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MattLG

Mortgage Question

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If the equity in your house plummets below the value borrowed on your mortgage, can a bank repossess your home? If I was a bank, I know I'd want to cover my rear under those circumstances.

Too many of my friends finally realise they have no arguments against a house price crash so they just say, "Well it doesn't bother me, I'll just stay where I am until the prices go back up."

MattLG

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For so long as you service the Loan then in a residential mortgage a bank cannot call in the loan.

Commercial Loans are somewhat different however they would again be hard pushed to get a court order for repossession if the loan is fully serviced.

Your friends are right, if they bought at the right time then they can wait it out. Whereas if you didnt you will have to wait another seven years before its worth buying.

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For so long as you service the Loan then in a residential mortgage a bank cannot call in the loan.

Commercial Loans are somewhat different however they would again be hard pushed to get a court order for repossession if the loan is fully serviced.

Your friends are right, if they bought at the right time then they can wait it out. Whereas if you didnt you will have to wait another seven years before its worth buying.

That begs the question of what happens to a BTL loan that is being serviced could that be called in if the value of the property was equal or less than the loan, or even could the bank demand a big payment to restore say a 10% equity

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Too many of my friends finally realise they have no arguments against a house price crash so they just say, "Well it doesn't bother me, I'll just stay where I am until the prices go back up."

MattLG

Staying where you are is fine so long as you can afford to pay the mortgage payments, and you don't need to relocate due your circumstances etc.

The problem starts, however, if the house is worth less than the mortgage and the payments become unaffordable (lose your job or interest rates go up).

For example, if you have a variable rate interest only mortgages with high LTV who paid so much for their house that they can barely afford the mortgage payments (probably quite a few people in similar situations) then you're in a precarious situation. Also, it doesn't have to be you. If large numbers of these people start to bail out then prices will head south rather quickly and affect other homeowners.

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If you are in negative equity does it make it hard for you to move house?

Say that you have a 180,000 loan secured against a 160,000 property, if you want to move will anybody offer you a mortgage if you have no equity, surely not.

Only alternative would appear to be a move to rented accomodation.

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Having been through a negative equity situation its true you can sit it out. My major issue was that i could have moved job to get more cash but was stuck in my old house and so my ability to move was removed. It killed my ability to adapt to my circumstances and sort it out.

I dread to think what would have happened if I'd been made unemployed....anything can happen e.g . unexpected kids, marriage/relationship split. Unemployment, new boss ...etc etc. its not the money its the impact on your ability to adapt....4-5 years of being held in one place certainly is no picnic, especially if you KNOW you cannot move

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Only alternative would appear to be a move to rented accomodation.

.... and contnue to service the remaining mortgage.

Having been through a negative equity situation its true you can sit it out. My major issue was that i could have moved job to get more cash but was stuck in my old house and so my ability to move was removed. It killed my ability to adapt to my circumstances and sort it out.

I dread to think what would have happened if I'd been made unemployed....anything can happen e.g . unexpected kids, marriage/relationship split. Unemployment, new boss ...etc etc. its not the money its the impact on your ability to adapt....4-5 years of being held in one place certainly is no picnic, especially if you KNOW you cannot move

Exactly. Circumstances do change and often more rapidly than one expects. In the current and coming economic climate being mobile is/ will be a huge advantage.

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If you are in negative equity does it make it hard for you to move house?

Say that you have a 180,000 loan secured against a 160,000 property, if you want to move will anybody offer you a mortgage if you have no equity, surely not.

Only alternative would appear to be a move to rented accomodation.

You could move but would have to pay back the £20k difference, plus your new mortgage.

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Commercial Loans are somewhat different however they would again be hard pushed to get a court order for repossession if the loan is fully serviced.

True, although we are in unchartered waters with BTL mortgages, which are undoubtedly commercial loans.

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The people who are going to be really hard hit this time are those who have bought new build flats. Prices are already falling. I've been keeping an eye on some of the new builds in Kingston. This area is now saturated with flats (no they are not luxury apartments, however much the developer tries to pretend otherwise ;)). I've started to see some of the earlier flats coming back onto the market at slightly less than they were first sold for in 2003/4. Most of these will be BTL but some will be homeowners. The huge timebomb with this is that these are not only the most likely to fall but also the most likely to be owned by young singles or couples. These are exactly the type of people who will be looking to get married and start a family in the next few years. So for these people negative equity is about to put a complete halt on their lives for quite a few years.

EDIT: For the sake of balance I'll also point out that some of these are coming back onto the market at a slight profit (before costs are taken into account).

Edited by Portent

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What will happen to the Mortgage Rate Tarts?

If you are in negative equity, will you be able to secure a new 'Low IR' mortgage for more than the worth of the house??

No more low IR mortgage deals could tip some over the edge.

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For so long as you service the Loan then in a residential mortgage a bank cannot call in the loan.

Commercial Loans are somewhat different however they would again be hard pushed to get a court order for repossession if the loan is fully serviced.

Your friends are right, if they bought at the right time then they can wait it out. Whereas if you didnt you will have to wait another seven years before its worth buying.

I have read on this forum (I have no other authority for this) that there is a clause in the small print of most mortgage contracts which can allow the lender to request you pay off some of the principle should the Loan-To-Value ratio rise beyond a certain level (because the property value falls).

I have no idea if these clauses really exist, perhaps they are only on BTL mortgages. Or perhaps they don't exist at all -- anyone have any idea?

frugalista

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I have read on this forum (I have no other authority for this) that there is a clause in the small print of most mortgage contracts which can allow the lender to request you pay off some of the principle should the Loan-To-Value ratio rise beyond a certain level (because the property value falls).

I have no idea if these clauses really exist, perhaps they are only on BTL mortgages. Or perhaps they don't exist at all -- anyone have any idea?

frugalista

I think they are on BTL mortgages only.

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Guest Fiddlesticks

I want to scare homeowners who aren't scared of a crash.

Hmmm, I bet you're a little ray of sunshine at parties ;-)

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Hmmm, I bet you're a little ray of sunshine at parties ;-)

Well who wants a girlfriend or wife. They only put pressure on you to buy a house and make the worst financial mistake of your life :unsure:

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I have read on this forum (I have no other authority for this) that there is a clause in the small print of most mortgage contracts which can allow the lender to request you pay off some of the principle should the Loan-To-Value ratio rise beyond a certain level (because the property value falls).

I have no idea if these clauses really exist, perhaps they are only on BTL mortgages. Or perhaps they don't exist at all -- anyone have any idea?

frugalista

There was a substantial thread on this very topic over 6 months ago. zzg113 made quite a few contributions to it and the conclusion seemed to be that lenders could call in a BTL mortgage at anytime, if the LTV ratio fell below a certain percentage. Does anyone else remember this debate?

Edited by Buffer Bear

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Guest wrongmove

There was a substantial thread on this very topic over 6 months ago. zzg113 made quite a few contributions to it and the conclusion seemed to be that lenders could call in a BTL mortgage at anytime, if the LTV ratio fell below a certain percentage. Does anyone else remember this debate?

I think it was a different thread to this, but I had a debate with BBB (remember him ;) ) on this subject. He is a BTL with about 100 props, and he eventually conceded that his mortgages had a clause which allowed the bank to call them in if the properties dropped in value.

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I think it was a different thread to this, but I had a debate with BBB (remember him ;) ) on this subject. He is a BTL with about 100 props, and he eventually conceded that his mortgages had a clause which allowed the bank to call them in if the properties dropped in value.

I saw some dire 'property porn' on TV a while back. some 20 year old whose Mummy and Daddy had set him up 'in business' as a BTL tycoon. Was buying up half of East London on IO mortgages.

The programme (wish I could remember what it was) took him to meet a bloke who had done same in the Eighties then lost it all when the banks called it in. Bloke was qite bitter and had a bit of a vendetta against Nigel Lawson. He was now living in France.

Young Tarquin was astonished to learn that a) Property prices can go down, B) The government would let interest rates climb to 15% and c) Banks, when faced with a recession, asked for their money back.

But he repeated his mantra (its different now - the government would never let it happen) and carried on regardless.

Come the glorious day, people who failed to learn the lessons of history will be first up against the wall (or chucking themselves off it).

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Guest muttley

Your friends are right, if they bought at the right time then they can wait it out. Whereas if you didnt you will have to wait another seven years before its worth buying.

Huh?

Are you now saying that negative equity is better than renting,laurejon?

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  • 337 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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