Why do the banks not do negative equity mortgages?

I sense a lot of hostility toward people in negative equity on this site which is surprising but then again there is very little community spirit left in this country in general so making an effort to help those who have been worst affected by this recession seems Alien to most posters if it means it may come from public funds.

There are obviously people who were greedy or those that made really bad decisions and seriously over extended themselves. Those I would not have a much sympathy for..

On the other other hand there are numerous good decent working people perhaps who bought their first home and were starting a family, through no fault of there own their jobs have been lost and there are families in "Ghost estates" again through no fault of their own who are stuck in these barren unfinished estates and possibly suffering virtually 100% neg equity as the houses will never be sold or completed in these areas and this a very painful time for them.
I think a huge amount of innocent and decent people have been hit by this tragic downturn and huge loss of value of principal residence/negative equity.
Some consideration should be shown and terms like greedy and incompetent being spouted to describe these unfortunate people and familes who did not cause this mess are wide of the mark and out of line in my opinion.
Remember the Goverment will help no one for the good of their heart, it will be done if it means it will help get this country back on track and help improve our economic situation and nothing more which will hopefully benefit us all.

Complainer said:

So then he can't afford it, as things currently stand. If he gets state support to buy something that he can't afford, then this is artificially keeping up the price of the other property. Without these supports, the prices of the other properties will have to drop.

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That makes no sense. Providing people with mortgages in the first place allows them to purchase homes they couldn't otherwise afford.

Oscaresque can (I believe) afford this new property. And surely "negative equity portability" brings more advantages than disadvantages? Social problems such as Oscaresque's are mitigated and the bank gets to replace a "negative equity loan" with a loan with a far healthier LTV.

Negative equity portability seems like an entirely sensible and practical idea in circumstances where it's solving problems rather than deferring them.

redfedora said:

amen . I'd be sickened if anything was done in fairness be it for negative equity or arrears. OK arrears well maybe some form of protection when the arrears are a result of unemployment etc. but arrears because someone couldn't be arsed is a different kettle of fish.

As for negative equity, well people over extended themselves, thats the risk you take when you buy something.

I think the only fairest option is to make what ever solution is implemented universal. so if they do something about the price or offer interest relief then it should apply to everyone regardless of if their property is in negative equity or not. I shouldnt be penalised by not being allowed to avail of relief just becauase i decided to buy an apartment that was in my means and didn't stretch myself.

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If they only do it for one group, then everyone else will stop paying aswell.

There's a big difference between debt forgiveness and negative equity portability.

Unfortunately, Irish apartments seem to be far less family friendly than apartments in continental Europe. If people are being forced to postpone starting a family, that's a serious social problem. I think that it's flippant to suggest that people become professional landlords or rent a house. The 75% interest restriction, NPPR charge, troublesome tenants, PRTB stuff, etc all make being a landlord difficult. And renters of property just don't have the security that families want and need.

I know quite a few young couples who are stuck in apartments and are desperate to buy houses with a view to starting a family. They're postponing this because their in negative equity. Most would have combined income of €100,000 - €120,000. They could easily afford a mortgage on a larger property and the absorption of the apartment's negative equity into that apartment. They just can't bridge the €50,000 - €80,000 to get them out of the negative equity problem. There is no reasonable argument for not allowing negative equity portability in the above circumstances. In fact, not allowing it is creating further problems.

Gekko said:

There is no reasonable argument for not allowing negative equity portability in the above circumstances.

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NO reasonable argument? How about "allowing negative equity portability will increase the actual size of the mortgage considerably thus reducing its affordability (and therefore repayability) - particularly at a time when the couple are facing into significant extra costs if they are moving to start a family". Looking very coldly from the bank's point of view, they are much safer having a couple on 100K-120K and no childcare costs paying off a 300K mortgage than a couple on 100K-120K with childcare costs paying off a 400K mortgage. I'm not in any way saying this is right or socially acceptable/desirable but I don't know how you can think there are no reasonable arguments for not allowing NE portability...

I would have assumed, While you are not going to have a large family in an apartment with out going back 100yrs in living standards, you should be able to have one or two. Maybe I'm being naive.

Increasing interest rates are also going to have a impact on negative equity portability.

orka said:

NO reasonable argument? How about "allowing negative equity portability will increase the actual size of the mortgage considerably thus reducing its affordability (and therefore repayability) - particularly at a time when the couple are facing into significant extra costs if they are moving to start a family". Looking very coldly from the bank's point of view, they are much safer having a couple on 100K-120K and no childcare costs paying off a 300K mortgage than a couple on 100K-120K with childcare costs paying off a 400K mortgage. I'm not in any way saying this is right or socially acceptable/desirable but I don't know how you can think there are no reasonable arguments for not allowing NE portability...

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That's not an argument against the idea though. It's an argument against certain cases. Nobody is saying it should be offered to everyone or not properly stress tested.

AlbacoreA said:

I would have assumed, While you are not going to have a large family in an apartment with out going back 100yrs in living standards, you should be able to have one or two. Maybe I'm being naive.

Increasing interest rates are also going to have a impact on negative equity portability.

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I'm not saying your being naive but, honestly where would I put a child in a 1-bed apartment? The child would have to live in the same bedroom as me & my husband for another 10years while we save up a deposit. There is also barely enough storage space for 2 adults (and we are fairly ruthless with not hoarding things). A friend visited recently and brought a buggy and some toys - the buggy barely fit in the door and there was nowhere to put it that didnt block a doorway. Children are not known for taking up only a little space!

Sorry, while the banks may look at this from a cold business perspective I don't have that luxury - it is rather emotive issue for someone that wants children.

I just want the banks to stress-test me and see that a portable neg eq would be reasonable for my personal situation - I realise it's not gonna be for everyone.

orka said:

NO reasonable argument? How about "allowing negative equity portability will increase the actual size of the mortgage considerably thus reducing its affordability (and therefore repayability) - particularly at a time when the couple are facing into significant extra costs if they are moving to start a family". Looking very coldly from the bank's point of view, they are much safer having a couple on 100K-120K and no childcare costs paying off a 300K mortgage than a couple on 100K-120K with childcare costs paying off a 400K mortgage. I'm not in any way saying this is right or socially acceptable/desirable but I don't know how you can think there are no reasonable arguments for not allowing NE portability...

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Surely the bank would prefer to have a mortgage secured against a property worth more than the value of the mortgage?

Again, I stand by my comment - There is no reasonable argument for not allowing negative equity portability in circumstances such as the above. However, there are many arguments for permitting it.

Your post seems to be arguing against people moving to larger homes in any circumstances (where affordability and "repayability" obviously reduce).

Gekko said:

Surely the bank would prefer to have a mortgage secured against a property worth more than the value of the mortgage?

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Yes, the banks would LOVE that. But how would the property be worth more than the mortgage if there's NE brought along and there's no deposit (or at least not enough to cover the NE)?

Gekko said:

Again, I stand by my comment - There is no reasonable argument for not allowing negative equity portability in circumstances such as the above.

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What part of my argument above is not reasonable in the above circumstances?

Gekko said:

Your post seems to be arguing against people moving to larger homes in any circumstances (where affordability and "repayability" obviously reduce).

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No. I have no problem with anyone doing anything they can afford. If the banks' stress tests (including the impact of childcare costs) are adequate, there's no reason why NE portability couldn't work in some circumstances.

Leaky1 said:

I'm not saying your being naive but, honestly where would I put a child in a 1-bed apartment? The child would have to live in the same bedroom as me & my husband for another 10years while we save up a deposit. There is also barely enough storage space for 2 adults (and we are fairly ruthless with not hoarding things). A friend visited recently and brought a buggy and some toys - the buggy barely fit in the door and there was nowhere to put it that didnt block a doorway. Children are not known for taking up only a little space!...

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Kids generally end up in the parent room for a year or two anyway. Buggies fold, and some are a lot smaller than others. I have a friend at work who chooses to rent a one bed apt because its all he can afford close to work with his wife and their toddler. I'm just saying its doable. Not easy certainly. I'm not against negative equity portability within limits, but I just don't think living in small spaces with kids is an absolute impossibility.

If you delay having kids, and you definitely want them, you risk of not having them at all if there's problems and you run out of time. I'd prefer to be 5yrs younger with baby than have a bigger place. So consider that.

Gekko said:

They just can't bridge the €50,000 - €80,000 to get them out of the negative equity problem. There is no reasonable argument for not allowing negative equity portability in the above circumstances. In fact, not allowing it is creating further problems.

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I think you are missing the point. We have learnt from the recent bursting bubble that 100% mortgages on homes are not a good idea for either the bank or the borrower.

If you agree that the banks should not give 100% mortgages, then presumably you agree that they should not give 120% mortgages?

If people are earning big salaries, then they should save hard to pay down the negative equity and move when that is done.

The only negative equity mortgages which lenders should allow would be where borrowers are trading down, as this improves the situation for both lender and borrowers. Giving someone in negative equity more money is just not a good idea.

Brendan Burgess said:

I think you are missing the point. We have learnt from the recent bursting bubble that 100% mortgages on homes are not a good idea for either the bank or the borrower.

If you agree that the banks should not give 100% mortgages, then presumably you agree that they should not give 120% mortgages?

If people are earning big salaries, then they should save hard to pay down the negative equity and move when that is done.

The only negative equity mortgages which lenders should allow would be where borrowers are trading down, as this improves the situation for both lender and borrowers. Giving someone in negative equity more money is just not a good idea.

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How does trading down with negative equity improve the situation for the lender and the borrower? The LTV is then even more inappropriate. We shouldn't allow nebulous arguments regarding banking policy to create social problems.

Gekko said:

How does trading down with negative equity improve the situation for the lender and the borrower?

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The overall mortgage will be lower so repayments will be lower and more affordable, borrowers are less likely to go into arrears, default etc.

As I see it the banks borrowed to much money got caught up in the housing boom, they have now had there own mortgage cut, and been provided with funds from the ECB at 1%, NAMA, +tax payers money as funds and garantees..

would it be that unfair to help out ALL house buyers who bought after 2006 and work out a % morgage reduction (back too 2006 price level) or just even a 1% interest rate on that %? until its paid off?

I think its time to take a real look at what was going on in 2007, Had i not been very lucky I would be stuck in a house I nearly bought for 320k and now it would be worth €170 if I could sell, which I would not be able to as the builder still has one for sale.. I can see how anyone and everyone got caught in this.. (I believe we were all missled by a corrupt bank system supported by politicians and with the help of estate agents).

tvman said:

Why would the government (i.e. taxpayers) pay off some of peoples' mortgages? They entered into a contract freely.

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Why would the government (i.e. taxpayers) pay off the bank's screwups? They entered into a contract freely.

bluemac said:

Had i not been very lucky I would be stuck in a house I nearly bought for 320k and now it would be worth €170 if I could sell, which I would not be able to as the builder still has one for sale

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And some posters would have us believe that you would have been a victim of your own greed and unworthy of assistance from the State. I fundamentally disagree with that viewpoint.

The social problems of negative equity necessitate action at government level.

dahamsta said:

Why would the government (i.e. taxpayers) pay off the bank's screwups? They entered into a contract freely.

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I agree - people and institutions who lent to banks shouldn't have been bailed out by recapitalising the banks. I think the banking policy has been stupid and immoral but at least the owners of banks have rightly lost everything and just because we dealt with one aspect of the banking crisis disasterously doesn't mean we should repeat those mistakes in dealing with other aspects of the crisis.

Steve

AlbacoreA said:

If they only do it for one group, then everyone else will stop paying aswell.

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like i said what ever solution should be universal. so if its simple a protection against repossession then that would apply to those that have fallen on hard times and those that have not but might. I dont think it should be anything to help with the value of the property or reduce negative equity. at the end of the day when you by something it depreciates in value and economics alwasy has to be considered. it also shouldnt pay off their mortgage because like you said that could encourage others that are borderline to just quit paying too.

things like further interest relief sounds good, but to me its not universal. for example if they say increase tax relief for those that purchased or drew down in 2006, well what about someone that drew dowen in late 2005? two neighbours purchasing either side of christmas would most probably have similiar mortgages so should both not have the same support?

I consider myself blessed that i've managed to struggle by each month and touch wood have yet to miss a payment on any bill but unlike my neighbours that continually went out drinking, bought newer cars and had multiple holidays i made a conscious choice to curb my spending. I cut out the unneccessary items when shopping, bought what was on special, hell i would spend a day travelling to 3 local super markets in my area to ensure that i was getting the best value for my money. I also consolidated things, for example switched to UPC for TV and phone/internet that saved me at least 50 a month. switched gyms for a while to save 20 a month, didnt take the car out or when i did didnt use the aircon in the summer to save on petrol. all to make what cash i had stretch further,

but i know people that just got more and more credit cards and didnt change their lifestyle to suit their means, and used one card to pay off another, paid for whole holidays including spending money on credit card and now have the debt collectors at the door. I feel no sympathy for these people they deserver everything thats coming to them.

AlbacoreA said:

I would have assumed, While you are not going to have a large family in an apartment with out going back 100yrs in living standards, you should be able to have one or two. Maybe I'm being naive.

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Im in a good sized 2 bed apartment - by Irish standards. The biggest issue is lack of storage space. There is just nowhere to store the large items that people tend to accumulate in life like suitcases, winter coats, a toolbox, bicycles etc..

Im not planning to have children right now, but if I was there would just be no space in the apartment for it. Two of us are crammed in there like sardines right now.

It was bought by me alone, as a 'starter' home with a view to moving on somewhere bigger in 5-7 years. It was never intended to be somewhere that would have 2 of us crammed into it for many years.

I can manage my mortgage repayments alright - but Im roughly 100k in NE so no hope of selling.
Husband not working so no hope of saving enough to pay off the NE.

There are 100 apartments in the development - practically everyone is in the same boat. Some people who bought in late 2006 or 2007 are over 200k in NE.

Some couples are starting families regardless - but there are practical issues like trying to get a buggy up a flight of outside concrete steps, soundproofing not quite adequate to block the sound of a crying baby from surrounding apartments, plans for local shops to be built abandoned when the crash came, bus routes the same etc...

Its definitely causing a social problem.