Negative Equity Afflicts Half A Million Households

[R K]

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

They've probably already written it down.

But since he's still apparently paying the mortgage there doesn't appear to be either an arrears or a default issue so negative equity is irrelevant. He can keep paying the mortgage until it's repaid in 25 yrs time.

[tomandlu]

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.

I have some sympathy for negative equity holders, purely because of the obstacles it places in the way of moving. Also, one might argue that the handicap of NE actually acts as a barrier to falling prices, since it tends to lock up these houses and prevent them coming to market (as shown in some of the stories).

What's that old adage about banks and umbrellas?

[R K]

By Brian Milligan Personal Finance Reporter, BBC News

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Brian Milligan ‏@brianmilli HI Fiona, Brian from BBC news here. Looking for people to speak about negative equity. Is that you? brian.milligan@bbc.co.uk

If you're reading Brian, or one of your BBC colleagues is, perhaps you could post to explain why the numbers in your article simply don't add up.

So did the person in the article simply provide this information via email? Has the original price, the mortgage and the current valuation been verified?

https://twitter.com/brianmilli' rel="external nofollow"> Edited March 1, 2014 by R K

[BlokeInDurham]

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.

The argument that property should be different stems from the fact that shelter is a basic need. And, in a perfect world, people would live in shelter over which they have the greatest degree of control, short of impinging on the lives of others. It makes for happier lives. As a society there is therefore a strong argument, if we have ownership of housing, to encourage self-ownership of housing.

So property, as a home, is a different moral proposition to shares as a speculative investment. Property as a speculative investment, on the other hand, should absolutely be regulated according to the same moral principles as would apply to any other speculative investment.

The problem (if not practical impossibility) is in marrying the two in one market. How can you have two prices, one for prospective livers-in and one for speculators? What about landlords? While they are also in it as a business proposition, and therefore arguably have less moral right to housing that the houseless, they are not really speculators*, and arguably more social good is done by assigning housing resources to landlords than to speculators. Do you then have three markets for the same physical good?

* If they are in it for a hope of capital gain, I wouldn't class them as landlords really. They are more accidental landlords while they wait for appreciation!

[giesahoose]

tip from bbc

- Do not sell unless you have to.

Thats great advice as long as prices don't fall, in which case it should be sell asap.

Edited March 1, 2014 by giesahoose

[BlokeInDurham]

I have some sympathy for negative equity holders, purely because of the obstacles it places in the way of moving.

And the obstacles it places in the way of living!

Whether someone is cross because they can't enjoy living in their rented accommodation over which they have little control or stability of tenure, or whether they are cross because in order to enjoy some control over their own housing they were also forced to make an enormous gamble in which they bet the productive output of the rest of their working life on the future state of house prices, they are both victims of having to deal with the stupid state of their society.

Basically, if someone would have made the same gamble on house pricing if it wasn't necessary to do so to enjoy a home, then 'caveat emptor'. If they only did so because they couldn't enjoy having a home any other way, they should enjoy our sympathy when in negative equity (as well as our opprobrium in enjoying any unearned gains, it must be said).

It's all very well to expect people to approach house prices as if they were a dispassionate algorithm in a bank's trading system. But algorithms don't have hopes; algorithms don't have concepts of fairness, or social solidarity; algorithms don't get depressed when they have no control over their lives; algorithms don't have biological clocks; algorithms don't grow old; algorithms don't die.

Economics is only useful in that it can improve the happiness of a society, make people's lives better. If it stops doing that, it is no longer useful. If it actively prevents that, if it makes people's lives worse, then the economic solution has failed and should be discarded.

[tomandlu]

And the obstacles it places in the way of living!

Well, if you're not moving, it's not the end of the world unless the SVR or whatever punitive charge you face pushes you over the edge.

Apart from that, top post. Turning a necessity into a speculative gamble corrupts all of us in one way or another. Imagine if food was subject to the same dynamics.

NE shouldn't really be an issue, because we shouldn't see such extremes.

[Harry Monk]

Having been in negative equity in the early 1990s, it is somewhat depressing watching new neighbours moving in who have paid around two-thirds of the price for an identical house.

[R K]

It appears the BBC's Brian Milligan has form. Here's an interesting analysis of a BBC article he wrote last year claiming you could eat healthily on £1 a day.

http://aethelreadtheunread.wordpress.com/2013/04/27/from-the-bbc-how-not-to-eat-healthily-for-1-a-day/

BBC really doesn't do itself any favours at all churning out this sort of nonsense.

[19 year mortgage 8itch]

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.

Assume makes an ass out of u and me.

But while we're at it, seeing that the figures already don't add up, and considering it was 2008 I'd hazard some sort of impaired credit offering, north of 6% and no charitable SVR in the intervening years.

Boo hoo.

[(Blizzard)]

And the obstacles it places in the way of living!

...

The only problem with negative equity, apart from the emotional buyers remorse, is the inability to move. That can be fixed by forcing banks to allow the transfer of mortgages between houses of equivalent value.

Compared to the devastation caused by HPI, which harms almost everyone and effects almost everything, negative equity is nothing.

The report is just more special pleading on behalf of the land parasites.

Edited March 1, 2014 by (Blizzard)

[cool_hand]

video now:

http://www.bbc.co.uk/news/business-26398349

The situation makes it virtually impossible for homeowners to sell up and move - especially in parts of the country where house prices are falling.

that is downright lie.

[tomandlu]

The only problem with negative equity, apart from the emotional buyers remorse, is the inability to move. That can be fixed by forcing banks to allow the transfer of mortgages between houses of equivalent value.

Well, quite. And, as I said, this sort of artificial block is not helpful to HPC either.

[tomandlu]

The situation makes it virtually impossible for homeowners to sell up and move - especially in parts of the country where house prices are falling.

that is downright lie.

Perhaps an exaggeration, but it certainly makes it much, much harder afaik.

[Venger]

It's all very well to expect people to approach house prices as if they were a dispassionate algorithm in a bank's trading system. But algorithms don't have hopes; algorithms don't have concepts of fairness, or social solidarity; algorithms don't get depressed when they have no control over their lives; algorithms don't have biological clocks; algorithms don't grow old; algorithms don't die.

Economics is only useful in that it can improve the happiness of a society, make people's lives better. If it stops doing that, it is no longer useful. If it actively prevents that, if it makes people's lives worse, then the economic solution has failed and should be discarded.

The buyers around here have got/had dreams 2-4 times+ more expensive than I would consider paying for the houses they bought.

The improvement in their lives obviously ranks way before non-owners / other people.

It's a market. More kin excuses.

[MARTINX9]

Having been in negative equity in the early 1990s, it is somewhat depressing watching new neighbours moving in who have paid around two-thirds of the price for an identical house.

Not quite as depressing perhaps as moving next to an elderly couple who bought their house for £5,000 - and you have paid £300,000 for more or less the same property!

[(Blizzard)]

Well, quite. And, as I said, this sort of artificial block is not helpful to HPC either.

No, it's a market failure, doesn't help anyone.

A cynic might suggest that banks don't allow these house swaps in order to create 'hostages'. Human shields to protect them, politically, from falling prices.

I think the reality is that they haven't thought about it.

Edited March 1, 2014 by (Blizzard)

[Venger]

video now:

http://www.bbc.co.uk...siness-26398349

The situation makes it virtually impossible for homeowners to sell up and move - especially in parts of the country where house prices are falling.

that is downright lie.

Funny how so many EA adverts selling to investors. "Attention Investors."

Anyway I've narrowed it down to this:

£113,500 Terraced, Freehold 23 Nov 2007

£56,000 Terraced, Freehold 28 Mar 2003

http://www.rightmove...es/HX5-0JB.html

[Streetview]

No one forced him or anyone to pay £113,500 in late post Northern Rock queue 2007 in that area. I've got my own view on what such homes are worth, and areas change, and 2003 is not any benchmark. Yet HPCers will find all the excuses possible. He's a landlord now then? Finding £250pm above the rent tight going? Sounds like a great landlord to have for tenants.

Edited March 1, 2014 by Venger

[winkie]

Sorry, but what right does a mortgage holder have to always forever continue to make equity......nobody fights the renters corner, forever paying some equity grower.......all one sided, about time renters were made to feel valuable.

[tomandlu]

Sorry, but what right does a mortgage holder have to always forever continue to make equity......nobody fights the renters corner, forever paying some equity grower.......all one sided, about time renters were made to feel valuable.

Absolutely none. However, in an ideal housing market, both falls and rises would be minor, and consequently there would be little appetite for speculation and little opportunity for NE. You'd buy a house, you'd live in it, you'd sell it, end of.

[tomandlu]

A cynic might suggest that banks don't allow these house swaps in order to create 'hostages'. Human shields to protect them, politically, from falling prices.

I think the reality is that they haven't thought about it.

I don't know which option is more depressing...

[Venger]

Absolutely none. However, in an ideal housing market, both falls and rises would be minor, and consequently there would be little appetite for speculation and little opportunity for NE. You'd buy a house, you'd live in it, you'd sell it, end of.

If you haven't noticed, we've never had that. No German style (as I understand it, but not entirely true) steadiness to the market. Same boom and busts through

We've had decades of house price inflation. Including as someone on this thread said.. in a house "worth £300K" where the neighbours paid £5K for theirs. And they were bid up through the decades by people willing and able to pay more. Others chose not to, and all this trying to create fairness for home-owners (at any high price) in retrospect to changing markets. From buyers who'd chose to pay high prices and now not worth as much as they paid.

Worst of all you want to restrict people's free-will decisions for this perfect market as you see it. At least I don't want to do that. Just want them to take the consequences for their actions/decisions, instead of cringey feely feely for them, the innocents. And expecting non-owners to lump it and take toasterbaths out of sympathy for the over-payers.

[tomandlu]

If you haven't noticed, we've never had that. No German style (as I understand it, but not entirely true) steadiness to the market. Same boom and busts through

We've had decades of house price inflation. Including as someone on this thread said.. in a house "worth £300K" where the neighbours paid £5K for theirs. And they were bid up through the decades by people willing and able to pay more. Others chose not to, and all this trying to create fairness for home-owners (at any high price) in retrospect to changing markets. From buyers who'd chose to pay high prices and now not worth as much as they paid.

Worst of all you want to restrict people's free-will decisions for this perfect market as you see it. At least I don't want to do that. Just want them to take the consequences for their actions/decisions, instead of cringey feely feely for them, the innocents. And expecting non-owners to lump it and take toasterbaths out of sympathy for the over-payers.

I'm not sure stopping the banks from extening ever greater amounts of credit counts as restricting people's free-will, particularly in something as fundamental as housing. Apart from that, I'm seriously not asking for, or wanting, any sort of special-flower treatment for 'home-owners'. What will come will come, and certainly they'd be more suitable victims of the end-game than those who refused to participate, but who were nevertheless made to suffer the consequences.

Back to the original topic, and as I've already stressed, the obstacles that NE creates are just another drag on the market. Making it hard for mortgagees to sell their property at the new, lower price also affects us all.

[Venger]

I'm not sure stopping the banks from extening ever greater amounts of credit counts as restricting people's free-will, particularly in something as fundamental as housing. Apart from that, I'm seriously not asking for, or wanting, any sort of special-flower treatment for 'home-owners'. What will come will come, and certainly they'd be more suitable victims of the end-game than those who refused to participate, but who were nevertheless made to suffer the consequences.

Back to the original topic, and as I've already stressed, the obstacles that NE creates are just another drag on the market. Making it hard for mortgagees to sell their property at the new, lower price also affects us all.

They didn't have to take the credit to pay and set ever higher stupid prices. They are more suitable victims, as they set the ever higher prices. Often all too gleefully, not wasting dead money renting, and all the other visions, including forever x2 every few years. I agree that ever greater amounts of credit shouldn't have been available (HTB2 now). It's caused my family immeasurable difficulties, denied us opportunity, the people who took that credit to keep paying ever higher prices. It's a competitive market for housing, and people made decisions.

There shouldn't have been as many bailouts for home-owners. Even BoE at it for years, with statements can't raise rates as so many 30-40 year olds with massive mortgages. They shouldn't be allowed to become landlords, these NE owners. They should be repossessed and assets returns to market. It's structural malinvestment, which is occurring all over in the economy. Preventing good money coming in.

[tinker]

Negative Equity in the 90s was a few thousand, thanks to the sheer stupidity of 'letting house prices get out of control,' it is now tens of thousands. Major was able to remove himself and 'not interfere in the market,' now the clamour to 'do something' is irresistible, moreover the credit madness has underpinned our economy for 15 years. They hope sorting it all out will be the next guy's problem.

I have been watching The West Wing (ran 1999 to 2006), it seems incredibly prescient. Latest episode touched on a tax windfall that was effectively claimed back the following year, but Bartlett made the point that Charlie wasn't supposed to pay down his debt but to spent it in the economy. The debt would be the next president's problem!