Saturday, January 12, 2008

Spectre of negative equity looms for first-timers

Spectre of negative equity looms for first-timers

One of the readers comments says "Negative equity should be outlawed, as it is in the USA. Has it ever been challenged in court?" I'm not quite sure how this one would work. How do you outlaw prices going down? And who would you challenge in court, the FTB whose refusing to pay your ridiculously overinflated price?

Posted by becky @ 11:44 AM (1196 views)
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11 thoughts on “Spectre of negative equity looms for first-timers

  • Negative equity is an inevitable consequency of HPC.

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  • They should make negative equity the problem of the LENDER by law. If there is a house price crash, the loan is reduced to 100% of the house value as assesed by a 3rd party. That way we wouldn’t get silly loans in the first place – the very loans that help inflate the market for starters. It’s very simple, and would seriously stop the stupidity (backed by fee income greed) of some of the mortgage trade.

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  • planning4acrash says:

    Growler, lenders would still find a way of packaging off and valuing, packaging and selling that risk, so things would carry on.

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  • Homeless_bear says:

    I’m not sure how “Negative equity should be outlawed . . . “. If that was the case, then surely by the same token you should outlaw “Positive Equity” . . . after all, for a ‘balloon’ to go down, it would have to go up in the first place. I have an idea, why don’t we just ‘outlaw’ the selling of houses at a profit as well as at a loss? That way, people would buy homes to live in, instead of a BTL asset! Yes, yes, I know . . . . . . . “in my dreams” . . . . . . . . I just thought I’d add my comments about how silly it’s getting . . . . .

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  • If only the world’s wealth was more evenly distributed.

    For example, if Poland was given enough resources to build up its economy, which would admittedly cost us a bit, our properties would be worth less and they would not need to come here so the problem of immigration and public services strain would disappear.

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  • it_is_going_with_a_bang says:

    One of the comments “A house is for life”.

    A life sentence of debt. Nice. What if you want to move and it’s worth £20k less than you bought it for and it’s a 1 bed flat but you need to buy a house to start a family.
    Then you are in S**T.

    Once you get to a house that you want for life then yes by all means a house is for life. But what if you are not there?? What does that make it?

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  • Do they still have Mortgage indemnity fees ?
    I’m not sure if they would pay out but back in the 1980s you had to take
    out an insurance policy against defaulting if you borrowed more than 80%.

    It didn’t stop me from being stuck in a house I hated and could sell for
    ten years though 🙁

    :- Duncan

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  • “But what if you are not there?? What does that make it?”

    I think it makes it a life of misery.

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  • The return of negative equity. So many FTBs will not even know the reality of what will happen to them if they buy property in a declining market.

    I bought a maisonette in London after the crash in the early 90s – 1993. We bought for 37k. The couple across the road had bought their maisonette before the crash a few years earlier – they had paid 72k.

    We sold a few years later but they could not move due to the negative equity. They had to stay in a small maisonette because they bought at the peak.

    In the end I believe they did sell their property after being bailed out to the tune of 20k by their parents. Imagine the size of the bailouts that may be necessary this time around.

    Sounds like relatively small sums now but it was a lot back then.

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  • Cheekie Charlie says:

    Duncan
    I worked in the business in the mid 90 ‘s the MIG (mortgage indemnity guarantee) was paid by the mortgagee as a condition of granting the mortgage but it was to protect the mortgage company! The mortgage company would then claim the shortfall off the person who had the property repossesed on behalf of the insurance company who issued the guarantee. Rip off, yes. But if you were correctly advised the mortgage company would normally settle for 10% of the shortfall full and final settlement ( but the shortfall was jointly and severally responsible if it was held in joint names).

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  • dohousescrashinthewoods says:

    .. and if parents already bailed the kids out once to get them on the ladder? Can they afford to bail them out again to get off it?

    Imagine parents who will have hit negative equity themselves because of the MEW they had to take out to get the kids on the ladder. Double-whammy. Add to this parents who have been “Skiing” the MEW (SKI = “Spending the Kids’ Inheritance”).

    I can see repossessions being triple-layered this time: not just those who bought at the top, but those who funded them to buy at the top, and those who rinsed their equity too.

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