# Why do the banks not do negative equity mortgages?



## CrazyOne

Moved from another general thread on negative equity

Brendan Burgess


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## Oscaresque

I think this is a very difficult argument and as Morgan Kelly wrote, pits those who can pay their mortgages against those who can't. Not everyones problems are as black and white as ability to repay their mortgage. I suspect my own story is very common. 

We bought a small "first time buyers house" in 2005. We should have a) taken the higher mortgage being offered which I didn't think we could afford at the time or b) waited a few more years before buying and just bought a house we could live in for our whole lives. (I know a lot of people will disagree with A being a good choice but it's one I wish I took).

My bank will not allow me to sell without clearing the NE (I was't looking for it to be written off but moved to a new mortgage). I cannot save it and a deposit fast enough to allow me to move in the next 2 years. I now have a tiny house that is delaying my decision to start a family, hopefully not for so long that it becomes too long. 

I absolutely accept buying the house was a mistake and one that may fundamentally change my whole life but should the Government help me? The bank told me I cannot take the NE into a new mortgage because the Gov won't allow them. But if they would is it the right strategy for the country/economy as a whole. It would suit me alright but then there are hundreds of individual stories and situations. On the flip side should I be "punished" because I can repay my mortgage while those who can't get help???

I don't think it's a conversation that'll go away any time soon.


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## z107

> I now have a tiny house that is delaying my decision to start a family, hopefully not for so long that it becomes too long.


Here's my opinion; don't delay starting a family. 
That could be a decision you really regret.
People bring up children in all sizes of house and flat.


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## Gekko

There's a very strong social argument for helping people like Oscaresque.

The negative equity issue is creating social problems in that it's in some cases dissuading people from starting families.

Creative thinking is called for.  I cannot see any logical argument against allowing "negative equity portability".

The vast majority of people were not greedy.  They merely bought homes for their families, and they've now been bitten by a property and banking collapse.


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## the pops

I would have to say that I sympathise with Oscaresque a lot on this one.  Myself and the wife are at an age when we should be kicking on with children but due to financial issues it would just be a bad idea.  I do think there could be a social issue develop in Ireland out of this as I am sure I and Oscaresque are not the only people to be caught between a rock and a hard place


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## Complainer

I certainly have sympathy for anyone caught in this trap at a personal level.



Gekko said:


> Creative thinking is called for.  I cannot see any logical argument against allowing "negative equity portability".



The logical arguement against this is that it is creating an artificial floor to support property prices at unrealistic levels. This in turn is keeping many other people out of the property market, and indeed stopping those people from moving on with having kids etc.


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## Sunny

Oscaresque said:


> My bank will not allow me to sell without clearing the NE (I was't looking for it to be written off but moved to a new mortgage). I cannot save it and a deposit fast enough to allow me to move in the next 2 years. I now have a tiny house that is delaying my decision to start a family, hopefully not for so long that it becomes too long.
> 
> IThe bank told me I cannot take the NE into a new mortgage because the Gov won't allow them. But if they would is it the right strategy for the country/economy as a whole. .


 
How is the Government stopping the banks from tranferring your NE to a new mortgage? There is nothing to stop the bank from doing it apart from the bank itself and their credit policy.


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## Leaky1

My own reasons for wanting to move are the same as Oscaresque. Having a child in a 1-bed apt doesnt seem realistic to me. I'm not looking for debt forgiveness, just want the neg equity to be portable. However my bank EBS also said its not possible - said the government wont allow it. I spoke to BoI about this too, they said they have a proposal to put to the goverment but till then it's a no.


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## Gekko

Complainer said:


> I certainly have sympathy for anyone caught in this trap at a personal level.
> 
> 
> 
> The logical arguement against this is that it is creating an artificial floor to support property prices at unrealistic levels. This in turn is keeping many other people out of the property market, and indeed stopping those people from moving on with having kids etc.


 
How is it doing that?

Oscaresque can repay the mortgage.  It's just a timing issue.


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## Complainer

Gekko said:


> How is it doing that?


  Because it would be allowing Oscar to buy the new property at a price that he couldn't otherwise afford.


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## Sunny

Complainer said:


> Because it would be allowing Oscar to buy the new property at a price that he couldn't otherwise afford.


 
No it's not. He can I assume afford the new property. What he can't afford to do is pay off the negative equity and save a deposit for the new property at the same time. Therefore he simply wants to transfer the negative equity into a new mortgage and pay it off over the longer term.


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## Complainer

Sunny said:


> No it's not. He can I assume afford the new property. What he can't afford to do is pay off the negative equity and save a deposit for the new property at the same time.



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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## Sunny

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.


 
What State Support? He is not talking about debt relief.


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## redfedora

Leaky1 said:


> Sorry to be selfish but it would annoy me to be stuck with my tiny 1-bed apt with a payable mortgage, while other people who over-extended themselves would get help to live in houses I can only dream of.


 
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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## Complainer

Sunny said:


> What State Support? He is not talking about debt relief.


He's not really clear on what possible solutions he is proposing. It could be debt relief, or changing of banking regulatory approach to allow portability of negative equity, or some other solution. I haven't seen any solution that doesn't have some impact on other people.


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## Brendan Burgess

Sunny said:


> How is the Government stopping the banks from tranferring your NE to a new mortgage? There is nothing to stop the bank from doing it apart from the bank itself and their credit policy.



One of the banks proposed to the Financial Regulator that, in very limited circumstances, that they would issue negative equity mortgages. The Financial Regulator stopped them doing it, pending a review.  As far as I know, they are still not allowed to do so. 


Negative equity mortgages are a very bad idea. They would be suitable in so few cases, that I think it's right to ban them. 

People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.

Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.


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## truthseeker

Brendan Burgess said:


> People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.


 
Rents have fallen and many people cannot afford to become landlords (with associated costs) as the monthly rental will not cover the mortgage repayments and they cant afford to rent themselves and also make up that shortfall. In addition many properties are not suitable for renting due to location or amenities.



Brendan Burgess said:


> Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.


 
How would they then be able to buy again with a massive NE personal debt hanging over their heads for the next x amount of years?

I dont disagree that the above are options but they may not be viable options for many people.


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## Sunny

I agree with the general sentiment of negative equity mortgages but they might be among the best of a load of bad options.

They won't be suitable for everyone but as long as the new loans are affordable and properly stress tested and the bank is happy to take on the negative LTV, then they have to be considered. (Perhaps some sort of insurance could be taken out on the part of the loan over the value of the property). Not saying it is perfect but we have to look at options.


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## Brendan Burgess

truthseeker asked



> How would they then be able to buy again with a massive NE personal debt  hanging over their heads for the next x amount of years?



That is the whole point. With massive negative equity, they should not be taking on the further risks of property ownership. They are better off renting. 

Sunny

I don't see why we have to look at this option at all. It seems to be based on the Irish obsession with owning their own home. I think that home ownership is a good idea, but only for people who have a deposit. Not for those who are in debt before they buy their home. 

If I told you I had a €50,000 credit card debt with nothing to show for it, I don't think that you would recommend that a bank be encouraged to give me a €200,000, 100% mortgage.


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## Leaky1

Brendan Burgess said:


> Negative equity mortgages are a very bad idea. They would be suitable in so few cases, that I think it's right to ban them.
> 
> People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.
> 
> Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.



I asked my bank if they would allow me to sell with a shortfall and pay it off as a loan - they also refused to agree to this.

My neg equity is approx 50 or 60k, which is too large to save a lumpsum to pay off while saving a deposit. But it would be manageable if it could be carried and rolled into a new mortgage - and I would want it to be adequately stress tested!

I do agree with Brendan that there isn't a need to dive right back into buying a property - renting a new home would be an option. However I don't think that renting out your neg equity home is an option for everyone - for reasons of location, or even just the fact that I don't think I have the business-sense to do it properly. I don't believe I'm assertive enough to deal with some of the problem tenant situations that seem to arise. I am a practical enough person to not start a family until we have suitable accomodation, but that could mean waiting too long and being too old to have kids - it is a reality for some people. I'm kicking myself for believing the rubbish about a property ladder (more like snakes & ladders).

Like I said there should be options for people that are properly stress tested, but my bank isn't offering me any of them.


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## johnnygman

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.


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## Gekko

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.


 
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.


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## AlbacoreA

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.



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


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## Gekko

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.


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## orka

Gekko said:


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


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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## AlbacoreA

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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## Sunny

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...


 
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.


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## Leaky1

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.



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.


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## Gekko

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...


 
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).


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## orka

Gekko said:


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


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.


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).


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.


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## AlbacoreA

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!...



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.


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## Brendan Burgess

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.



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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## Gekko

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.


 
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.


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## orka

Gekko said:


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


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


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## bluemac

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).


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## dahamsta

tvman said:


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



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


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## Gekko

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


 
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.


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## tvman

dahamsta said:


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




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


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## redfedora

AlbacoreA said:


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


 

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.


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## truthseeker

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.


 
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.


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## Bronte

Gekko said:


> 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. .


 
You can't have it both ways. If they can easily afford a bigger mortgage then they can easily either rent out their apartment or pay down the negative equity and then buy. Personally I find it incredible that people on 100K to 120K salaries can claim an inability move and hence an inability to afford a child. Can you explain how much is their current mortgage, the repayments, the size of their current apartment etc so that I can see it as clearly as you. 

To put some context on it I have a sibling who has a very young kids and moved out of a vastly negative equity property in Dublin and is renting it out at below mortgage amount but is managing that and where they are living now on a much lower salary than you've quoted.

I'm not sure but I'm getting the impression that people want to move into houses with the click of a switch and take on even more debt while claiming they cannot do anything about the negative equity of the tiny apartment they have bought and would also like that to go away with the stroke of a wand.


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## johnnygman

There seems to be such an attitude of, "if they are getting it, I want it" very childish and unhelpful.I doubt anyone here who is not in massive negative equity understands the difficulties problems that this mess has caused for young families. Most of the people who are taking this attitude are the one who perhaps through nothing more than blind luck and timing/age are not in this terrible position. It's the ordinary families that I feel for, this was not their doing.
This issue hugely affects labour mobility and as pointed out causes huge social problems, people need to realise that the Goverment will only do somthing in relation to this if it helps the economy and society in general and stop thinking so much about "what's in it for me" I am not in negative equity thank God but as someone pointed out earlier I could easily have been if the timing had been different and would not like to be stuck with that noose around my neck. Take a drive though the midlands North West and tell me you dont feel sorry or want something done some of these people who have paid their taxes like you and I. I find it very sad to see people making comments such as "I would be sickened" if they did something to help thinking only of themselves.


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## csirl

Brendan Burgess said:


> People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.


 
This isnt as easy as it seems.

Consider a family who have to move location for employment reasons - main earner made redundant, but offered job in new location. Say, for example, their house will fetch €1k per month in rental income. And renting a similar house at the new location also costs €1k per month. 

On the surface this sounds ok, however, after taxes and expenses, they will be lucky to get €600 per month net for their own house, thus leaving a shortfall of €400 per month. They may not be able to move because they cannot cover this shortfall. 

The above is restricting labour force mobility - people cannot follow employment and consequently cannot work their way to a better situation. The hypothetical family above may end up costing the State a lot more in the long run as they will default on the mortgage if the main earner cannot get work in his locality and they will be on benefits (a lot more than €400 per month!!!) for as long as they are at the original location.


----------



## Sunny

I think many people are at cross purposes here. I think people should be helped but I don't think there should be taxpayers money used and I don't think there should be debt forgiveness. There are a few things that can be tried but there is no simple ideal answer. Some possibilities include negative equity mortgages as argued here, extending mortgages up to 50, 60 year terms to reduce current payments, deal with personal bankruptcy laws, look at freeing up money tied up in long term pension funds, speeding up reprocession process to stop arrears climbing (the current moratorium is hurting a lot borrowers).

All them in my opinion have serious drawbacks but we are going to have problems for the next 20 years. We need to look at every possible solution.


----------



## bugler

Space is an issue you can deal with. A bigger problem with families in apartments will be build quality, lack of a garden, and the behaviour that goes on in larger developments by a minority of people.


----------



## Leaky1

Bronte, you asked for figures of how us neg equity people could afford to tradeup IF we're allowed carry neg eq to a new home.

My current mortgage ?179k, 24yrs remaining, monthly repayment ?970. Neg eq of 50k.
New ppr ?180k (ppr 200k less 10% deposit) + 50k neg= 230k mortgage. Paid over 30yrs, monthly payments ?1,100.

Joint salaries ?60k, secure jobs. To me those payments look do-able.


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## Shawady

truthseeker said:


> 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.


 
I have friends in the same situation (actually worse - only in one-bed apartment) and I have a lot of sympathy for you but I think having one or two children in an apartment is doable.
We had to move out of my house for 3 months last year and move into a tiny one-bed with my two children, ages 3 and 5. We all shared the same bedroom. Us in one bed and the two children in another. It was a bit of a pain but you do get used to it. It is probably a better option than not having kids at all, if that is what you want.


----------



## johnnygman

Debt forgiveness is more than godly -- it makes fiscal sense by Marc Coleman


I think the author hits the nail on the head right here.


----------



## csirl

johnnygman said:


> http://www.independent.ie/opinion/a...than-godly-it-makes-fiscal-sense-2614950.html
> 
> I think the author hits the nail on the head right here.


 
Though, it should be noted that Marc Coleman is in the middle of a Seanad Election campaign and many of his target voters are young people in negative equity.

I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.

However, there must be some practical ways in which people, who did not overstretch, and who need to move house, can be helped. I would have no difficulty with a scheme whereby someone can transfer their negative equity mortgage to a new property, provided that strict rules apply and that they are willing to pay a bit extra to cover any extra risk or any additional costs (so it is cost neutral for the taxpayer). 

I dont have a fleshed out solution, but we could be thinking along the lines of things like the following:

1. Allowing the transfer of a mortgage to another property of the same value whereby both bank and borrower remain in the same financial position. In fact, if a small additional premium is paid by the borrower (e.g. an extra 0.5% in interest) it would be good for the banks/exchequer. This also does not forgive wreckless borrowers.

2. For trader uppers, allow them to take out a new mortgage, provided their total repayments (remaining portion of neg equity loan and new mortgage) are within acceptable limits. Make them take out comprehensive mortgage protection insurance for the entire loan, incl. transferred neg equity and make it compulsory for their mortgage repayments to be by direct deduction at source from their salary. Also, charge a small additional premium on the loan as per 1 above.


----------



## johnnygman

csirl said:


> I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.
> 
> Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?
> Surely this is far more immoral than helping these young families and taxpayers out, I do not categorise them all as reckless as pointed out, it was beyond many of thems control how they and us all ended up in this mess. Something needs to be done or many of these people would just be better off handing back the keys to these properties and leaving this country and starting their families and living abroad where they can expect to have perhaps a job and an opportunity of some quality of life.
> This country will be in a much worse position then if net emigration starts to get any worse as I have seen this happening already and getting worse.
> It's a difficult problem for sure but we need to tackle it immediately in  my opinion and get something contructive in place.


----------



## Bronte

Leaky1 said:


> Bronte, you asked for figures of how us neg equity people could afford to tradeup IF we're allowed carry neg eq to a new home.
> 
> My current mortgage ?179k, 24yrs remaining, monthly repayment ?970. Neg eq of 50k.
> New ppr ?180k (ppr 200k less 10% deposit) + 50k neg= 230k mortgage. Paid over 30yrs, monthly payments ?1,100.
> 
> Joint salaries ?60k, secure jobs. To me those payments look do-able.


 
What's the interest rate on both those mortgages.  You've increased the term of the 'new' mortgage so it make it look like there is not much of a difference between the two repayments.  What would happen if interest rates went up say 3%, would you be able to afford that.  Also there are selling costs and buying costs.  Post up all the figures to show how it makes sense.  

Has any country ever tried the negative equity mortgage?


----------



## Sunny

Bronte said:


> Has any country ever tried the negative equity mortgage?


 
Yeah, they are common with Countries that ended up with this problem. The UK has them. They are not overly used but the option is there for certain people.


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## Bronte

What would the criteria be? In general.


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## Leaky1

I increased the term of the 'new' mortgage in my example, I dont see an issue with it. 12mnths ago my mortgage had 32yrs left but I paid lumpsum to reduce it to 24yrs (thats why my deposit is only 20k). Yes,I havent costed sell/buying costs. We've 6k extra which could be used for it.

The interest rate used is my current rate, 4.5%. Im also due promotion in a few months, so that'll be extra income


----------



## bluemac

johnnygman said:


> csirl said:
> 
> 
> 
> I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.
> 
> Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?
> Surely this is far more immoral than helping these young families and taxpayers out, I do not categorise them all as reckless as pointed out, it was beyond many of thems control how they and us all ended up in this mess. Something needs to be done or many of these people would just be better off handing back the keys to these properties and leaving this country and starting their families and living abroad where they can expect to have perhaps a job and an opportunity of some quality of life.
> This country will be in a much worse position then if net emigration starts to get any worse as I have seen this happening already and getting worse.
> It's a difficult problem for sure but we need to tackle it immediately in  my opinion and get something contructive in place.
> 
> 
> 
> 
> Would be interesting lets just say we have bailed out the banks by 80 Billion.  how much would it cost us to help families  in negative equity? 1 Billion?, or am i way off the mark?
> 
> and could we pass this onto the banks in future years or the bond holders now who lent the banks this money? a Haircut as such to get the country back on its feet.
Click to expand...


----------



## Gekko

Bronte said:


> You can't have it both ways. If they can easily afford a bigger mortgage then they can easily either rent out their apartment or pay down the negative equity and then buy. Personally I find it incredible that people on 100K to 120K salaries can claim an ability move and hence an inability to afford a child. Can you explain how much is their current mortgage, the repayments, the size of their current apartment etc so that I can see it as clearly as you.
> 
> To put some context on it I have a sibling who has a very young kids and moved out of a vastly negative equity property in Dublin and is renting it out at below mortgage amount but is managing that and where they are living now on a much lower salary than you've quoted.
> 
> I'm not sure but I'm getting the impression that people want to move into houses with the click of a switch and take on even more debt while claiming they cannot do anything about the negative equity of the tiny apartment they have bought and would also like that to go away with the stroke of a wand.


 
Negative equity portability isn't debt forgiveness...it's just debt restructuring to mitigate social problems.  People should remember that we're primarily a society rather than an economy.  I'm merely advocating creative thinking and flexibility for people who could move home "with the stroke of wand" were it not for negative equity.  

I agree with other posters.  The self satisfied and smug attitude of people in relation to topics such is this is infuriating.  If you haven't been bitten by the collapse of Ireland Inc, you're just lucky - Simple as that.

I'll get no bailout, but I have no problem whatsoever with something being done with taxpayers' money to assist a young family to escape a ghost estate in Ballygobackwards.  They weren't greedy.  They just wanted to buy a home for their family.  And now they're the victims, not the criminals.


----------



## Sunny

Bronte said:


> What would the criteria be? In general.


 
Like all mortgages, they simply come down to affordability. The rates on the mortgage are you usually split e.g. 5% on the first say 95% of the LTV and then 6% for the next 30% LTV or whatever. 

The idea of negative equity mortgages is simply a tool to deal with the problem of negative equity. They are not designed to be available to everyone and they won't solve the problem by itself.


----------



## csirl

johnnygman said:


> csirl said:
> 
> 
> 
> I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.
> 
> Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?
> 
> .
> 
> 
> 
> 
> If it were me, I wouldnt give a cent to the banks/bondholders - also against my moral compass. Interestingly, there is very little Irish money in Anglo - mainly UK and Germany.
Click to expand...


----------



## johnnygman

Gekko said:


> Negative equity portability isn't debt forgiveness...it's just debt restructuring to mitigate social problems. People should remember that we're primarily a society rather than an economy. I'm merely advocating creative thinking and flexibility for people who could move home "with the stroke of wand" were it not for negative equity.
> 
> I agree with other posters. The self satisfied and smug attitude of people in relation to topics such is this is infuriating. If you haven't been bitten by the collapse of Ireland Inc, you're just lucky - Simple as that.
> 
> I'll get no bailout, but I have no problem whatsoever with something being done with taxpayers' money to assist a young family to escape a ghost estate in Ballygobackwards. They weren't greedy. They just wanted to buy a home for their family. And now they're the victims, not the criminals.


 

Very well put Sir, I am in same boat as yoursellf in that it would be my taxes being used to try and sort this problem, same as it is with the banks, the bondholders and in essence the bonds held in nearly all of our pension funds.
It is not a moral issue for me, it is about getting the country and the people back on their feet and getting us all back on track, the smug labelling of the carnage that has been wrought on our young people and young familes are what Is annoying me. Terms like greedy and criminal are beyond the Pale and have no place in a discussion that is trying to be contructive.


----------



## Brendan Burgess

csirl said:


> This isnt as easy as it seems.
> 
> Consider a family who have to move location for employment reasons - main earner made redundant, but offered job in new location. Say, for example, their house will fetch €1k per month in rental income. And renting a similar house at the new location also costs €1k per month.
> 
> On the surface this sounds ok, however, after taxes and expenses, they will be lucky to get €600 per month net for their own house, thus leaving a shortfall of €400 per month. They may not be able to move because they cannot cover this shortfall.



Hi csirl

Well put, but the principle is correct - people should not feel the need to buy another house when they can rent. 

It would be worth your while making a submission to the relevant Minister that those who own a house but rent another can set the rent paid against the rent received. This would be fairer and would help labour mobility. 

In general, I think unwilling landlords should be treated separately from professional investors. For example, they could be given 100% interest relief for the first 3 years.


----------



## Complainer

Brendan Burgess said:


> In general, I think unwilling landlords should be treated separately from professional investors. For example, they could be given 100% interest relief for the first 3 years.


I guess you'd find that a lot of landlords would suddenly become 'unwilling'.


----------



## AlbacoreA

Complainer said:


> I guess you'd find that a lot of landlords would suddenly become 'unwilling'.



+1 they be mad not to.


----------



## orka

Complainer said:


> I guess you'd find that a lot of landlords would suddenly become 'unwilling'.


You could have relatively simple rules - eg if the property was bought and was your PPR between 2005 and 2009 and became a rental property after 2008, then you can be classified as 'unwilling' - would stop abuse of landlords now moving into properties and trying to declare themselves unwilling.


----------



## Oscaresque

Hi all,

Just catching up on this now.

I can see most points of view expressed here - those that advocate negative equity portability and those that don't - depending on where I look at them from. I don't think there is an easy answer as the "should one size fit all" argument crops up a lot. Personally bringing my negative equity with me would leave me with a mortgage of €30k more then I have now and one that is 3 times our joint income. It is frustrating to think that if I came to the bank as a new customer I might get this amount but can't as an existing one due to my situation. 

Renting and then renting so to speak may be an option we would consider but the thought of it fills me with dread and stress. Not only would it be expensive it would also be something I would not be good at. Neither myself nor my husband could deal with something like an eviction if needed, unruly, antisocial tenants etc. 

I suspect that MrDrep may have outlined how things will go and that it may be up to 8 years before I can trade up. In the bigger scheme of things this would not be a disaster for us and hopefully we can keep our heads above water, stay in full employment and continue saving until then. I absolutely appreciate that financially I am in a better position then a lot of people my generation and that "but for the grace of god" could be us.  Still though I'd move in a heart beat if I could!


----------



## Deiseblue

Sunny said:


> Yeah, they are common with Countries that ended up with this problem. The UK has them. They are not overly used but the option is there for certain people.



Negative Equity Mortgages introduced today by Bank of Ireland .


----------



## Brendan Burgess

Deiseblue said:


> Negative Equity Mortgages introduced today by Bank of Ireland .



Hi Deise

What is your source for this?


----------



## Deiseblue

Brendan Burgess said:


> Hi Deise
> 
> What is your source for this?



From a conversation with a person in charge of the mortgage desk in one of the Bank's inner city branches yesterday.


----------



## pjuegos

[FONT=&quot]Provided the new mortgage is affordable and properly stress-tested, I cannot see anything wrong in allowing people to carry negative equity with them.
If the new and old property have similar values, it would allow NE home owners to move to bigger properties in cheaper districts and start a family, or to accept jobs in different cities and it will also generate new buyers and sellers. 

In FG's pre-election policy document "Credit Where Credit is Due" they suggested allowing NE mortgages. It reads as follows:
[/FONT][FONT=&quot]
"Trading Down and Negative Equity Mortgages
For some mortgage holders that are in negative equity, trading down would produce a reduction in mortgage debt and more affordable monthly payments. We will work with the Financial Regulator and the industry to facilitate trading down and “negative equity mortgages” by borrowers in this situation. Such options would have to be in the customers’ best interest."

However, this suggestion did not make it into the STATEMENT OF COMMON PURPOSE that they agreed with Labour.[/FONT]
 [FONT=&quot]Have they changed their mind after the elections? 

cheers[/FONT]


----------



## csirl

> Quote:
> Originally Posted by *orka* http://www.askaboutmoney.com/showthread.php?p=1158341#post1158341
> _You could have relatively simple rules - eg if the property was bought and was your PPR between 2005 and 2009 and became a rental property after 2008, then you can be classified as 'unwilling' - would stop abuse of landlords now moving into properties and trying to declare themselves unwilling._
> 
> This would be abused... unless by 'after 2008', you mean after 2008 but before today. Of course there will also be millionaires who fit the criteria, but who became landlords as they emigrated from Ireland.


 
The simple way to stop abuse is to limit it to people who own only 1 house in total and are tax resident in Ireland. Rules out all professional landlords


----------



## RIAD_BSC

Brendan Burgess said:


> Negative equity mortgages are a very bad idea. They would be suitable in so few cases, that I think it's right to ban them.
> 
> People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.
> 
> Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.


 
Brendan, your views on this matter are so dismissive of the problems facing many people in NE that I am groaning that you were a member of the government's expert group on mortgages. Your views should be challenged in the strongest possible terms, in my opinion, because you are completely oblivious to the nature of the problems facing some people in NE. You are out of touch with their situations. If your attitude is representative of the overall attitude displayed by that expert group at its meetings, then it is no wonder that some people trapped by NE feel so dispirited. They will never see a glimmer of hope as long as the government and financial regulator listens to this sort of advice....

Explain to me how NE portability is a bad idea for someone who is properly stress-tested on a mortgage that is within their affordability limits? Explain how this is bad for society? The bank is already on the hook for the NE anyway (the existing mortgage is already one of the "negative equity mortgages" you are so opposed to.... something that gets lost in this argument).

You are also assuming that their total indebtedness will always rise. But you forget that property prices have fallen by at least 50% since the height of the boom. Once you have saved a deposit, it is possible to "trade up" to a more suitable property for raising a family, carry the NE over, and still keep the overall debt exposure at near the original level.

Take a couple on combined salaries of 150k. Bought a 100% mortgaged apartment at the top of market for 400k, now worth 200k, have paid 25k off the mortgage.... that's NE of 175k.... they have savings of 50k (I'd surmise there are lots of couples like this in modern Ireland)

They'd be decades trying to pay the NE off before they would be able to move, under your proposals.... Their kids would be grown up before they'd have a more suitable family home.

They could probably buy a three-bed home nowadays for 300k in most areas of Dublin, using a 250k mortgage and their savings of 50k. Carrying over their NE of 175k would give them an overall loan of 425k..... only a fraction above their original loan amount..... and their NE has been reduced to 125k... I cannot see why anybody in their right mind would be opposed to this....

Telling people to become landlords (i.e. property investors) is not a solution at all.... they then have to run all the risks that all investors run, plus they lose their TRS, they have to register with PRTB, they become liable for tax on the rental income, they don't have fixed tenancy in their rental home beyond 4 years (and for anyone raising a family, that is unsuitable) and they run the risk of having to heavily subsidise a potentially-empty home that they have been forced to rent out.

People in NE have enough worries - they do not want to become landlords on top of everything else.... All they want is portability, not financial assistance, or haircuts, or write-offs or to be over borrowed, or to be forced into becoming property investors...

Also, if you make people take out large personal loans to pay off NE, they crystalise the loss. If you allow them to port it to another property, at least future property price rises will help inflate the NE away.

You say that the number of people in this situation - trapped but otherwise able to afford a bigger house - is so small, it makes sense to ban them. That attitude makes no sense to me at all... The effect on these couples of NE is so large, that every effort should be made to help them. And if their numbers are small, as you say, it should not be difficult to help them.

Personally, I believe there are more of them than you think.......

The 'expert' group you were a part of advised allowing NE mortgages only for people who were trading down. I remember reading that, and thinking that I had never read anything so out of touch with people's current needs in my entire life.....


----------



## Bronte

Leaky1 said:


> I increased the term of the 'new' mortgage in my example, I dont see an issue with it. 12mnths ago my mortgage had 32yrs left but I paid lumpsum to reduce it to 24yrs (thats why my deposit is only 20k). Yes,I havent costed sell/buying costs. We've 6k extra which could be used for it.
> 
> The interest rate used is my current rate, 4.5%. Im also due promotion in a few months, so that'll be extra income


 

Figures look very do able to me.  Now you need to sell it to a bank.  Have you tried?  Would be interesting to know how you get on.  Would you be able to cope with a couple of rate rises?


----------



## johnnygman

RIAD_BSC said:


> Excellent well thought out and written post RIAD!
> I too am very worried regarding the quality of advice and attitude displayed by many posters on here toward people who are stuggling with negative equity.
> All you read on here is "what's in it for me" and other very disparaging comments blaming young people and familles as if it is all their own fault for the way that they have been wronged by this country and badly advised in more ways than just property & NE. Typical of todays Irish society though.


----------



## Leaky1

Bronte, I'm glad you think my figures make some sense. I was starting to think I was missing something. Selling my idea to the bank isnt easy - I proposed it & was told "no way" once they heard of selling for less than the mortgage. I emailed my query/figures to the CEO (EBS) and got a very polite "no".

I could handle a few more rate rises (well, as many as the average person!).


----------



## pjuegos

RIAD_BSC said:


> What an excellent post you wrote RIAD_BSC!
> 
> The general misconception about NE mortgages is appalling. I don't know  how many times I had to explain to different people that transferring  negative equity does not necessarily mean increasing the debt. That  being in NE does not mean not being able to make your repayments or not  having any savings at all...
> 
> What is more worrying is that an expert group on mortgages cannot see or  do not want to understand the problems facing home owners in NE. If the new mortgage is properly stressed tested, I really cannot understand this radical and dogmatic view of not allowing NE transfers just because that group is not big enough. I know in my close group of colleagues and friends 5 different cases of home owners in NE that would like to transfer NE with properly stressed mortgages
> 
> I am with you RIAD_BSC, Brendan's views on this are unfair and unjustified


----------



## so-crates

What we are seeing here is the consequences of short-term thinking and the continuing application of short-termism as a "solution". People who bought "starter" homes were buying with a general intention of moving within a period of time a fraction of their mortgage, none of them ever intended being stuck in cramped one-bed apartments counting the nose-hairs of their equally cramped neighbours for too long. But in order to satisfy themselves they decided to conspire with the banks to gamble their future for a short-term gain (property price inflation on their starter home providing them with capital for moving to their dream "proper" home). Needless to say - everyone has lost. The banks, the punter-buyers, the general populace. And it has undoubtedly caused social strains on an unprecendented scale in this country. Perspective though would indicate that those in negative equity and wanting to move elsewhere are on the whole not in the worst or most strained or even constrained positions that have arisen from the national property hangover. 
However, proposing another short-term (and dare I say short-sighted) solution to allow the fraction of buyers who fancy a move for one reason or another is not likely to prove sensible in the long run. Short-term solutions to long-term problems are an exercise in papering over the cracks.
It doesn't matter if you can afford to pay a mortgage which is greater than the value of the property you aspire to - the banks we now own have a duty of care to us to ensure that the assets the accept as collateral are sufficiently valuable.
It doesn't matter if you could walk in a first time buyer and get a mortgage for a property in the amount you want to spend - you are NOT a first time buyer - your situation is different so you need to look at what your CURRENT situation is.
It doesn't even matter that the "amount" of negative equity could posssibly be reduced on the new property - it is still a gamble by you on the market value of the property and a gamble by the bank on your ability to manage the mortgage.
Sounds harsh doesn't it? But why should the country as a whole facilitate short-term thinking in favour of a small minority?


----------



## Bronte

Leaky1 said:


> Bronte, I'm glad you think my figures make some sense. I was starting to think I was missing something. Selling my idea to the bank isnt easy - I proposed it & was told "no way" once they heard of selling for less than the mortgage. I emailed my query/figures to the CEO (EBS) and got a very polite "no".
> 
> I could handle a few more rate rises (well, as many as the average person!).


 
I said it looks do able not that it made sense.  Your bank doesn't think it makes sense.  Can we run through why that is?  And also why do you think they said no.  It's good to have a real situation with real figures.  

Also can you afford interest rate hikes?  Why do you want to move.  What size and approximate location are you living in.

My questions are not directly at you, but it's very hard to deal with this in an abstract way so if we could discuss a real sitation, yours, it's easier to deal with the concept.


----------



## Bronte

johnnygman said:


> I too am very worried regarding the quality of advice and attitude displayed by many posters on here toward people who are stuggling with negative equity.
> .


 
Not sure who this is directed at.  But some of us might have that view for very good reason.  Some of us have been on here a long time and tended to notice that a lot of the people in the most difficulty seem to have a lot of needless debt in addition to mortgage problems.  That would certainly colour my view of debt forgiveness.  

You don't have to be on AAM to have noticed the madness.  But now when we don't agree with debt forgiveness we are told we have a bad attitude.  There is no one more angry with banks and regulators and governement than myself.  But it wasn't just them that got everyone in a mess. 

I note that a lot of the posters who want negative equity deals and debt forgiveness do not give all details.  All details, that means all credit card debt and all loans and all assets and why.  Then I for one will give sympathy, but not a waving of the woe is me I'm in negative equity in a two bed and please help me because I want a 3 bed in a better location. 

Please also bear in mind that I don't believe there is anyone on here who does not have a relation in dire straights because of financial woes and also relations who lived the good times, the new house, new fit out, new garden, 4 holidays a year and change of car every 2 years also in financial dire straights.  Maybe just maybe we don't want to pay to sort out their messes, we didn't want to pay for the banks either but had no choice in that and no doubt will have no choice in the negative equity generation.  So when we don't immediatly give sympathy and we don't get details think about that.


----------



## Gekko

An excellent post from RIAD BSC.

I fundamentally disagree with Brendan's view on negative equity mortgages and negative equity portability.

And I am genuinely shocked by the greedy and self centred attitude of others who, despite being in the lucky position of not requiring assistance, can only think of themselves and their own scope to "fumble in the greasy till".


----------



## RIAD_BSC

so-crates said:


> However, proposing another short-term (and dare I say short-sighted) solution to allow the fraction of buyers who fancy a move for one reason or another is not likely to prove sensible in the long run.
> It doesn't matter if you can afford to pay a mortgage which is greater than the value of the property you aspire to - the banks we now own have a duty of care to us to ensure that the assets the accept as collateral are sufficiently valuable.
> Sounds harsh doesn't it? But why should the country as a whole facilitate short-term thinking in favour of a small minority?


 
So-crates, you are missing the entire point. The banks are already on the hook for NE with these people. They already have a negative equity mortgage. The collateral they have is already insufficient. Preventing these people from moving that NE to a different property is illogical, provided the new mortgage meets stringent stress tests.

Considering how far house prices have fallen (60%?), they may even be able to reduce their overall indebtedness by moving to a more suitable family home at today's bottom-of-the-market prices.

This is not about bailing out people who "fancy a move for some reason or other" as you so disparagingly put it. It is about facilitating people who are otherwise trapped, all for no extra financial risk. No extra risk to the banks, no extra risk to the state, no extra risk to the person in NE. If their overall debt burden does not go up in any meaningful way, there is no extra risk for anybody.

You should try to understand what is being asked for before you dismiss it out of hand.

I feel like banging my head off a brick wall every time somebody on AAM knee jerks against NE mortgages in this way without considering the fact that it might even make financial sense for the person to transfer NE, let alone that it is also a very humane thing to do......

Brendan was part of the expert group that could have helped explain this to the wider public. Instead, the group chose to bury its head in the sand in the hope the problem would go away...... I think that is quite objectionable.


----------



## so-crates

Gekko said:


> An excellent post from RIAD BSC.
> 
> I fundamentally disagree with Brendan's view on negative equity mortgages and negative equity portability.
> 
> And I am genuinely shocked by the greedy and self centred attitude of others who, despite being in the lucky position of not requiring assistance, can only think of themselves and their own scope to "fumble in the greasy till".


 
Isn't it interesting that you characterise as "greedy" and "self-centred" the unpalatable? How exactly is it greedy and self-centred to consider society as a whole as opposed to the wishes of a small number of individuals who are not actually in constrained financial circumstances? And how is it fumbling in the greasy till to disagree with your stated position? I am at a loss as to how disagreeing with you on the subject of negative equity mortgages equates to greed on the part of myself or others. My reasons for seeing negative equity mortgages as dangerous, short-term thinking have not changed since I first heard them mooted back at the height of the boom - though no-one labelled them "negative equity" mortgages then - they called them 125% mortgages. Oh the recipients had good jobs and were able to afford the higher repayments but as with all short-term thinking the bite was only down the line. Remember I too would have to fund a shortfall if I were to sell. I too bought in the boomtimes. So I am also a candidate for your fantasy mortgage. I didn't, however, buy a place I wanted to move out of in a hurry (I never did understand the lure of the term "starter home" - a marketing ploy if I ever heard one). I didn't borrow to the extent of my capacity or even close to it. I didn't fund the deposit with borrowings. I didn't furnish the place with borrowings. I didn't, in short, view it as a five-year purchase and expect my debts to be cleared by an appreciation in prices within a short period. I was prudent but still find myself with a mortgage for more than my property is worth - yet I don't clamour for others to bear my burden or my risk since I knowingly and willingly engaged in chancing my arm on the property market.

It is neither greedy nor self-centred nor grasping to view with some distaste and indeed alarm a battle-cry for the continuation or even extension of the dangerous and foolish practices that got us into this mess in the first place.

It is also not addressing the valid concerns of others as to the advisability of extending short term "solutions" when your only response is name-calling.


----------



## so-crates

RIAD BSC I do understand exactly where you are coming from - I can do the mathematics. What I don't like is the presumption of value that you are using to base the calculation on. I do not see the banks that you and I now own knowingly handing out 100+% mortgages as a solution, by virtue of this thread existing at all it has proven bad enough that they handed out 90% of the then value of the property.

As to my being disparaging? I chose that phrase quite carefully. How are we to start differentiating for these new "humane" mortgages? How are we to discriminate? What is to be the selection criteria? Who is to be the arbitrar of these new "humane" considerations? Bank managers? If we consider these mortgages, we must consider them for all.


----------



## RIAD_BSC

So-crates... I'll say it again. These people already have NE mortgages with the banks... all they want is to be allowed transfer the NE to a different address. That is a whole different ball game to giving out a freshly-minted 125% mortgage to someone who doesn't yet own a home, which is what you seem to object to....

What "presumption of value" are you referring to? I don't understand what you are saying there. The NE would be defined by the sale price they receive for their house before moving. There is no assumptions at all.

You say you object to banks giving 100+% mortgages to these people..... You forget that these people already have 100+% mortgages.... It has already happened! They just want to change address!


----------



## pjuegos

How can this be so difficult to understand? 

Example:
A home owner in Dublin  has an outstanding mortgage balance of 300K. The current house value is 200K, which means 100K NE.

If that home owner is offered a better job in Cork, it is currently  not possible to sell the house in Dublin and buy a new house in Cork.
However, if NE transfers were allowed, that house owner could sell the Dublin house for 200K, and buy another house in Cork for the same 200K.

Result of the operation:


No extra financial risk: the house owner is in the same situation as before, a house in 100K NE. Just a different address as RIAD BSC pointed out
No extra risk to the banks: home owner keeps borrowing the same amount of money from the bank
No extra  risk to the state: no debt forgiveness or anything like that
The operation creates a new buyer, who acquires the house in Dublin
The operation creates a new seller, who sells a house in Cork
Allows job mobility, which is good for the economy


----------



## JoeB

RIAD_BSC said:


> Brendan, your views on this matter....



I feel that Brendan does display sympathy to those involved. The problem is such that there is no easy solution.



RIAD_BSC said:


> Explain to me how NE portability is a bad idea for someone who is properly stress-tested on a mortgage that is within their affordability limits? Explain how this is bad for society? The bank is already on the hook for the NE anyway (the existing mortgage is already one of the "negative equity mortgages" you are so opposed to.... something that gets lost in this argument).
> 
> You are also assuming that their total indebtedness will always rise.



Transaction costs, of perhaps 15,000. That's a significant amount of extra debt.




RIAD_BSC said:


> Take a couple on combined salaries of 150k. Bought a 100% mortgaged apartment at the top of market for 400k, now worth 200k, have paid 25k off the mortgage.... that's NE of 175k.... they have savings of 50k (I'd surmise there are lots of couples like this in modern Ireland)
> 
> They'd be decades trying to pay the NE off ....




Clearly they're not trying hard enough. It'd take decades to pay 175K, on an income of 150K a year? I think it could be paid off in two to three years. What else would they be spending their money on?

It's people who earn 35,000 a year that are the problem, not those earning 150K.


----------



## Gekko

so-crates said:


> Isn't it interesting that you characterise as "greedy" and "self-centred" the unpalatable? How exactly is it greedy and self-centred to consider society as a whole as opposed to the wishes of a small number of individuals who are not actually in constrained financial circumstances? And how is it fumbling in the greasy till to disagree with your stated position? I am at a loss as to how disagreeing with you on the subject of negative equity mortgages equates to greed on the part of myself or others. My reasons for seeing negative equity mortgages as dangerous, short-term thinking have not changed since I first heard them mooted back at the height of the boom - though no-one labelled them "negative equity" mortgages then - they called them 125% mortgages. Oh the recipients had good jobs and were able to afford the higher repayments but as with all short-term thinking the bite was only down the line. Remember I too would have to fund a shortfall if I were to sell. I too bought in the boomtimes. So I am also a candidate for your fantasy mortgage. I didn't, however, buy a place I wanted to move out of in a hurry (I never did understand the lure of the term "starter home" - a marketing ploy if I ever heard one). I didn't borrow to the extent of my capacity or even close to it. I didn't fund the deposit with borrowings. I didn't furnish the place with borrowings. I didn't, in short, view it as a five-year purchase and expect my debts to be cleared by an appreciation in prices within a short period. I was prudent but still find myself with a mortgage for more than my property is worth - yet I don't clamour for others to bear my burden or my risk since I knowingly and willingly engaged in chancing my arm on the property market.
> 
> It is neither greedy nor self-centred nor grasping to view with some distaste and indeed alarm a battle-cry for the continuation or even extension of the dangerous and foolish practices that got us into this mess in the first place.
> 
> It is also not addressing the valid concerns of others as to the advisability of extending short term "solutions" when your only response is name-calling.


 
I'm not sure what to say in response to your post.

I'm not branding anyone "greedy" or "self centred" for disagreeing with me.

I'm referring to those whose arguments are "I wasn't greedy...let them eat cake" and "if they get bailed out, I won't pay my mortgage".  I'm also referring to those who make flippant comments about holidays, cars, trips to New York etc.  There are people in this country who are on their knees because of the greed and avarice of bankers and builders and because of the absolute incompetence of government, regulators and bankers.  As I've said before, we're primarily a society rather than an economy.  Something has to be done to help these people.  I want to see my taxes used to help these people.  I don't care if I don't get a portion of my debt forgiven or if the fact that I'm repaying my debts somehow excludes me from any wider restructuring.  That's what it means to be part of a society.  But I'm not entirely social minded.  The only way this country will bounce back is for the overburdended middle class to emerge from beneath the debt mountain and get the economy going.  And when that happens, we'll all be in a better place.


----------



## Leaky1

Bronte said:


> I said it looks do able not that it made sense.  Your bank doesn't think it makes sense.  Can we run through why that is?  And also why do you think they said no.  It's good to have a real situation with real figures.
> 
> Also can you afford interest rate hikes?  Why do you want to move.  What size and approximate location are you living in.
> 
> My questions are not directly at you, but it's very hard to deal with this in an abstract way so if we could discuss a real sitation, yours, it's easier to deal with the concept.



I posted a reply to you earlier but it was very brief, so I'm editing it here. You said it was good to have a real example. All helpful suggestions are welcome.

*Reasons why the bank think it doesn't make sense?:*
I asked my bank several times if I could carry the negative equity but they said no straight away. They said the Financial Regulator will not allow them to create a negative equity mortgage. I emailed the CEO of EBS and provided figures, much as I did here earlier, and he said that negative equity mortgages were something they didn't do and would not be looking at just yet. The only option they will entertain will be for me to pay them the shortfall of a sale upfront.

*Can I afford interest rate hikes?:*
I can afford the 4.6% I'm currently paying. I was previously on a fixed rate of 5.8% and that was okay too. I could afford another percent or so. Genuine question - how much extra percent should I stress-test for?

*Why do I want to move?*
I currently live in a 1-bed apartment in a city centre location, I think it is approx 40msq. The idea would be to move to a more suitable size home to start a family. Honestly, our neighbourhood is not a nice place to bring up kids even if there was enough living space. Yes I was short-sighted to not plan ahead for kids when I purchased but that is the shortsightedness of being in your mid-20's.

We don't have any debts other than the mortgage. I have a credit card for occassional online purchases - if I order something I immediately transfer payment from the current a/c. We own a 2nd hand car that we bought outright. In previous years when I got a payrise I instanly increased the amount of my savings. I guess what I'm trying to make a point of here is that we don't live on credit and try to make decent financial decisions. Unfortunately the apartment mortgage was a bad mistake. I want to pay for this mistake (I don't want debt forgiveness) but would rather pay for it while living in a more suitable home. If I had to live here for another 10years I would go mad - and children would be an IVF option only (I'm not trying to curry sympathy, but there is an age where this becomes a fact).

*Current situation:*
Joint incomes of 60k, stable jobs.

Current mortgage is 179k with 24yrs remaining. The monthly repayment is eur970 (standard variable 4.6%). Neg equity could be estimated at 50k.

If I were allowed I would buy a new home valued at approx 200k.
I have deposit of 20k. 
I would require a mortgage of 180k, plus to be allowed to carry forward 50k negative equity.
Total new mortgage of 230k, hopefully to extend the term to 30years. At the current variable rate of 4.6% it would be monthly payments of eur1,100.

Even if I were allowed to get a negative equity mortgage tomorrow I wouldnt do it instantly. I would prefer to save for another 12months and increase my deposit, knowing there was light at the end of the tunnel. But waiting another 5years would be quite dispiriting - this doesn't mean I want instant gratification on this subject, in reality I have been saving for some time to get my deposit together.


----------



## Gekko

I can see no reason why Leaky1 shouldn't be allowed to do this.


----------



## Brendan Burgess

Folks

This is a very long thread, which I split from another thread yesterday.

Can you stay on topic. This is about negative equity mortgages. It is not about debt forgiveness. 

Can you also stick to the issues. If the abusive comments about me were made about anyone else, they would have been removed. 

This is an interesting and important topic. Argue the points and not the person. 

From now on, any personalised attack will be removed.

Brendan


----------



## Brendan Burgess

As I am being abused on this topic, let's just look at what I said 

http://www.askaboutmoney.com/showpost.php?p=1158567&postcount=33



> 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.


In this Key Post on the topic under the heading "Ideas which might work"



> *Should borrowers be allowed to transfer their negative equity to a new home?
> *I don't think that this should be  allowed, but I am including it in this thread for completeness. It's discussed at length here.


I don't try to shut people up by abusing them and belittling the work that they have done. I provide a forum for people to exchange ideas. I discuss those ideas and even if I don't agree with them, I will often promote those ideas for consideration. 


and


> *“Reluctant landlords” should be facilitated by changes to the tax regime for renting a new property *
> Where someone is in negative equity and needs to move for job reasons  or for family reasons, but can’t sell their house, the state should  facilitate this. They should be treated differently from professional  investor landlords.


and


> *Struggling borrowers should be allowed to sell their homes if they want to*
> This is a serious problem.  Where a borrower wants to sell a home in  negative equity,  the lender is often refusing unless the borrower is  able to clear the shortfall. Up to now the rationale for this has been  that the loss would be recognized in the accounts. Now that the banks  have been forced to make provisions against such loans in the stress  tests, this rationale is no longer valid.


So, I am very aware of the problem. I know some people  personally in this difficulty and I have read enough reports on Askaboutmoney to be very much aware of it. 

I have sought solutions and documented them in a systematic manner. 
I spoke about the topic on DriveTime yesterday 
and 
I will circulate that thread to the relevant politicians, civil servants and Financial Regulator today. 

For the official record, this is what the Expert Group said on the topic


> *Trade Down*
> 
> The Group notes that, for some mortgage holders who are in negative equity, trading down would produce a reduction in mortgage debt and more affordable monthly payments. The Group recommends that further consideration should be given by lenders to facilitating trading down by borrowers in this situation. Such options would have to meet relevant prudential standards, with appropriate controls in place, and be in the customers’ best interest.


I have also sought to establish the factual position which, I understand, from speaking to lenders, is as follows. Two banks, probably Ulster and Bank of Ireland, told the Financial Regulator around 6 months ago that they were proposing to do trade-up negative equity mortgages. The FR was uneasy about them, and asked/told them to hold off while they reviewed the issue. As far as I know, the FR has not made a decision on the issue.


----------



## Bronte

Leaky1 said:


> *Reasons why the bank think it doesn't make sense?:*
> I asked my bank several times if I could carry the negative equity but they said no straight away. They said the Financial Regulator will not allow them to create a negative equity mortgage. I emailed the CEO of EBS and provided figures, much as I did here earlier, and he said that negative equity mortgages were something they didn't do and would not be looking at just yet. The only option they will entertain will be for me to pay them the shortfall of a sale upfront.


 
Thanks for the comprehensive reply.  

Did the CEO write back to you himself?  Did you argue the same case you outlined here.  Banks are trying to sort out the mess but you must think of it from their point of view.  You can afford your mortgage, they are making money off you so why should they budge.  That's your problem.  You can appeal to their better nature.  Maybe they will accomodate you.  Things seem to be changing all the time in the banking world.   How about trying to negotiate selling your house and taking the negative equity with you as a loan at maybe mortgage rates, and go and rent for some time in a more suitable place?  

In relation to children which is off topic but relevant because the main reason people want to move is to get a place more suitable.  Do not let where you live now put you off.  I have one bed apartments only suitable for couples but during the boom we had many couples (Poles/Latvians etc ) who got pregnant and had babies and stayed for quite some time, even though we didn't thing the place was suitable for them size wise, we also had couples with older kids.  Personally don't know how they did it but they weren't waiting to have kids, liked the rent and the flat and did whatever in order to have a family.  It can be done.


----------



## Bronte

Gekko said:


> .
> 
> 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.


 
In light of Leaky1's honest assessment of his situation on his modest salary could you Gekko give us a full account along the same lines of the people with the 100K to 120K salaries.


----------



## Guest105

Complainer said:


> I certainly have sympathy for anyone caught in this trap at a personal level.
> 
> 
> 
> The logical arguement against this is that it is creating an artificial floor to support property prices at unrealistic levels. This in turn is keeping many other people out of the property market, and indeed stopping those people from moving on with having kids etc.


 

You have explained the argument against negative equity mortgages very well there Complainer.  I fear if negative equity mortgages became a reality, it will lead to more problems down the line and we need to learn the lessons from the past. The market should be allowed to dictate what happens to house prices and they should be no more interventions from governments or banks. 

I read here about couples who are delaying having families because they are _only_ living in nice modern one or two bedroom apartments.

I think people seem to forget that it wasn's that long ago when 14 or 15 children were brought up in one room shacks. We have come a long way.


----------



## Sunny

Personally I don't see why Negative Equity mortgages should be automatically banned but having said that, people are right to be sceptical about them. They are not going to be a solution by itself and given the banks history, the regulator is perfectly right to tread very cafefully. The same thing happened with 100% mortgages. The banks swore they would only be offered to a tiny fraction of qualified people but within days, there were adverts on the back of buses for them. 

As long as the banks and the borrowers are responsible, it is an option that has to be examined. There are of course risks but no matter what we do, there will be risks. We are in a hole here and ranting about the past or people's mistakes isn't going to help anyone.


----------



## Brendan Burgess

So, having read this discussion, here is a summary of my views. 

I have huge sympathy for people who are in negative equity and who need to move. 

I don't think that they should be allowed to increase their borrowing as that only increases their risk. If they have a large income which would justify a higher mortgage on an affordability basis, they should apply that higher income to reducing their negative equity. 

They do have a problem in that need a larger house. A larger mortgage makes the problem worse for them, not better. There is no need for them to own that larger house, they can rent it.

So, they should be facilitated in selling their home in negative equity. If they have a cheap tracker, they should be given a discount for paying off the cheap tracker early. 

If they can't sell their home, they should be allowed set the rent paid on their new home against the rent received on the old home. 

*I am not opposed to  transferring a negative equity mortgage to a house of the same value
*There is a sort of "logic" about moving from a house worth €200k in Cork to a house worth €200k in Dublin and simply transferring your mortgage of €300k. I was opposed to this when the transaction costs were much higher mainly due to stamp duty as it would increase borrowing. 

While I am not opposed to it, I would recommend to people considering it, that they should just sell and rent instead. 

*Trade-down negative equity mortgages should be allowed, but...*
they might not be of great value to the borrower. At the time of the Expert Group report, my concern was that the stamp duty and transaction costs would wipe out most of the money saved and the borrower might end up with less house but with the same amount of borrowing. 

Say, I have a mortgage of €300k on a house worth €200k. I need an increase in property prices of 50% for my negative equity to evaporate. 

If I trade down to a house worth €100k, I will have a mortgage of around €210k on a house worth €100k. So I will need house prices to increase by 110% to evaporate my negative equity. (Of course, if you sell the original house and don't buy another one, you will be stuck with a €100k shortfall and you won't benefit from any increase in house prices.) 

My interest costs will be a lot less on €110k, but is it worth the trading down? My advice to someone in this situation would be to consider staying put but taking advantage of the Deferred Interest Scheme - as suggested by the Expert Group. 

Trading down because you have to move location, is probably  ok. Trading down because you can't afford the repayments, is probably not a good idea, but worth considering.


----------



## Brendan Burgess

Sunny said:


> The same thing happened with 100% mortgages. The banks swore they would only be offered to a tiny fraction of qualified people but within days, there were adverts on the back of buses for them.



Well said.


----------



## Guest105

Complainer said:


> I certainly have sympathy for anyone caught in this trap at a personal level.
> 
> 
> 
> The logical arguement against this is that it is creating an artificial floor to support property prices at unrealistic levels. This in turn is keeping many other people out of the property market, and indeed stopping those people from moving on with having kids etc.


 

You have explained the argument against negative equity mortgages very well there Complainer.  I fear if negative equity mortgages became a reality, it will lead to more problems down the line and we need to learn the lessons from the past. The market should be allowed to dictate what happens to house prices and they should be no more interventions from governments or banks. 

I read here about couples who are delaying having families because they are _only_ living in nice modern one or two bedroom apartments.

I think people seem to forget that it wasn's that long ago when 14 or 15 children were brought up in one room shacks. We have come a long way.


----------



## RIAD_BSC

Again, a quote from Brendan that I take serious issue with: "They do have a problem in that [they] need a larger house. A larger mortgage makes the problem worse for them, not better. There is no need for them to own that larger house, they can rent it. So, they should be facilitated in selling their home in negative equity."

So, even if they can easily afford the repayments on the larger home and mortgage, they should be prevented from buying it? That makes no sense. It should not be up to you to decide if there is "no need" for them to own it or not.

You are also denying those people the opportunity to transfer their NE over to a new property and allow future house prices rises to help inflate the NE away. You are forcing them to crystalise their loss at the bottom of the market. That's just plain bad financial advice.

I'm sorry if you think this is all too strong, Brendan, but the expert group made such a mess of this issue, I think you guys should be fair game for very heavy public criticism on it....

That is, unless the expert group issues a recommendation that might help fix its previous mistake, by agreeing that NE mortgages are suitable for some people who can afford them..... If the expert group doesn't say something, then nothing will ever be done to help these people


----------



## Gekko

Bronte said:


> In light of Leaky1's honest assessment of his situation on his modest salary could you Gekko give us a full account along the same lines of the people with the 100K to 120K salaries.


 
It's not my situation so it wouldn't be right for me to discuss it in greater detail.


----------



## Brendan Burgess

> So, even if they can easily afford the repayments on the larger home and  mortgage, they should be prevented from buying it? That makes no sense.



Riad, It makes absolute sense. 

Being overborrowed is a problem for the borrower and a problem for the lender. Increasing the borrowing makes the problem worse. 

If the person can "eaily afford the repayments on the larger home", then they can easily afford to increase their repayments on their current home and, over time, eliminate the negative equity. 

It might well be a bit academic at this stage, as I believe that the Central Bank forced the lenders to make provisions for performing loans which were in negative equity.  This suggests that the Central Bank won't allow banks to increase the lending to people who are already in negative equity. 

You might want to make a submission to the Central Bank on the topic.


----------



## Brendan Burgess

> You are also denying those people the opportunity to transfer their NE  over to a new property and allow future house prices rises to help  inflate the NE away. You are forcing them to crystalise their loss at  the bottom of the market. That's just plain bad financial advice.



Hi Riad

We don't allow speculation about house prices on Askaboutmoney. But I will leave your comment there as it shows the flaw in your argument. You are assuming that we are at the bottom of the market. I don't think that this is a valid assumption. 

If someone is on a low salary and is in such deep negative equity that the only way of recovering is to wait for house prices to increase, then they should hold onto their home as long as possible. If house prices fall, they will be just a bit more insolvent. 

If someone is in the situation you describe and they have a high income, they have to make a judgment.  If house prices continue to fall, their negative equity and problem will get worse. They may well be better off selling now and paying off the shortfall. If they wait and house prices fall further, their options may be further restricted.

It's important for people in negative equity to understand that there is no magic wand. It is going to take time to resolve their problem.


----------



## RIAD_BSC

Brendan Burgess said:


> Riad, It makes absolute sense.
> 
> Being overborrowed is a problem for the borrower and a problem for the lender. Increasing the borrowing makes the problem worse.
> 
> If the person can "eaily afford the repayments on the larger home", then they can easily afford to increase their repayments on their current home and, over time, eliminate the negative equity.
> 
> It might well be a bit academic at this stage, as I believe that the Central Bank forced the lenders to make provisions for performing loans which were in negative equity. This suggests that the Central Bank won't allow banks to increase the lending to people who are already in negative equity.
> 
> You might want to make a submission to the Central Bank on the topic.


 

It doesn't make absolute sense. It makes no sense. If they can easily afford the repayments, and the loan is properly stress tested, then they are not over-borrowed.

If someone has NE of 200k on a 1-bed apt, then even if they could afford to increase their repayments by €1,500 a month, it would take well over a decade to clear the NE. "Over time" might be too late for some people to start a family.


----------



## Brendan Burgess

Update

I understand that the Central Bank has finished its review and has written to the lenders allowing negative equity mortgages but, only in exceptional circumstances. 

If a lender wishes to do so, they must get the product approved by the Central Bank first.

But the capital requirements would be much hihger for such loans, so I don't think AIB, BoI, EBS or PTSB could consider doing them.


----------



## Leaky1

Brendan.
Sorry to ask what is probably a stupid question but what do you mean by the "capital requirements". I'm not familiar with the term.


----------



## Bronte

RIAD_BSC said:


> You are also denying those people the opportunity to transfer their NE over to a new property and allow future house prices rises to help inflate the NE away. You are forcing them to crystalise their loss at the bottom of the market. That's just plain bad financial advice.


  Why are you saying that BB is doing all these things.  It's the banks that won't allow it nor the regulator?

Can you give a concrete example in figures with salaries etc to show how it makes sense.


----------



## Sunny

Brendan Burgess said:


> Update
> 
> I understand that the Central Bank has finished its review and has written to the lenders allowing negative equity mortgages but, only in exceptional circumstances.
> 
> If a lender wishes to do so, they must get the product approved by the Central Bank first.
> 
> But the capital requirements would be much hihger for such loans, so I don't think AIB, BoI, EBS or PTSB could consider doing them.


 
Sensible approach. The capital requirements will stop the product becomig widepsread but the option will be there for banks to help certain people.


----------



## Bronte

Gekko said:


> It's not my situation so it wouldn't be right for me to discuss it in greater detail.


 
Well that's to me a cop out on your initial argument.  You mentioned that you know many couples what is wrong with giving us the figures and they should (the figures) in themselves prove your argument.


----------



## Sunny

Leaky1 said:


> Brendan.
> Sorry to ask what is probably a stupid question but what do you mean by the "capital requirements". I'm not familiar with the term.


 
For every loan a bank gives out, they are required to hold capital against it to cover potential losses. This is expensive for banks. More risky loans should require more capital which is what the regulator is asking for. So they won't be rushing to issue billions of these loans but at least the option is there.


----------



## Gekko

Hi Brendan

You're assuming that the couple's borrowings increase.

Consider the following example, which is typical of the scenarios to which I believe negative equity portability/mortgages should be applied:

1 bedroom apartment purchased for €350,000 with a mortage of €280,000 outstanding. Current market value of €200,000.

Couple want to start a family and move to a 3 bed semi which is available for (say) €250,000. Couple have €50,000 saved. All of today's more stringent income requirements and ratios are comfortably satisfied.

The above couple's borrowings do not increase if they are allowed to shift their negative equity. They still owe €280,000. And their social problems have vanished as they can now start a family.

What is the downside of the above arrangement? The couple get what they want, the bank's position improves somewhat and the little guy isn't getting bailed out so the 'moral majority' should be happy.

EDIT: Bronte, see above...


----------



## Brendan Burgess

Hi Gekko

People tend to look at properites as being in negative equity, but it's better to look at the borrower's overall position.

In your example, the borrower's negative equity is: 



House|200
Cash|50
Loan|(280) 
Negative equity |(30)Afterwards, the position is



House|250
Cash|0
Loan|(280) 
Negative equity |(30)
The borrower is in a worse position in that he now has no safety net.
The lender is in a worse position, because the borrower no longer has the cash available. 

This has nothing to do with bailing out anyone. It's financially bad for the borrower. It's financially bad for the lender. If it happens to be a state owned lender, then it could be the taxpayer who bails this person out if they get into difficulty.

The best solution here is for the person to continue saving and pay off the 30k negative equity. 

Because of the excessive provisioning forced on the lenders by the Central Bank, they may well have had to make a provision against the existing loan. If that is the case, and/or if the borrower is on a cheap tracker, maybe the house can be sold and the negative equity might be settled. 

The former borrower is now in a much better position. They are free of their loan and their unsuitable house. Now they can rent for a while until they can build back up a deposit. 

Brendan


----------



## Sunny

The negative equity stays at 30k Brendan. (mortgage of 280k on a 250k house). Also assuming the borrorwer is able to meet the repayments, the bank is in a stronger position because it now has a lower LTV mortgage on its books albeit only slighter. Their security is also stronger (three bed house v one bed apartment) Ok, I take your point about the cash but surely whether they use that 50k to pay off negative equity on their exisiting property or use it to pay it off their new property is irrelevent.


----------



## Gekko

Brendan Burgess said:


> Hi Gekko
> 
> People tend to look at properites as being in negative equity, but it's better to look at the borrower's overall position.
> 
> In your example, the borrower's negative equity is:
> 
> 
> 
> House|200
> Cash|50
> Loan|(280)
> Negative equity |(30)Afterwards, the position is
> 
> 
> 
> House|250
> Cash|0
> Loan|(280)
> Negative equity |(30)The borrower is in a worse position.
> The lender is in a worse position, because the borrower no longer has the cash available.
> 
> This has nothing to do with bailing out anyone. It's financially bad for the borrower. It's financially bad for the lender. If it happens to be a state owned lender, then it could be the taxpayer who bails this person out if they get into difficulty.
> 
> The best solution here is for the person to continue saving and pay off the 30k negative equity.
> 
> Because of the excessive provisioning forced on the lenders by the Central Bank, they may well have had to make a provision against the existing loan. If that is the case, and/or if the borrower is on a cheap tracker, maybe the house can be sold and the negative equity might be settled.
> 
> The former borrower is now in a much better position. They are free of their loan and their unsuitable house. Now they can rent for a while until they can build back up a deposit.
> 
> Brendan


 
I see your point Brendan, but you're advocating the paying down of the negative equity anyway. The couple want to move home now to start a family and don't want to be both landlords and tenants. They still end up in the same place as they have the €50K in cash right now to either pay down the existing negative equity or move home.

These people are generally at an age where delaying starting a family can cause all sorts of medical and social issues. Time is the most valuable commodity of all.


----------



## Brendan Burgess

Sunny

Thanks for that correction. I have edited the numbers.

The lender is in a far better position with the first case as the borrower has a cushion of €50k to keep up their loan repayments if the borrower loses their job, or takes time off work to raise a family.

It's very likely that in this case with €30k of negative equity, the lender would facilitate a sale and convert the shortfall into a personal loan. 

If someone came to me saying that they owed €30k to the bank but had no asset to show for it and they wanted to take out a 102% mortgage to buy a house, I would advise against it. I would tell them to pay off the loan first and then save up for a deposit.


----------



## Brendan Burgess

I got this response from the Central Bank



> The Central Bank wrote to all mortgage lenders last year  seeking information and requesting them to stop writing negative equity mortgage  products. We intervened because there were concerns about the negative effects  of such products and we wanted to examine the impact of such products on  borrowers regarding affordability and the risk lenders may be taking in offering  such products.
> 
> We undertook an examination of the merits of these products  with a view to consumer protection and concluded that such products should only  be made available to consumers in very limited circumstances and in accordance  with strict criteria and having appropriate controls in place. Any lender  planning to provide such products must notify the Central Bank in advance to  ensure that appropriate measures and controls are taken as such  a product may lead to the potential of consumers being over exposed or facing  future repayment difficulties.


----------



## RIAD_BSC

Bronte said:


> Can you give a concrete example in figures with salaries etc to show how it makes sense.


 
I already gave one on page 4 of this thread, post number 72.

Here it is again: "Take a couple on combined salaries of 150k. Bought a 100% mortgaged apartment at the top of market for 400k, now worth 200k, have paid 25k off the mortgage.... that's NE of 175k.... they have savings of 50k (I'd surmise there are lots of couples like this in modern Ireland)

They'd be decades trying to pay the NE off before they would be able to move, under your proposals.... Their kids would be grown up before they'd have a more suitable family home.

They could probably buy a three-bed home nowadays for 300k in most areas of Dublin, using a 250k mortgage and their savings of 50k. Carrying over their NE of 175k would give them an overall loan of 425k..... only a fraction above their original loan amount..... and their NE has been reduced to 125k... I cannot see why anybody in their right mind would be opposed to this...."


----------



## Sunny

Brendan Burgess said:


> Sunny
> 
> Thanks for that correction. I have edited the numbers.
> 
> The lender is in a far better position with the first case as the borrower has a cushion of €50k to keep up their loan repayments if the borrower loses their job, or takes time off work to raise a family.
> 
> It's very likely that in this case with €30k of negative equity, the lender would facilitate a sale and convert the shortfall into a personal loan.
> 
> If someone came to me saying that they owed €30k to the bank but had no asset to show for it and they wanted to take out a 102% mortgage to buy a house, I would advise against it. I would tell them to pay off the loan first and then save up for a deposit.


 
I agree in general Brendan. It is not something I would be rushing around telling people to do. As for the cash, they could as easily spend the money on the horses as keep it for a rainy day. It's not security to the bank. As a bank, I would prefer to have good security than poor security and a cash pile that I can't access and am unlikely to access anyway when push comes to shove. This all comes down to properly managing risk i.e. making sure that people can afford the new repayments. 

I have more faith in this regulator to make sure they do their jobs properly than I did the last one.


----------



## Brendan Burgess

Riad,

If you are selling a house for €200k and buying a house for €300k, you are going to have additional net borrowings of €100k.  You may be well off, but it is going to be a lot tighter than it is at present. 



|Before|After
Property|200|300
Mortgage |(375)|(425)
Cash|50|0
Net mortgage| (325) |425)an increase of €100k is not "only a fraction above their original loan amount" 



> and their NE has been reduced to 125k.


Their net equity as a whole, remains the same, although it will be increased by transaction costs.


> They'd be decades trying to pay the NE off before they would be able to move, under your proposals.



They will be even longer paying off the additional €100k of net borrowing. 

They have €125k of net negative equity now. They have saved €75k over the past 5 years. They would be able to pay off a loan for the shortfall in around 8 years.  Not pretty. But better than been saddled with a huge mortgage for ever.


----------



## oldnick

Gekko - I think you are beating your head against a brick wall. 

It seems that many posters don't understand the terrible cost to all of us if  people wishing to start families delay or don't have kids. Some posters are dealing with purely with the arithmetic and ignoring the long term social costs/benefits issue.

At present, Ireland is in a far better position than most European countries re the issue of ever fewer young people to support the elderly.  But this will change if banks and government don't see the absolute importance of more flexibility in this negative equity issue. (Actually it is already changing -Irish mums are getting older more quickly than EU counterparts)

Your excellent point re the social and medical consequences of banks reluctance to get involved except in "very limited circumstances"  seems not to be understood - not only by some posters and banks, but also by most political parties.

Posters can produce as many arithmetical tables as they wish but they are ultimately meaningless unless accompanied by long-term macro-economic calculations of the cost resulting from the inflexibility of lenders in this matter.


----------



## RIAD_BSC

Brendan Burgess said:


> Riad,
> 
> If you are selling a house for €200k and buying a house for €300k, you are going to have additional net borrowings of €100k. You may be well off, but it is going to be a lot tighter than it is at present.
> 
> 
> 
> |Before|After
> Property|200|300
> Mortgage |(375)|(425)
> Cash|50|0
> Net mortgage| (325) |425)an increase of €100k is not "only a fraction above their original loan amount"
> 
> Their net equity as a whole, remains the same, although it will be increased by transaction costs.
> 
> 
> They will be even longer paying off the additional €100k of net borrowing.
> 
> They have €125k of net negative equity now. They have saved €75k over the past 5 years. They would be able to pay off a loan for the shortfall in around 8 years. Not pretty. But better than been saddled with a huge mortgage for ever.


 
Brendan, you are being very selective in your analysis. Also, just to be clear, this example does not represent my personal circumstances...

Yes, they would have additional net borrowings of 100k, but they'd have made an equity injection of 50k, so it would be down to an additional 50k net borrowings.....

Their total new loan amount would be 425k. Their original loan was 400k. That, in the context of their salaries, is quite clearly "a fraction above their original loan amount". In fact, it is one sixteenth above it, or a little over 6%.

They might be a few years paying off the additional 50k of borrowings (not the 100k you stated, which is incorrect). But at least they'd be settled in a good-sized family home while they do it.... And not trapped in a one-bed apartment.

They have only saved 50k in cash, not the 75k you refer to. So it would take them a further 12.5 years, not eight, to save up enough to plug the remaining NE. Then, they would have to save up a new deposit of, say, 20% (60k) to be able to move. That's another six years. So under your analysis, it would be a further 18.5 years before they could move.

Brendan, if you propose to tell a 30/31-year old couple with a high income that they will have to wait until they are almost 50 before they can move to a home that is suitable to start a family, they are well within their rights to say that an argument like yours is out of touch


----------



## Brendan Burgess

> They might be a few years paying off the additional 50k of borrowings  (not the 100k you stated, which is incorrect).



No.

They are paying an extra €100k for the house. Their net borrowings have increased by €100k




> They have only saved 50k in cash, not the 75k you refer to.


No.

They have €50k in cash and they have paid €25k capital off the mortgage. 



> Brendan, if you propose to tell a 30/31-year old couple with a high  income that they will have to wait until they are almost 50 before they  can move to a home that is suitable to start a family, they are well  within their rights to say that an argument like yours is out of touch



No.

I have not said that. I have said that a couple with excessive borrowings should not borrow more. I have made actual proposals to help improve their situation. I have suggested that they be facilitated to sell their unsuitable accommodation and I have suggested that if they can't sell it, that they get favourable treatment as "reluctant landlords".

I appreciate your frustration that there is not a financial engineering solution for your problem, but I would hate to see your or anyone else, being given false hope and ending up being trapped in an even worse financial situation.


----------



## RIAD_BSC

Brendan Burgess said:


> No.
> 
> They are paying an extra €100k for the house. Their net borrowings have increased by €100k
> 
> 
> 
> No.
> 
> They have €50k in cash and they have paid €25k capital off the mortgage.
> 
> 
> 
> No.
> 
> I have not said that. I have said that a couple with excessive borrowings should not borrow more. I have made actual proposals to help improve their situation. I have suggested that they be facilitated to sell their unsuitable accommodation and I have suggested that if they can't sell it, that they get favourable treatment as "reluctant landlords".
> 
> I appreciate your frustration that there is not a financial engineering solution for your problem, but I would hate to see your or anyone else, being given false hope and ending up being trapped in an even worse financial situation.


 
Not "no", Brendan. You're just plain wrong. Their borrowings increase by 50k, as they are also making a 50k equity injection.... The bank has no security over their existing 50k cash savings.... they could blow it on drink in the morning if they felt like it. It is better for the bank to have that 50k rolled into the security, rather than sitting in cash they can't get to....

By being allowed to buy the new house, their new borrowings are 425k, secured on a 300k asset (NE of 125k). Their current borrowings are 375k secured on a 200k asset (NE of 175k). The bank has absolutely no security over the 50k in cash, so that's a moot point.

They are on salaries of 150k. 425k in borrowings is not excessive in anybody's language. That's the nub of the issue.

It makes perfect sense for the people in this example to get a NE mortgage, no matter how much you try to deny it.


----------



## Sunny

I don't think you will agree guys!


----------



## RIAD_BSC

Sunny said:


> I don't think you will agree guys!


 

Nor me. I give up!!!!


----------



## Brendan Burgess

Yes "no"' 

There are two parties here. The borrower and the lender. 

The borrower starts with a  mortgage of €375k and €50k cash i.e. net borrowings of €325k.

They end up with a mortgage of €425k. 

Their net borrowings have increased by €100k. 

The borrower is responsible for the mortgage, so the €50k is very relevant. 

The borrower is in a much riskier position after the trade-up. So, therefore, the lender is also. 


> They are on salaries of 150k. 425k in borrowings is not excessive in anybody's language. That's the nub of the issue.





> They'd be decades trying to pay the NE off before they would be able to  move, under your proposals.... Their kids would be grown up before  they'd have a more suitable family home.


And this is the issue. €425k for a couple who are trading up to have expensive children is excessive  in my language, at least.  Sure a few years ago, when the lenders were routinely giving out mortgages of 5 times salaries, 3 times salary doesn't look excessive. But it is excessive. It leaves this family and the bank under pressure for a long time to come. 

Interest rates are expected to rise. 
Income tax may well rise and those over €100k may well get hit.
We may not be at the bottom of the market as you have asserted. 
And just maybe one of you may have a period of unemployment. 

In a few years time, you will search the old posts on askaboutmoney and be very grateful to the Central Bank for preventing the banks from excessive lending.


----------



## RIAD_BSC

The lender is not in a riskier position after the trade up. How did you reach that conclusion? Before the trade up, it had an unsecured exposure of 175k. Now it has an unsecured exposure of 125k. The borrower is no more likely to lose their job than they were before they traded up. Your point about people earning over 100k being hit with extra taxes is irrelevant. The people in the example had a joint income of 150k. If they were both on equal wages of 75k each, it doesn't matter a jot to them what extra taxes are heaped on those earning over 100k.

The fact remains that the bank has better security after the trade up. It has made sure that it is now the only one with a claim on what was once the 50k in cash (because it is now tied up in the security of the house). Before the trade up, all of the borrowers other creditors would have claim on that 50k in the event of a default. The bank has drastically improved its position. That's not opinion. It is mathematical fact.

This debate is going round in circles. We should finish it up. Brendan, you are not a banker (and neither am I). If a NE loan passes up-to-date stringent bank stress tests, then there is no reason whatsoever why it should be prevented from making that loan. It doesn't matter what you, I or anybody else says.

Top of the head assertions about whether or not a loan is excessive, such as the ones on this thread, don't count for anything. There are stress tests to calculate these sort of things. If a loan passes the test, who are you to say the loan should not be offered?

Anyway, it sounds like, from what you posted earlier, the Central Bank's position now sits somewhere closer to mine than it does to yours (that NE loans are suitable in certain limited circumstances). That's good enough for me.

I won't address your final sentence, because I find it deliberately patronising.

Can we now just call a truce?


----------



## Brendan Burgess

Hi Riad



> The fact remains that the bank has better security after the trade up.


I simply don't agree. The couple in question are less likely to default on a net borrowings which are €100k lower. The negative equity on the property is lower, of course, but the new loan is much more likely to default. 




> Top of the head assertions about whether or not a loan is excessive,  such as the ones on this thread, don't count for anything. There are  stress tests to calculate these sort of things. If a loan passes the  test, who are you to say the loan should not be offered?


I was responding to this assertion by you: 



> They are on salaries of 150k. 425k in borrowings is not excessive in anybody's language.


The loan criteria used to be 2.5 times "his" salary plus one times her salary. That would suggest a loan for your couple of €262k. So 425k seems excessive to me. It's not a top of the head assertion. It's a calculation. 

Apologies. It was not meant to be patronising. It's just very interesting to look back at some of the posts from 2005 and 2006, where people were absolutely indignant that the banks would not lend them 5 times their salary and 100% mortgages. Those people are looking back now and are presumably very relieved, while others, not you, are looking for debt forgiveness because of the reckless lending of the banks. 

Brendan


----------



## Gekko

Brendan Burgess said:


> It's just very interesting to look back at some of the posts from 2005 and 2006, where people were absolutely indignant that the banks would not lend them 5 times their salary and 100% mortgages. Those people are looking back now and are presumably very relieved


 
Hi Brendan

I know that we're not permitted to discuss the future movement of house prices.

However, it's just not credible to compare (either directly or indirectly) the present situation with that of five years ago.  The collapse that we've witnessed could not be replicated.

Also, the people you've referred to above were clearly increasing their indebtedness by taking on 100% mortgages.  I believe that we disagree on whether someone availing of a "negative equity mortgage" is increasing their indebtedness.  However, irrespective of your own view, I'm sure that you would agree that the argument is far less clear cut than it was five years ago.


----------



## RIAD_BSC

Brendan Burgess said:


> Hi Riad
> 
> I simply don't agree. The couple in question are less likely to default on a net borrowings which are €100k lower. The negative equity on the property is lower, of course, but the new loan is much more likely to default.
> 
> It's just very interesting to look back at some of the posts from 2005 and 2006, where people were absolutely indignant that the banks would not lend them 5 times their salary and 100% mortgages. Those people are looking back now and are presumably very relieved, while others, not you, are looking for debt forgiveness because of the reckless lending of the banks.
> 
> Brendan


 
This is my last post on this one - honestly!

The couple's likelihood of defaulting is much more closely related to their income than their loan amount. So you can't just automatically say that their 425k loan would be more likely to default than a 375k loan. That just doesn't make any sense whatsoever.

In any case, the repayments on a 425k loan over an average mortgage period (25 years?) are not in a much different quantum to the repayments on their original 400k mortgage (which they have managed very well thus far, and also managed to save 50k). They would be only slightly higher. Going from the repayments on a 400k loan to repayments on a 425k loan will not be a game changer for this couple. And they are no more likely to default, in any meaningful sense.

As for your final point, I mostly agree with you on that one. People's loan expectatons were savage during the boom. I'm happy that I borrowed within a range I could afford (the bank offered me 30% more than I borrowed).

However, I wouldn't damn people to hell for taking out 100% mortgages during the boom. In my own case, I took a financial decision to go 100% because I thought it made sense at the time. Back then, house prices were rising far faster than I was capable of saving a deposit. If I saved 20k one year, the house price would rise 30k. So I took a gamble and went 100% to nal down the price. It backfired spectacularly, but I don't feel too bad as there was no way I could have forseen what happened.

C'est la vie.....


----------



## Oscaresque

cashier said:


> I read here about couples who are delaying having families because they are _only_ living in nice modern one or two bedroom apartments.
> 
> I think people seem to forget that it wasn's that long ago when 14 or 15 children were brought up in one room shacks. We have come a long way.


 
Honestly, would you choose to have a child in a house/apartment where they could not have a bedroom? Bearing in mind that babies become children, become teenagers, become adults....?


----------



## Gekko

Oscaresque said:


> Honestly, would you choose to have a child in a house/apartment where they could not have a bedroom? Bearing in mind that babies become children, become teenagers, become adults....?


 
Bedroom space is just the thin end of the wedge.

It's washing and drying clothes and general storage that are the main issues.

Normally, it takes one day to dry clothes outside.  It takes at least four times as long to dry clothes indoors and there are all sorts of associated problems with damp as a result.  Plus you essentially have to give up a room (which you don't actually have).  If you try and stick your clothes outside on a balcony, you'll start receiving threatening letters from the management company.

Irrespective of the current climate, there has to be demand in the medium term for "family friendly" apartments such as those you see on the Continent and further afield.


----------



## Ms2011

Oscaresque said:


> Honestly, would you choose to have a child in a house/apartment where they could not have a bedroom? Bearing in mind that babies become children, become teenagers, become adults....?


 
I have a sister in law who lives with her 9 year old son in an apartment and I've always thought of it as a sad way to grow up. The apartment for the most part is full of adults who don't even acknowledge each other in the hallways. The child can't call for his friends down the road or vice versa like I would have done as a child because it would mean coming down from the 3rd floor and then crossing a busy road. He has nowhere to ride his bike or other outdoor activities. Even Hallowe'en isn't the same, any doors he knocks on in his block are either empty or the people inside aren't interested in entertaining a child at Hallowe'en.
Memories I take for granted growing up this child won't experience, he is paying the price for a decision somebody else made.


----------



## Guest105

Oscaresque said:


> Honestly, would you choose to have a child in a house/apartment where they could not have a bedroom? Bearing in mind that babies become children, become teenagers, become adults....?


 

I am not advocating it on a long time basis but as a shorterm solution. I had two kids in a one bedroom rented flat many years ago and while it wasn't ideal we didn't have much choice. However, despite having low paid jobs at the time we saved very hard and after a few years had that all important deposit for a house. In those days we knew the value of money and banks didnt exactly throw it out like they did here in recent years.

I find it quite amusing that young couples on this thread are on €100,000 + joint incomes and yet they are not prepared to save and pay off their negative equity.


----------



## truthseeker

cashier said:


> I am not advocating it on a long time basis but as a shorterm solution. I had two kids in a one bedroom rented flat many years ago and while it wasn't ideal we didn't have much choice. However, despite having low paid jobs at the time we saved very hard and after a few years had that all important deposit for a house.


 
You are completely missing the point. Im sure anyone would be willing to have children in a small apartment, low paid jobs, and save for the all important deposit for a house. What you are missing is that these couples also have massive negative equity so what you propose is not a viable short term solution - the NE prevents them from doing what you suggest above. They can save away and have a deposit - but what are they going to do about the 50k/100k/150k that still exists after they sell the small apartment? Its going to eat their deposit AND leave them with a shortfall.



cashier said:


> In those days we knew the value of money and banks didnt exactly throw it out like they did here in recent years.


 
This is just patronising. There are plenty of young couples (or single people) out there who saved like mad to get a deposit for a property. Im one of them. I went without many things to get that money together, there were many times in the week before I was paid that I chose beans on toast for dinner rather than dip into savings. Its disgraceful that people have such a smug and patronising attitude to people like me who saved and did not avail of easy credit or live any kind of luxurious lifestyle. I drove the same secondhand car for years, it was falling to pieces.

After all that I bought somewhere within my means AT THE TIME. Now I have massive NE, a large paycut, government taxes and levies, my OH is out of work and I may be facing the same - I could not have known these things would happen. How dare you assume that someone like me does not know the value of money. Its no wonder the country is in the state its in with attitudes like this.


----------



## Giulia

I'm part of the NE generation. we bought a duplex at the height of the boom while I'm aware we made a huge mistake , I dont think we were greedy. We have a mortgage (not 100%) of 300k while we were offered over 400k..we have no issues in paying back the mortgage and we have 80k savings. our NE is 150k.we don't have any other debts, don't use credit cards and bought two cars a with cash.  while it wasn't planned we had a daughter(and I'm so glad it happened otherwise we'd never have the guts to do it). . My partner lost his job in 2008, but thank god never stayed home, he had two temporary contracts and finally got a permanent job , with a big salary reduction though. Now my job doesn't look safe and I could lose it in the next couple of years.  I dont want any debt forgiveness and I think eventually we'll end up renting the apartment and renting a house ourselves, but I have to admit we had a lot to deal with and being described as ' greedy' really annoys me. When we bought the apt we didn't think we were going to have kids for at least 10 years and we didn't think we were going to lose our jobs either.


----------



## Brendan Burgess

Hi truthseeker

To be fair to cashier, there is a huge difference between general attitudes to borrowing today and attitudes some years ago. 

For example, Riad said



> They are on salaries of 150k. 425k in borrowings is not excessive in anybody's language.



I have a very different view from Riad here. Yet, his assumption is that borrowing three times your joint salaries while already in negative equity is not excessive in anybody's language. He might want to take that risk. I certainly would be very wary of it. 

So I think that Cashier's comments that we have generally lost the understanding of the value of money is correct. 

Brendan


----------



## Giulia

concerning living in an apartment with a child I think is duable, we have two bedrooms and two bathrooms though. Not having a garden doesn't really bother me. Myself and my daughter are never home before 6 pm in the afternoon therefore I dont think she'd use it during the week. while w/ends we have some quality time together and we are out most of the day.


----------



## Bronte

RIAD_BSC said:


> Here it is again: "Take a couple on combined salaries of 150k. Bought a 100% mortgaged apartment at the top of market for 400k, now worth 200k, have paid 25k off the mortgage.... that's NE of 175k.... they have savings of 50k (I'd surmise there are lots of couples like this in modern Ireland)
> 
> They'd be decades trying to pay the NE off


 
Hi Riad, 

Can we go back on this bit.  They owe 375K and it will take decades to pay off the NE of 175?  

175 less 50 savings is 125.  How much of the salaries of 150K is spent on the mortgage annually?  I find it incredibly hard to understand how this cannot be tackled in say 3 years at 40K extra a year?

You should not back out of the debate, it's very interesting and relevant for many people, I'd like to be convinced.  For Leaky1's case I can see it but not for this case.

In relation to Brendan's argument on the 2.5 times salary plus 1 time spouse.  This was a tried and tested safe method in the past.  But interest rates are low, and someone on 150K can go to more than 2.5 times plus 1 as they have more disposable income.


----------



## Bronte

oldnick said:


> It seems that many posters don't understand the terrible cost to all of us if people wishing to start families delay or don't have kids. Some posters are dealing with purely with the arithmetic and ignoring the long term social costs/benefits issue.
> 
> .


 
Banks don't give out money for social reasons.  Money is arithmetic purely and simply for them.  If they gave out money for social reasons they would be bankrupt.  

And risking the wrath of all, it's a pity more people didn't do the arithmetic themselves in the first place.


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## truthseeker

Brendan Burgess said:


> Hi truthseeker
> 
> To be fair to cashier, there is a huge difference between general attitudes to borrowing today and attitudes some years ago.


 
There is a huge difference - but this difference needs to be looked at in context. Some years ago it was more common for only one partner to work, mammies tended to stay at home, there was only one salary in the family. People did not have such high levels of professional qualifications, their salary expectations were lower.


Attitudes will always change with time but it is frustrating for someone like me (and no doubt others in NE) who was actually sensible and did not over extend themselves to find themselves being dismissed with 'people these days dont know the value of money' - when it is just not true.

If I had held off buying a property because of the bubble I would only now be in a position to buy and possibly unable to get a mortgage due to reduced earnings etc.... So maybe in a position where I could have been in my 40s before being able to buy a home - do people really think that entire generations were going to wait until their 40s to buy homes? It just doesnt make any sense.


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## oldnick

Bronte says  141

_"...it's a pity more people didnt do the arithmetic themselves in the first place..."_

- I assume,of course, you mean the banks and the leaders of our country.


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## Bronte

oldnick said:


> Bronte says 141
> 
> _"...it's a pity more people didnt do the arithmetic themselves in the first place..."_
> 
> - I assume,of course, you mean the banks and the leaders of our country.


 
Yea, I mean everybody but truth be told the only ones left to pay are?


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## Guest105

truthseeker said:


> There is a huge difference - but this difference needs to be looked at in context. Some years ago it was more common for only one partner to work, mammies tended to stay at home, there was only one salary in the family. People did not have such high levels of professional qualifications, their salary expectations were lower.
> 
> 
> Attitudes will always change with time but it is frustrating for someone like me (and no doubt others in NE) who was actually sensible and did not over extend themselves to find themselves being dismissed with 'people these days dont know the value of money' - when it is just not true.
> 
> If I had held off buying a property because of the bubble I would only now be in a position to buy and possibly unable to get a mortgage due to reduced earnings etc.... So maybe in a position where I could have been in my 40s before being able to buy a home - do people really think that entire generations were going to wait until their 40s to buy homes? It just doesnt make any sense.


 

Truthseeker I was not referring to you or others like you who are struggling to pay mortgages (whether in negative equity or not) on average salaries but to the guys Riad was referring to who are on the €100,000 - €150,000 salary bracket. I know only too well the misery that has been inflicted on people because of this housing crash.

In the UK the average age of a first-time purchaser buying without assistance is 38, although it is unlikely that will happen in Ireland seeing as prices have dropped so much.


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## orka

cashier said:


> In the UK the average age of a first-time purchaser buying without assistance is 38, although it is unlikely that will happen in Ireland seeing as prices have dropped so much.


What the article describes is actually quite similar to what is happening here - banks aren't lending money easily and only to those with big deposits (>25% of the price) - so that will naturally be older people who have had more time to save...


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## Oscaresque

cashier said:


> I am not advocating it on a long time basis but as a shorterm solution.



But if I were to have a child now I don't know that it would be a short term situation. It could end up long term say 10 years.




cashier said:


> I find it quite amusing that young couples on this thread are on €100,000 + joint incomes and yet they are not prepared to save and pay off their negative equity.



I know you are not necessarily referring to me, but to be clear, I do not have 100k+ salary, I am absolutely prepared to pay off my full mortgage and have never suggested that I wouldn't and I am saving as much as I can every month. 

My own plan at the moment is to, save, save, save, save , save and hope that within the next 6 years A) my bank allows me to move to a new home with a new mortgage that takes with it the gap between what I can sell my house for and the mortgage B) they let me sell the house and pay off the NE in a loan and rent while we pay this off C) continue to live here and save enough to pay off the NE and have a deposit for a new home. 

C is looking like the most likely outcome but I don't think I can save that amount. Maybe house prices will rise and lessen some of the NE, who knows.


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## taxedparent

There are 3 types of people in Ireland at the moment:

a) bought an overpriced property(s) in the last 10 years
b) Coming to end or close to end of mortgage
c) Does not have a mortgage

All this talk of debt forgiveness/trading up with neg equity only really applies to one type of person. Why should an a) get preferential treatment over a b) who didn't over extend themselves to a c) who realised that everything was over priced and was not a sheep.

You make your decisions in the financial world, unfortunately they can go two ways, the good way and the really really bad way but that is ultimately your responsibility and I feel everyone should be fully accountable for their own actions.


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## Mystic Oil

taxedparent said:


> There are 3 types of people in Ireland at the moment:
> 
> a) bought an overpriced property(s) in the last 10 years
> b) Coming to end or close to end of mortgage
> c) Does not have a mortgage



Not wishing to detract from your point, however...

a+b may be true for some
a+c may be true for others


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## oldnick

Well, taxed parent, maybe people in group (a) were a young couple with a child that needed a home and did not have your brilliant perception regarded the overpriced housing bubble or the forthcoming economic crisis.

Furthermore, these ordinary young Irish citizens were constantly bombarded with "expert" advice from their own banks, the media and government -buy,buy,buy - here's loads of money. (And that's besides the enormous peer pressure at the time.)

Also, perhaps that young couple didn't quite foresee that one or both of them would be jobless in a couple of years. You evidently foresaw the economic crisis and I congratulate you for your foresight.

Now, if none of the banks, nobody in government, few in the media foresaw all this are you seriously stating that those people who,like all of us, depend on advice from experts, and are now suffering should be " fully accountable".

What, taxed parent, do you mean by that ?

Old Nick
(another taxed parent)

(i assume that, with your perceptive analysis of the housing market, you sold your house during the peak of the bubble , made a killing and then rented a similar house . If not,why not? - I can't understand all these people who "knew" there'd be crash but never did a thing to benefit from it)


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## JoeB

Yes, an ability to see through advertising should be taught in schools. If people want to outsource their common sense to other people that's fine, but you can hardly complain if the people you choose to lead you actually mis-lead you instead.

I think our government and supposed leaders do have a lot to answer for, but unfortunately they cannot fix the problems. 

It's wrong to say that no-one knew. The banks knew. Economists knew. The problem is that our government actively rubbished people who spoke the truth, and our country is run on soundbites, not considered policies. So our government actively mislead us, and pursued policies that were very ill advised, even at the time. 

Many people wanted the property market slowed down, and instead the government does the opposite, and offers incentives to speed it up even more. So the fundemental problem is lack of leadership, and refusal of government to accept that they can make mistakes, and the refusal of of sucessive goverments to follow good policy, instead of having unaffordable giveaway budgets like we did have for many years.


There is no solution to bad leadership, except replace the electorate, and get an electorate that won't continually vote in semi-criminals and lyers. 

So the problem very fundementally is the Irish people, and our inability to stand up for ourselves, and our inability to chooose leaders that would be good for the country, instead of voting for semi-criminals.

Of course the system is such that it encourages semi-criminals to apply. The lack of transparancy is indicitive of this.


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## Complainer

JoeBallantin said:


> Yes, an ability to see through advertising should be taught in schools.


Absolutely.


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## oldnick

JoeB- I agree with most of what you say but can't understand the openimng line
_"..if people want to outsource their common sense to other people that's fine, but you can hardly complain  etc etc ..."_

In every society people have diffent areas of expertise. We have financial, medical, technical etc etc experts. Even gardeners and decorators are experts to whom we look for advice.
Bankers are people who we had assumed were welltrained, honest and expert in financial and economic matters. That they were greedy and selfish did not matter as long as we thought they knew what they were doing.

How can heeding the advice of experts be described as _"outsourcing their common sense" ?_
Surely it was, at that time,  "common-sense" to listen to the experts ?

Now, in 2011,  it seems so many people "knew" in 2003-6 that the property prices would halve and that there'd be an economic collapse.

Many of my friends now claim the same . But  I ask them the question I asked above

"If you "knew" that property prices would collapse,  and you owned a house worth in 2006 one million ,which was not an uncommon price amongst my middle-class elderly friends,  , "knowing" that you'd get the same house for half the price in 2011 -why did you not sell knowing you'd make  a clear half-million profit !"

Many of my friends have second homes/investment properties and ,again, despite their great hindsight, only a couple of them sold in 2006 . Most of them held on to properties which are worth under half. Why ?  Why,if they all knew about the forthcoming property bubble.

Methinks a "false memory syndrome" is in play. Other than the odd article in the Economist or warnings from McWilliams, very few believed really foresaw such a collapse.

It'd make an interesting psychological study to observe how everyone nowadays states that it was obvious/clear/common-sense that buying/investing property in 2003-6 was stupid without any of them having acted  on that knowledge.


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## orka

oldnick said:


> "If you "knew" that property prices would collapse, and you owned a house worth in 2006 one million ,which was not an uncommon price amongst my middle-class elderly friends, , *"knowing" that you'd get the same house for half the price in 2011* -why did you not sell knowing you'd make a clear half-million profit !"


But you wouldn't necessarily get the 'same' house again for half price - you might have to make do with a similar one. My house is my home, not a commodity that I will trade up and down to make money so whether there's negative equity or lost equity, I don't really care - we'll just keep paying the mortgage until it's paid off, per the original plan when we bought. Even if someone knocked on my door today and offered me the peak-price, I don't think I'd sell.


oldnick said:


> Many of my friends have second homes/investment properties and ,again, despite their great hindsight, only a couple of them sold in 2006 . Most of them held on to properties which are worth under half. Why ? Why,if they all knew about the forthcoming property bubble.


Maybe you should try asking those who DIDN'T buy why they didn't. We looked at investment properties during the peak years but a simple spreadsheet showed that you needed strong capital growth ad infinitum to make it an attractive proposition - so we stayed clear. 

So, I didn't profit madly from my decisions and nor did I lose wildly so I don't think it's fair to say that only those who actively traded and profited from the bubble saw it coming or did something about it - doing nothing was an okay choice too.


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## taxedparent

oldnick said:


> Well, taxed parent, maybe people in group (a) were a young couple with a child that needed a home and did not have your brilliant perception regarded the overpriced housing bubble or the forthcoming economic crisis.



Please dont take my post as an ego boost, Im really not trying to say this at all. Just because you have a family doesn't mean you have to go out and buy a house. You can rent/house share etc its not an automatic go buy a property. All around me friends family etc were goading me into why I wasn't being "adult" by buying house for the birth of my kid etc. I just didn't listen to them, they weren't the ones having to pay the money back so I didn't feel it was important for them to tell me what to do. There is a big problem in the country around  the perceived right thing to do (property ownership), its just the done thing and I couldn't justify paying 400-500k for something that cost 70-80k to build.



oldnick said:


> Furthermore, these ordinary young Irish citizens were constantly bombarded with "expert" advice from their own banks, the media and government -buy,buy,buy - here's loads of money. (And that's besides the enormous peer pressure at the time.)



Same answer as above really, nobody forced them to do anything. The looked at the options, made an informed decision and went with it. The consequences of a good/bad decision remain firmly on the decision maker. We are trying to make the people higher powers accountable too so why shouldn't it be any different to the people who bought into it.



oldnick said:


> Also, perhaps that young couple didn't quite foresee that one or both of them would be jobless in a couple of years. You evidently foresaw the economic crisis and I congratulate you for your foresight.



If your going to borrow large sums of money from the bank, and you don't think about the future I would put this down to a signifancant oversight on the decision maker. You have to plan for the worst to see if it works out or not. I definitely do agree the banks didn't do enough stress testing on borrower, but some of this responsibility does also lie with the borrower too.



oldnick said:


> Now, if none of the banks, nobody in government, few in the media foresaw all this are you seriously stating that those people who,like all of us, depend on advice from experts, and are now suffering should be " fully accountable".



Correct my view point hasn't changed since reading your post, if anything it has compounded my belief that there shouldn't be an preferential treatment(debt forgivenes/mortgage bonus etc) for people who made bad decisions throughout the boom times. 

Everyone is now paying for this in some way or another through higher taxes/charges/duties etc. It galls me further that there is an expectation that any kind of "forgiveness" should be on the table.



oldnick said:


> What, taxed parent, do you mean by that ?
> 
> Old Nick
> (another taxed parent)
> 
> (i assume that, with your perceptive analysis of the housing market, you sold your house during the peak of the bubble , made a killing and then rented a similar house . If not,why not? - I can't understand all these people who "knew" there'd be crash but never did a thing to benefit from it)



I thought of buying a house around 2005. I didn't really know anything about how it worked, what you had to do etc. After going through all of ads, docs, asking people I just decided that it would be a bad move to pay a crazy amount of money for a house.  I didn't make any money on it, but I suppose you could look at now and say I saved myself a lot of grief.

Do look at the flip side, if the bubble hadn't burst and property prices continued their upwards trend I would be in much worse place now thinking about buying a house. It would be much harder to get on the ladder if I hadn't bought in the last 6 years. If that happened would I have anyone to blame but myself?


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## pjuegos

The following article from the Sunday Business Post also confirms that BOI will be offering soon NE mortgages:

[broken link removed]


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