying down the principal after quite a few years.

Unless you make over-payments.

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Since they never earned any equity in the first place.....mad.gif

If they want equity, well do it the old fashioned way..... START ACTUALLY PAYING DOWN YOUR MORTGAGE!

...oh wait they can't afford to actually repay these mortgages can they?

... our point from the beginning.

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Isn't that how mortgages often work, even repayment ones.

You only start to begin paying down the principal after quite a few years.

Unless you make over-payments.

No.

A normal repayment mortgage had you pay principle from day one.

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I'm struggling with that one. In what way is it 'propaganda'? and how, if it was, does it serve any vested interests? (which is sort of the same question)

One could argue that it garners sympathy for those in negative equity and makes it easier for the government to introduce measures to protect them.

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I'm struggling with that one. In what way is it 'propaganda'? and how, if it was, does it serve any vested interests? (which is sort of the same question)

You can't have lower house prices with-out someone being in negative equity.

You can't have higher house prices without someone taking on larger amounts of excessive debt.

BBC: Lower house prices = bad. Higher house prices = good.

But for who?

BTW: If I buy shares in said company but market conditions change and those shares are worth less than I paid would you advocate that the government prop said share price up so I don't take a financial hit? Of course not, so why should property be any different.

Edited by cool_hand

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I can't see a problem with negative equity......the only two figures that are important are the price paid and price sold....everything in between is immaterial, the loan is for 25 so the chances are things change many times during that time......need to move rent it out on interest only and rent like millions do, what is the problem? ;)

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No.

A normal repayment mortgage had you pay principle from day one.

Perhaps technically. I just looked it up, confirms what BB says. Which and Moneyfacts. As I understand it even with repayment mortgage you're not going to eat into it properly for many a year, unless over-paying, or on some flukey save-the-market base rate repayment tracker special deal.

Repayment mortgages

In the early years, most of your mortgage payment goes towards repaying the interest, with a small part allocated against the capital. Over time, the balance switches, so you're paying off an increasing amount of the capital each month. As a result, you may find that you don't pay off much capital for the first few years.

A full repayment mortgage

This is the only sure method of repaying your mortgage within a set term.

Every month you pay back some of what you borrowed as well as interest. By the time the mortgage term finishes, you've repaid your loan in full.

Early on in a long mortgage (say, over 25 years) you might feel a bit disheartened at how slow your mortgage is shrinking; but as things progress you repay more and more of what you borrowed and less and less interest.

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The BBC map has a source that says mortgages advanced since 2005. I have not read the source report but wonder why the chose 2005.

The solution listed is to rent it out and wait for prices to return to normal. Some from 2005 have waited nearly 10 years ?

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Isn't that how mortgages often work, even repayment ones.

You only start to begin paying down the principal after quite a few years.

Unless you make over-payments.

You start paying down the principal from the first payment you make on a repayment mortgage, it's just that at the beginning the payments are heavily weighted towards paying interest rather than capital.

I did a quick calculation and with a repayment mortgage he should have paid off a decent chunk of the capital by now.

Assuming a 4% interest rate for the last 6 years about £14K of capital would have been paid off on a repayment mortgage.

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You start paying down the principal from the first payment you make on a repayment mortgage, it's just that at the beginning the payments are heavily weighted towards paying interest rather than capital.

I did a quick calculation and with a repayment mortgage he should have paid off a decent chunk of the capital by now.

Assuming a 4% interest rate for the last 6 years about £14K of capital would have been paid off on a repayment mortgage.

My own calculation confirms your figure, FWIW. Paid about £21k of interest over the same time on a repayment mortgage.

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Real lives ,real people......

Shafiq Caan, for example, bought his house in West Yorkshire near the peak of the market in 2008.

He paid £115,000, with the help of a £95,000 mortgage. But now that the house is only worth £75,000, he cannot sell it. Unless he pays back the difference of £20,000 to his lender.

So, like thousands of others, he decided to rent the property out. But since his lender has increased his repayments, the rent he receives does not cover the mortgage.

"I am paying £250 a month extra, which is barely affordable," he told the BBC.

Truly scary. Sums of money in regards to housing, are spoken about as if they are of little consequence in the media sometimes. Yet 20k is a lot of money and £250 extra !

Now where are the experts to tell him housing is affordable with such low interest rates.?

..

..

BBC are saying it's his house. Impyling he lives there.

They go on to say he can't sell it. Why does he need to sell it? Unless he's been forced to relocate possibly.

Instead he's been forced to rent it out. Errr no. He's chosen to rent it out rather than live in it. Which makes one suspect he didn't buy it to live in it as main home in the first place. So he probably bought it as a speculation. There's further evidence of this in the prices:-

Price paid £115k. Valuation now £75k. Even in West Yorks, a 40% nominal fall seems excessive, which suggests it was probably a new build.

So, the evidence says he bought a new build as a BTL or as a speculation and got his fingers burned. He can't repay his mtge if he sells, and doesn't want to live in it.

Touch luck mate. Suck it up.

Given that it's the BBC and not the Daily Mail, they have a far higher responsibility to source and confirm the facts they're reporting. I'd like to know where they got this bloke from in the first place? How does his name and rather scant details end up in a BBC news article? Why hasn't the BBC confirmed if he is an owner occupier, why he can't live in his own house or whether he bought it as a BTL or a flip and got his fingers burned? They also ought to say who the lender is and how the current valuation was arrived at.

Has all the hallmarks of a politically inspired article. i.e. building support for rising house prices outside of London to work off speculators neg equity and banks' loan books.

EDIT: Yorks and Humber region prices from 2008-2011 fell around 10% in nominal terms according to the DCLG tables. So where the BBC got this completely fictitious price from with a 40% fall from is anyone's guess. There's a very large rat in this story.

Edited by R K

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BBC are saying it's his house. Impyling he lives there.

They go on to say he can't sell it. Why does he need to sell it? Unless he's been forced to relocate possibly.

Instead he's been forced to rent it out. Errr no. He's chosen to rent it out rather than live in it. Which makes one suspect he didn't buy it to live in it as main home in the first place. So he probably bought it as a speculation. There's further evidence of this in the prices:-

Price paid £115k. Valuation now £75k. Even in West Yorks, a 40% nominal fall seems excessive, which suggests it was probably a new build.

So, the evidence says he bought a new build as a BTL or as a speculation and got his fingers burned. He can't repay his mtge if he sells, and doesn't want to live in it.

Touch luck mate. Suck it up.

Very true, but it will be the bank that has to suck it up in the end.

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