Sunday, August 17, 2008

Don’t worry, be happy

Council of Mortgage Lenders plays down fears of negative equity

THE problem of negative equity for home owners is being overblown and is not an issue as long as borrowers can meet their mortgage repayments, according to the Council of Mortgage Lenders (CML). The trade body is trying to play down claims from ratings firms, investment banks, researchers and politicians that negative equity places homeowners at risk of repossession.

Posted by little professor @ 11:02 AM (845 views)
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5 thoughts on “Don’t worry, be happy

  • Oooh lots coming thick and fast from the cow’s … nethers.

    “It added that nobody knows what has happened to the value of borrowers’ individual properties, or whether they have made extra capital repayments. It is, therefore, impossible to know whether they are in negative equity or not.”

    Ahh, so the argument that because the house isn’t being sold, its not falling in value? We made that argument here, that the rises in value were for the most part not being realised but actually they were, because the CML was lending MEW based on the current market value. Pot, kettle?

    “A CML statement said: “A more worrying feature of recent reporting is the assumption some commentators are making of an automatic correlation between a borrower being in a position of negative equity and being at risk of repossession.””

    Depends if you’ve stoked a fickle market that will take flight at the first sign of the capital value plummeting. Like buy to let.

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  • The problem is certainly not overblown for those in this position.
    Negative Equity has as much of a psychological effect as its counter state,only obviously in a negative manner. Without the ‘feel good’ factor the whole housing market will at the very least stagnate. This has all been brought about by over-pricing in first place which was deliberately induced. (Told time and time again on HPC)
    Now we have the exact opposite effect and the CML are really clutching at straws to maintain at least some kind of stable market as prices cascade downward.
    Ask any homebuyer in negative equity if they are happy with the situation and what will they do? They can’t be happy can they? They will stay put and make it imperative that they pay their existing mortgage for fear of losing the roof over their head.
    This means : No movement in a market whose very existance depends on movement.
    Those that are not in NE would be unlikely to move other than for a very good reason, like retirement. (It’s no better abroad either) They’ll get less for their home, and I’ll bet costs are higher so they’ll even think twice about serious needs.

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  • Strangely enough I’m sure that the same line was trotted out early in the 1992 housing crash.

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  • Of course it is a problem – they wouldn’t talk about it if it wasn’t.

    The Council for Mortgage Lenders are seriously worried.


    I bet they would worry then.

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  • People will want sell their house to rent or to trade down if they are unable to meet their monthly payments. However they will not sell unless the acheive at least the balance of their mortgage plus any exit fees since otherwise they would have to find the balance owed to the mortgage lender that they clearly will not have. At that point it is in their financial interest to default. Default is therefore a perfectly rational response to Negative Equity. This is well known by the members of the CML and will be taught on any “Intro to mortgage lending” course. This CML member is either lying or clearly demonstrating that he is not qualified to do his job.

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