Tuesday, July 8, 2008

Comical Assetz

Cushioned from negative equity

This demon of the property market caused nightmares for homeowners 20 years ago and it seems that history could be about to repeat itself. As house prices drop around the country, negative equity poses a real threat to property owners. Fortunately Nationwide released figures earlier this week that house prices only slipped by 0.9 per cent in June - half the rate it fell in May. And what is more comforting for those investing in property is that GE Money Home Lending has produced a reassuring picture of the chances of negative equity affecting homeowners.

Posted by sold out @ 06:47 AM (1233 views)
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10 thoughts on “Comical Assetz

  • Gerry Bell, the head of mortgage marketing with the company said
    “However, it is also important to look at the broader picture. Over the past decade homeownership has delivered fantastic returns for many borrowers and we would need to see unprecedented falls in property prices for the average home owner to be severely impacted. Homeowners who purchased their property just four years ago for instance, even without a deposit, have an equity cushion of almost 50 per cent before the value of their home loan would exceed the property value,”

    The comment above is a lie.
    Average house price July 2004 was £172,041. Average house price 4 years later June 08 £172,415. (figures from Nationwide)
    Therefore we are all ready (at the start of the crash) at a position where buyers who purchased 4 years ago,with no deposit are very close to negative equity, within 6 months they certainly will be.
    Where do these VI parasites get their figures from or do they simply make them up?

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  • Sorry Sold Out

    Need to correct you slightly there. Nationwide figure for July 2004 is £154,299 (Nationwide).

    But you’re right about equity levels – they’d need to have bought back in May – July 2001 to have 50% equity and that figures not entirely right. I sold an apartment then for £110k. Doubt it would fetch £130k now having peaked at maybe £145k. And that was a top floor 1 bed apartment overlooking a park less than 10 miles from Heathrow.

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  • I agree with Sold Out. The article starts out based on reasonable assertions – if you bought in 1995 or 2000 then there probably isn’t too much to worry about. Then, as usual, he goes too far.

    “Homeowners who purchased their property just four years ago for instance, even without a deposit, have an equity cushion of almost 50 per cent before the value of their home loan would exceed the property value,”

    On average, I’d say that gains in over the last fours years are modest and dropping fast. How Mr Law expects to perusade people to buy property in this country now is a mystery to me.

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  • Thanks str2007.I took my figures from the Nationwide gragh on the homepage,maybe they are adjusted.
    But anyway you can see my point regarding equity.
    I find it really irratating that these people can make sweeping statements like the one i have highlighted,regarding 50% with no data to back it up.
    Its just lies and it makes me sick,because they have used similar lies over the last 10 years to draw more and more people in,Its criminal.

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  • “negative equity poses a real threat to property owners”

    No it doesn’t. Many homeowners are probably oblivious to the value of their house. They certainly seem to be in denial, so they probably think the value has gone up. If they continue to be in denial for the next 20 years, and then decide to sell, I’m sure the property will be worth more than they paid for it. They could go the whole time completely oblivious to the fact that they were at any point in negative equity. Hardly a real threat is it! They make is sound like something that will cut their throats in the middle of the night.

    “comforting for those investing in property …. reassuring…chances of negative equity…”

    So basically everything is fine. “invest” in a house. Watch it’s value drop. And rest assured that quite a lot of people you have never met still have equity in their property. WTF! How is that investing?

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  • “According to the firm, properties bought in London in 1995 would have to see price drops of 72 per cent to endanger mortgage holders.” But what about the MEW-ers?

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  • letthemfall says:

    The big lie is that housing is such a good investment: historically equities have delivered better returns. But naturally, if you buy at the bottom of the market and sell at the top you will do better than average. If, on the other hand, you buy at inflated prices and still expect to make a lot of money you are deluded. Telling that to naive punters is the worst thing about this squirt from Assetz.

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  • but people who bought in 95 would probably have either traded up (probably with less equity as a percentage of the price) or MEWd or – if they were BTLrs who the article is aimed at – added to their portfolio increasing their gearing over and above that in 95. They probably have created an inverted pyramid where the “equity” was used over and over to create security for loans on more properties. If people had purchased in 95 (i.e. at the bottom) and just rented out, and now when the market has turned either maintain their yield or move into the place or sell it then yes they should be fine. But what prospective BTL millionaire worth his salt didnt use Gearing to secure his Baby Bentley?

    I think we are though Deluding ourselves – even BTLrs i would think take Ar*sets predictions with a large pinch of salt!!

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  • The figures might be correct if you assume most people have repayment mortgages rather than interest-only.

    25 yr term, 6% interest, 15% deposit => 22% equity after 4 years
    15 yr term, 6% interest, 35% deposit => 48% equity after 4 years

    So if everyone had a whopping 35% deposit and an uncommonly short repayment term, then their figures might just stack up. Otherwise they’re clearly a load of nonsense. I’m guessing their “research” consisted of telephoning random mortgage-holders and asking them how much they think their house is worth.

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  • Sorry, can’t do maths today. This time using Halifax data:

    May 2004: £157,326
    May 2008: £184,111
    => 17% increase in four years

    25 yr term, 6% interest, 15% deposit => 33% equity after 4 years
    15 yr term, 6% interest, 25% deposit => 48% equity after 4 years
    (Note that varying the interest rate has little effect; varying the deposit and term has a much larger effect)

    The conclusion is still the same – only relatively uncommon borrowers would have a cushion that large. And we’re still waiting for Halifax’s June data…..

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