Friday, May 16, 2014

Non-recourse mortgages coming soon?

EU mortgage plan could push up cost of borrowing

A change in mortgage rules being debated by the European Commission to allow borrowers to walk away from a property if they can’t repay the loan could push up the cost of borrowing for everyone. Although the UK mortgage market has already been subject to stricter lending rules under the recently implemented ‘mortgage market review’ (MMR) – which has introduced tougher affordability criteria for home loans – the commission’s ‘mortgage directive’ plans to change the rules again. At the heart of the directive is the commission’s concerns about over-indebtedness in Europe and how it should be tackled. In order to find a solution for those unable to repay loans, the commission has put forward the idea of ‘non-recourse loans’.

Posted by khards @ 11:05 PM (2414 views)
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6 thoughts on “Non-recourse mortgages coming soon?

  • Captain Tightwad says:

    If true, I think this would be a great thing. Non-recourse loans IMO were a big part of how US housing was able to fall back to more reasonable levels. Political interference in the market becomes harder to justify when there’s an easy out from negative equity.

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  • Non-recourse loans are an excellent way to promote sensible lending and I cannot see how making sure someting is affordable would push up the cost, certainly to the borrower. In fact the only way borrowing costs could be higher while maintaining affordability would be if house prices fell. Not a bad thing really.

    In France mortgages are fixed-rate for the full loan period and repayments cannot take up more than one third of a person’s or couple’s income. This could be one reason why house prices are far less volatile here, and over indebtedness is rare.

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  • This is a brilliant idea. It’s disgusting that banks put all the risk on the borrower. As they say, if you owe the bank a million, you have a problem, but if you owe the bank a billion, the bank has a problem. Collectively, homeowners owe 2 trillion on historically overpriced houses. Given the way self-cert and IO were pushed and mortgage fraud was winked at in the early/mid-noughties, it’s ludicrous that banks had less incentive to restrict lending than in the US.

    I suspect we’ll manage to opt-out of this, however. That’s what happened to the last round of sensible mortgage reforms to come from the EU.

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  • Isn’t this another way of removing personal responsibility from individuals?

    More “nanny state”?

    There will be a cost to “walk away” mortgages. Can anyone guess where that cost might be recovered? If I were lending out cash I’d make sure that the LTV would be sufficiently low for me to get burned – I’m assuming the bankers play smart!

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  • tenyearstogetmymoneyback says:

    It has always puzzled me as to what happened to the “Mortgage Indemnity Insurance” which seemed to be compulsory
    on 805 + loans in the 1980s. Maybe Jack C knows. I would guess that such insurance would cover everyones (with the exception
    of the insurance companies) risk.

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  • tenyearstogetmymoneyback says:

    That should have read 80%

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