Friday, November 4, 2011
For how long?
Falling house prices and low interest rates protect thousands from insolvency
Falling house prices and low interest rates have combined to keep corporate and individual insolvencies lower than expected, according to leading accountants. “With all the doom and gloom in the headlines, you might be surprised to hear that our insolvency department is not that busy,†said Mike Warburton of Grant Thornton. He added: “Low interest rates reduce the pressure on banks and other lenders to act quickly to prevent debts growing larger and limit their losses. “At the same time, the weak housing market and difficulties in obtaining mortgages mean it is hard to sell houses, which are most debtors’ major asset; another reason for lenders to hold fire.
Posted by khards @ 08:39 AM (4035 views)
13 thoughts on “For how long?”
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Inlikeflynn says:
So it’s “extend and pretend”, but there’s no getting away from the fact that many mortgages are in default and sooner or later the banks will have to do something.
Quad says:
So paying a less is a good thing Hmmm….
Catdog1121 says:
It still amazes me how the banks can lend someone £91k for them to then go bankrupt, its quite clearly the bankers trying to hide the bad debt, there should be a simple test if you cant pay your debt off in 7 years you shouldnt be given it spare the exception of a mortgage who’s life should be no more than 25yrs.
Surely it would be better to call in the debt earlier than allow these people to get into more debt, it would be interesting to see of bankruptcy cases how much of that debt was interest piled on top of the original debt.
ontheotherhand says:
“At the same time, the weak housing market and difficulties in obtaining mortgages mean it is hard to sell houses, which are most debtors’ major asset; another reason for lenders to hold fire.”
I don’t understand this. Are they saying that banks don’t foreclose on a mortgage in arrears because it would be difficult for them to sell the property? So they can hold the mortgage on their books at a fictional value? Surely an accountant would advise the bank that if they value a property at £X but it has not hope of being bought for £X because of difficulties for potential buyers obtaining mortgages, then it’s not worth £X any more?
taffee says:
if there is equity,then banks should be going for repossession
this tells me there is little or no equity,therefore,the debtor may as well go bankrupt if they push for repossession and the lender
is left having to bank the loss
thats all very well if you think houseprices will recover in our lifetime
mark wadsworth says:
OTOH, it is as Taffee says. If you have a decent bit of equity, the bank will repo you. if you don’t, then what’s the point?
A borrower in nequity and the lending bank have each other over a barrel – the bank won’t repo him, but similarly the bank knows that he can stiff the borrower for every spare penny of his income via higher interest rates to just below the pain threshold where the borrower throws in the towel. Not a happy situation, but that’s what Home-Owner-Ism is about, it’s about painting everybody into the same corner where everybody is in a complete bind and has no more freedom of action.
taffee says:
I’ve heard of people repossessed for £30,000 ‘cos they have house worth £250,000….mainly older people.
I know for a fact someone in 13 months arrears in £80,000 negative equity where the lender is accepting £10 per month to pay off the arrears and stop any action
The housing market and our finances are so closely linke BOE had no choice but to lower interest rates to near zero,or the economy would have collapsed.
THATS how bad things are.were
ontheotherhand says:
“If you have a decent bit of equity, the bank will repo you. if you don’t, then what’s the point?”
Ah I see, thanks. But if the bank is getting paid no interest on £100,000 mortgage, wouldn’t it prefer to force a sale and get £75,000 back that it can lend somewhere it does get some interest? I guess it depends whether the accountants and regulators enable them to pretend that the asset of £100,000 mortgage is still worth that in a negative equity no repayments situation? I mean, if it’s already marked down on their books as impaired and worth £75,000, shouldn’t they repossess?
taffee says:
banks are not marking to market and do not want to be forced to.
they are hoping asset prices rise and their balance sheets get repaired.
If with have deflation then they are insolvent…BOE want to inflate the debt away
general congreve says:
@6 – And that is the truth. Disgusted to hear that you actually know someone being let off 13 months arrears for 10 quid a month. No wonder there’s no bloody HPC.
ontheotherhand says:
Is it within the banks’ rights to repossess and then rent it out? We keep getting told rents are soaring etc. I guess they first have to prove that the house is worth less than their mortgage by means other than selling it (otherwise they could be stealing the excess), and such a valuation would still force a mark down on their balance sheets. Extend and pretend. The feckless get to live in a free house with a free call option if house prices recover.
stillthinking says:
This is the whole scam though, it is holding asset prices up artificially that causes the deflationary spiral !
If they raised rates and repossessed, then prices would clear and people would borrow. Of course nobody is going to borrow when everything you might want to buy is artificially overpriced.
taffee says:
general…in the US most foreclosure happen after arrears hit 15-18 months…thats not 15-18 months of problems but 15-18 months of actual payments missed.
there was a chap on cnbc who hadn’t paid in 6 years and still wasn’t repossessed!…but he sure had a huge mortgage by then.