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Negative Equity

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I always understood negative equity to mean that the value of the mortgage exceeds the value of the property its secured on. So surely anyone taking out, say, a 125% LTV mortgage must automatically be accepting negative equity as part of the deal - in the hope prices rise and makes the problem go away.

(I'm not aware this was a characteristic of lending during GC1)

Therefore it would seem we don't need to wait for a crash for huge numbers of borrowers to be lumbered with NE. It's already here.

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Yeah but property only ever goes up don't you know - so nothing to worry about... <_<

You'll probably make up the 25% by the team you've walked out of the EA's office.. ;)

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I always understood negative equity to mean that the value of the mortgage exceeds the value of the property its secured on. So surely anyone taking out, say, a 125% LTV mortgage must automatically be accepting negative equity as part of the deal - in the hope prices rise and makes the problem go away.

(I'm not aware this was a characteristic of lending during GC1)

Therefore it would seem we don't need to wait for a crash for huge numbers of borrowers to be lumbered with NE. It's already here.

The extra 25% is usually in the form of an unsecured personal loan I think. So not technically -ve equity since you wouldn't be forced to repay it if you moved house.

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Guest muttley
(I'm not aware this was a characteristic of lending during GC1)

During the early 1990s Barrett Homes (I think it was Barrett) offered 100% loans on new builds. These were dubbed "negative equity mortgages".

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The extra 25% is usually in the form of an unsecured personal loan I think. So not technically -ve equity since you wouldn't be forced to repay it if you moved house.

Erm - I think the clever bit about the new Abbey one is that the additional 25% (or £25,000, whichever is smaller) IS secured on the property. So, yes, you are straight into negative equity from day one.

Well, I suppose it's something for people to think about when they are on their holiday paid for with the £25,000. What do you mean, use the money to do up the house? I borrowed it, it's mine, I tell you. Anyway, I need a holiday after getting all stressed out over buying my first house. :o

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I always understood negative equity to mean that the value of the mortgage exceeds the value of the property its secured on. So surely anyone taking out, say, a 125% LTV mortgage must automatically be accepting negative equity as part of the deal - in the hope prices rise and makes the problem go away.

(I'm not aware this was a characteristic of lending during GC1)

Therefore it would seem we don't need to wait for a crash for huge numbers of borrowers to be lumbered with NE. It's already here.

It was a characteristic in GC1, i am pretty sure this 125% scam was around then as well.

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I think the Bank of England are offering these mortgages via the Nationalised Banking System as they are aware many people are going to be in Negative Equity shortly anyway, in the spirit of Equality and Equal Rights they feel that new borrowers should also be permitted this excellent facility.

The Government are the only people responsible enough to ensure that the public are forever in debt, they have proved themselves via the student loans system, debt is good, something they actually practice themselves.

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The Government are the only people responsible enough to ensure that the public are forever in debt, they have proved themselves via the student loans system, debt is good, something they actually practice themselves.

If we're going to use student loans as an example, we need to insert a "previous" into that statement.

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Erm - I think the clever bit about the new Abbey one is that the additional 25% (or £25,000, whichever is smaller) IS secured on the property. So, yes, you are straight into negative equity from day one.

Well, I suppose it's something for people to think about when they are on their holiday paid for with the £25,000. What do you mean, use the money to do up the house? I borrowed it, it's mine, I tell you. Anyway, I need a holiday after getting all stressed out over buying my first house. :o

You're right, the Abbey one is - although it's not exactly clear what secured means in the context of collateral worth less than the loan! I'm fairly certain the Northern Rock ones were unsecured though. Either way, it seems like quite a bold decision on the part of the lender (as in 'That's a bold decision minister', said Sir Humphrey).

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You're right, the Abbey one is - although it's not exactly clear what secured means in the context of collateral worth less than the loan! I'm fairly certain the Northern Rock ones were unsecured though. Either way, it seems like quite a bold decision on the part of the lender (as in 'That's a bold decision minister', said Sir Humphrey).

The only way I can think about the Abbey one is that they're running their "stop loss" up beyind the price of the house (if it rises of course). e.g. House rises from 200k to 250k. Secured mortgage rises from 200k to 250k. So even after house rises 25% you're still on a 100% mortgage. It's MEWing future price rises for the punter, and increasing the security for Abbey in case there is a future repo.

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The only way I can think about the Abbey one is that they're running their "stop loss" up beyind the price of the house (if it rises of course). e.g. House rises from 200k to 250k. Secured mortgage rises from 200k to 250k. So even after house rises 25% you're still on a 100% mortgage. It's MEWing future price rises for the punter, and increasing the security for Abbey in case there is a future repo.

Surely what would increase security would be to have an asset value > loan value?

Someone else mentioned that the 25% or 25k would be secured on a parent's (or other) property. I don't know if it's true, but the descriptions I've read have said 'secured', not 'secured against the purchased property'. Without such a twist, I can't see how Abbey can fund these in the current climate, but we need to get hold of the small print to find exactly what's being offered.

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