# Is Negative Equity really that big a problem?



## Shawady

I see RTE are doing a Prime Time special tonight on negative equity. In the preview, an economist reckons it is the biggest problem facing the country. But is it really that big a deal?

The way I see it, there are different categories of negative equity.

First group, people that are planning on staying their home for a long time and are able to make their repayments. No problem here and if they are on tracker have lower repayments compared to 2 years ago.

Second group, people that bought before the peak and want to move at some stage. If they have being paying off the capital and continue to do so, they should reach the point in the near future where what they owe is less than value of house (assuming no more major drop in house prices).

Third group, people that bought at the peak and want to move. This is the group that I feel sorry for. I have friends that bought one bed apartments and now are at the stage where want to start family but can't move to a house for many years. But if this group is in minority is it not something that has to lived with?

Surely the benefit of keeping house prices affordable and keeping wages down would outweigh the problem of negative equity?


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## Pope John 11

Shawady said:


> I see RTE are doing a Prime Time special tonight on negative equity. In the preview, an economist reckons it is the biggest problem facing the country. But is it really that big a deal?
> 
> The way I see it, there are different categories of negative equity.
> 
> First group, people that are planning on staying their home for a long time and are able to make their repayments. No problem here and if they are on tracker have lower repayments compared to 2 years ago.
> 
> Second group, people that bought before the peak and want to move at some stage. If they have being paying off the capital and continue to do so, they should reach the point in the near future where what they owe is less than value of house (assuming no more major drop in house prices).
> 
> Third group, people that bought at the peak and want to move. This is the group that I feel sorry for. I have friends that bought one bed apartments and now are at the stage where want to start family but can't move to a house for many years. But if this group is in minority is it not something that has to lived with?


 
Fourth group, people that bought at the peak time & have to move because of the loss of their job, are in negative equity, & can't sell.


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## truthseeker

Fifth group, couples who have seperated and need to sell but cannot sell because of negative equity.


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## z107

The huge level of debt involved is also a major problem. The property bubble has caused a two fold debt problem:

1. These mortgage repayments is effectively money going out of the economy. Consider that instead of using this money to buy goods and services, it is being given to banks.

2. Cost of living and doing business has increased significantly. Business rent has gone up hugely. These overheads are either passed on, or the business is not viable. When people have to pay huge amounts of mortgage, they also need to be paid more.


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## Chris

umop3p!sdn said:


> 1. These mortgage repayments is effectively money going out of the economy. Consider that instead of using this money to buy goods and services, it is being given to banks.



No, this is not correct. Money paid to banks in repayments is not a net loss to the economy. It is not the case that the money, once with the banks, is destroyed. While banks are not lending out as much as they had been, i.e. credit contraction, this is a good, not a bad thing.


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## Chris

carpin taxt said:


> Neither of these groups is large enough to justify a blanket "silver bullet" solution to the supposed 'problem' of negative equity.



I agree. While I can't say what will be in tonight's prime time program, I'm sure it will be a couple of examples of people with 50% negative equity living in apartments or small houses, that want to move, and are pointing the blame at bankers, builders and investors. Best solution for people in negative equity: increase your mortgage payments or stay where you are.


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## z107

> No, this is not correct. Money paid to banks in repayments is not a net loss to the economy. It is not the case that the money, once with the banks, is destroyed. While banks are not lending out as much as they had been, i.e. credit contraction, this is a good, not a bad thing.


If we had solvent banks, then this might be correct.

I have my doubts that banks actually do create wealth, even when they are solvent.



> Neither of these two points is directly related to negaive equity. Negative equity does not increase the cost of the existing debt.


It's the scale of the negative equity that's important. If I get a loan for €100 for an item, that then decreases to a value of €50, then this doesn't really matter too much in the whole scheme of things. If I've spent €500k and the value is only €250k, then there is a problem. This problem is magnified when thousands of people are in the same position. 
It becomes a problem because when this debt is applied to the economy. People need to continue to be on big wages to pay it back.
Can you not see that this presents a huge negative feedback loop?
In real terms, the cost of debt does go up. Taxes increase, wages go down so to the mortgage holder, the effect is like an increase in cost of debt.


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## queenlex

*Negative equity*

Why cant someone who has to move or separated people rent out their property and rent somewhere cheaper themselves?  Maybe some could move back in with their parents too?  Or some could rent out a room to ease the debt?


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## Aquablue

queenlex said:


> Why cant someone who has to move or separated people rent out their property and rent somewhere cheaper themselves? Maybe some could move back in with their parents too? Or some could rent out a room to ease the debt?


 
I'm recently separated. Our family home is in approx €200k neg equity.Renting out the house is not an option because what I would receive in rent would only match the amount I would have to pay to rent another house. I have two children so I would rule out renting an apartment, and the difference in rent would be minimal anyway. Moving in with my parents is not an option. Renting out a room is not an option I would consider, having two young children. So I can't see any way out of this.


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## RIAD_BSC

carpin taxt said:


> Neither of these groups is large enough to justify a blanket "silver bullet" solution to the supposed 'problem' of negative equity.


 
I don't know of anybody who is proposing a blanket silver bullet solution for all. But solutions needs to be found for certain categories of people - those who have lost jobs and are in NE with massive arrears...... those who can't start families because they can't trade up..... couple who have separated etc....

Economically and socially, negative equity is more than just a 'supposed' problem. It is a real and tangible problem, and a massive one at that, for many people, for society and the economy at large.

The 'let-them-all-swing' brigade thinks the problem of negative equity will go away if we ignore it for long enough. It won't.


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## Chris

umop3p!sdn said:


> If we had solvent banks, then this might be correct.


Yes, the banks are insolvent, but this doesn't change the fact that paying off debt is benefitial to the economy, and does not result in a loss to the economy.



umop3p!sdn said:


> I have my doubts that banks actually do create wealth, even when they are solvent.



I agree, central and commercial banks are the central cause of the boom/bust cycles, which are detrimental to the economy. Production and savings should be the only driver of the economy.


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## Chris

RIAD_BSC said:


> Economically and socially, negative equity is more than just a 'supposed' problem. It is a real and tangible problem, and a massive one at that, for many people, for society and the economy at large.


Yes, negative equity is a tangible problem and a large problem for individuals, but not for society or the economy as a whole. I also agree with the OP, that the number of people that actually "need" to move and are in negative equity is rather small.



RIAD_BSC said:


> The 'let-them-all-swing' brigade thinks the problem of negative equity will go away if we ignore it for long enough. It won't.


Of course it will work, in time mortgages will be reduced and negative equity as well. It may take 5 years, 10 years, who knows. The simplest solution is to increase mortgage payments. Might sound tough, but it's the only fair solution.


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## canicemcavoy

RIAD_BSC said:


> I don't know of anybody who is proposing a blanket silver bullet solution for all..


 
Matt Cooper.


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## RIAD_BSC

canicemcavoy said:


> Matt Cooper.


 
I don't think that's correct. I think he proposed a debt-for-equity swap for people who were in NE and unable to make their payments.


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## MrMan

umop3p!sdn said:


> 1. These mortgage repayments is effectively money going out of the economy. Consider that instead of using this money to buy goods and services, it is being given to banks.



Except the money raised initially went towards paying builders, developers EA's, bankers, electrical supply stores, furniture stores etc so it is not really lost money.


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## putsch

People are still unprepared to take responsibility for their own decisions.

Could we look to the past and the intense financial problems Irish people and people all over Europe - have had over the years? In times of difficulty people were prepared to do what it took to deal with their problems, they cut their cloth to suit. So for example (researching family history thanks to the recent online census) many, many people, inlcuding my grandparents who I had previously understood were regarded as prosperous - took in paying guests to make ends meet. They certainly didn't have holidays - not even in Ireland let alone abroad but they saved for their children and their children's education. Have we experienced anything to compare with Germany after WW2?

On the radio during the week I heard a woman explain how badly off she was - so impoverished that, while she could afford a 2 week holiday abroad with her kids she would be really stretched when it came to back to school expenses. The interviewer sympathised instead of asking why she wasn't saving the holiday money.


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## Chris

putsch said:


> People are still unprepared to take responsibility for their own decisions.
> 
> Could we look to the past and the intense financial problems Irish people and people all over Europe - have had over the years? In times of difficulty people were prepared to do what it took to deal with their problems, they cut their cloth to suit. So for example (researching family history thanks to the recent online census) many, many people, inlcuding my grandparents who I had previously understood were regarded as prosperous - took in paying guests to make ends meet. They certainly didn't have holidays - not even in Ireland let alone abroad but they saved for their children and their children's education. Have we experienced anything to compare with Germany after WW2?
> 
> On the radio during the week I heard a woman explain how badly off she was - so impoverished that, while she could afford a 2 week holiday abroad with her kids she would be really stretched when it came to back to school expenses. The interviewer sympathised instead of asking why she wasn't saving the holiday money.



I couldn't agree with you more!!!!

People's expectations of what they are 'entitled' to is so far removed from reality it is unreal. I heard the same radio interview, and couldn't believe what I was hearing. It's time for people to get real and wake up to the changed tune of the music.


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## jerry2623

people bought property with loans taken out over 20/ 30 years. Why now just because there has been a property drop do  they want help.. there loans are long term. There is no such thing as instant gratification. property investment is about time  bythe time there loans have been paid back there property will return to the value plus inflation .. Calm is needed. If you bought 3 years ago expecting to exit now with profit you were STUPID  sorry


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## liger79

jerry2623 said:


> . Calm is needed. If you bought 3 years ago expecting to exit now with profit you were STUPID sorry


 

And what if people, like me, are in a situation where we didnt buy to make a quick buck, but now need to sell because of seperation and cant because the banks are not willing to look beyond their manuals/handbooks that were written up before thousands of people ended up in NE?


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## queenlex

Chris said:


> I couldn't agree with you more!!!!
> 
> People's expectations of what they are 'entitled' to is so far removed from reality it is unreal. I heard the same radio interview, and couldn't believe what I was hearing. It's time for people to get real and wake up to the changed tune of the music.


 

I totally agree with this Irish people seem to have such an attitude of entitlement.  I think a lot of people here could do with living abroad for a while to see how much tougher life is in other places....even in somewhere like the US if ppl saw the projects over there and these places it might open their eyes.  Thanks to the 'celtic tiger' (I hate that phrase though I have to say haha) ppl's expectations are just ridiculous here....


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## jerry2623

_And what if people, like me, are in a situation where we didnt buy to  make a quick buck, but now need to sell because of seperation and cant  because the banks are not willing to look beyond their manuals/handbooks  that were written up before thousands of people ended up in NE? 		
_
Maybe you just have got to except the situation you are in and  realise that ye cannot afford to separate at the present moment . Maybe ye both have to be mature and hang on until you both can afford to. 
I know this is harsh but life is not always a bed of roses.


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## liger79

Jerry, I dont think you fully understand what a situation like this is unless your stuck in it. Should i wait till the other person dies because they deliberatly tie themselves up with maxed out cards and car loans, spending every penny they get to make sure that they can't afford to clear the NE and this is the situation i'm trapped in???? Really? Are you telling me I should JUST ACCEPT IT?????


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## jerry2623

What do you think should happen ?


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## liger79

I'm not looking for a handout, I’m looking for flexibility. All i need from my bank is to take the NE left when we sell the house and split that debt. Money they already gave us and repayments that we've paid for the last 4-5years without missing a payment. It would work out the same amount per month, But no they want to either keep it as a single debt or run everything thru their lend criteria to see if we qualify. Its all very black and white, no scope for grey areas.

I also believe that the banks should hold up their hands and say, We lent recklessly during the boom and we should shoulder some of the blame and do our best to help people when we can. I don’t think you can just say, ah well you took the loan that’s your hard luck, deal with it.


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## fizzelina

jerry2623 said:


> people bought property with loans taken out over 20/ 30 years. Why now just because there has been a property drop do they want help.. there loans are long term. There is no such thing as instant gratification. property investment is about time bythe time there loans have been paid back there property will return to the value plus inflation .. Calm is needed. If you bought 3 years ago expecting to exit now with profit you were STUPID sorry


 +1
The preoccupation with NE is in my opinion losing sight of the fact these people willingly signed up to a 30 year investment/mortgage (or more in some cases) and the fact that they can't get out of it just yet is not a reason for the country to fund a buy out clause for them. For those couples separating I agree it's an awful situation and the banks should be more willing to look at alternative scenarios like if the mortgage has been paid fully by one person since the split allow that person to take it over. But they should not be writing off NE because a couple split up, that couple took on a long term investment together. They have to take responsibility. The sense of entitlement is indeed making people forget their own responsibility.


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## MrMan

queenlex said:


> I totally agree with this Irish people seem to have such an attitude of entitlement.  I think a lot of people here could do with living abroad for a while to see how much tougher life is in other places....even in somewhere like the US if ppl saw the projects over there and these places it might open their eyes.  Thanks to the 'celtic tiger' (I hate that phrase though I have to say haha) ppl's expectations are just ridiculous here....




We have our own 'projects' over here, take a drive around your own country if you want to see that there are haves and have nots. The Celtic Tiger was of great benefit to many, but plenty more never saw any real change in their world.


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## canicemcavoy

carpin taxt said:


> Negative quity is some form of contraception? This is one of the biggest entitlement hangovers of the Celtic Tiger. There is nothing wrong with starting a family in an apartment/small house.


 
+ 1

Margaret Thatcher was wrong; there is such a thing as society. However, society doesn't owe your child a playroom.


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## truthseeker

I dont see NE as a problem where the only issue is a sense of 'entitlement'.

However - I do see it as a problem where people need to sell for one reason or another - the examples I am talking about are relationship break up, loss of employment, loss of opportunity (by this the specific example I am thinking of is a friend who was offered a good career opportunity abroad but rent here wouldnt cover his mortgage, and pay in the new career would take a few years to get to a level where he could add to rent to cover the mortgage) or being forced to take a lower paid job.

I see a lot of people who are in one or other of the above situations. The age profile of my social group means most who bought did so in the last 8 years. And none of them bought 3 years ago hoping to make a profit. They bought, in most cases, because high rents + saving for a deposit was costing more than a mortgage repayment. They werent trying to live on credit, they were just trying to live their lives.

I think a lot of people who dismiss NE as any kind of problem assume that people in NE are there because they were frivolous, stupid or not thinking in the long term.

I see the reality of it differently, some things are beyond planning for, like relationship break up or lack of employment, or being forced to take a lower waged job. If you could sell your home and trade down or rent you might be able to handle the above situations, but not being able to sell only compounds the misery and I do personally know a number of sensible people who are in NE and suffering because of some other situation beyond their control.

To dismiss the problem as people being frivolous, stupid, or not thinking in the long term is not looking at the bigger picture.


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## queenlex

putsch said:


> People are still unprepared to take responsibility for their own decisions.
> 
> Could we look to the past and the intense financial problems Irish people and people all over Europe - have had over the years? In times of difficulty people were prepared to do what it took to deal with their problems, they cut their cloth to suit. So for example (researching family history thanks to the recent online census) many, many people, inlcuding my grandparents who I had previously understood were regarded as prosperous - took in paying guests to make ends meet. They certainly didn't have holidays - not even in Ireland let alone abroad but they saved for their children and their children's education. Have we experienced anything to compare with Germany after WW2?
> 
> On the radio during the week I heard a woman explain how badly off she was - so impoverished that, while she could afford a 2 week holiday abroad with her kids she would be really stretched when it came to back to school expenses. The interviewer sympathised instead of asking why she wasn't saving the holiday money.


 
This sums up the problem P...to be frank and honest greed/the inability to cut back on an unsustainable lifestyle is a lot of the problem and in the first place a lot of the problem was a keeping up with the jones type of situation, e.g. ppl taking pride in how much they'd paid for their house particularly or car, etc.  I dont think its true to say you cant bring up kids in apartments either they do it on the continent all the time though maybe some ppl would ideally like a house to bring up kids this just may not be possible....


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## queenlex

MrMan said:


> We have our own 'projects' over here, take a drive around your own country if you want to see that there are haves and have nots. The Celtic Tiger was of great benefit to many, but plenty more never saw any real change in their world.


 
I absolutely agree with you but some of them in the US are more like shacks I was thinking more of how basic they are in some countries I havent seen anything like that yet here though thats not to say some are not of pure quality.  Most ppl I think lived much the same lifestyle throughout this 'great' time and only a relatively small section got rich/pretty wealthy.


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## Mpsox

Personally, I am probably just about sliding into NE. I was fortunate in that we had a good deposit and sold a house near Dublin at the peak to move to a cheaper rural town. having said that, we could have bought a far bigger house for a bigger mortgage but didn't because firstly we didn't need it and secondly we wanted to have a big chunk paid off the cost of our new home at the start. So what impact does NE have on me.

In truth, from a day to day living perspective, zero impact. I am probably paying more for my house in mortgage payments on a monthly basis which does annoy me a bit, bit I have always looked at any house I owned as my home, not as an investment property. A mortgage is also a long term committment and I think there is a reasonable assumption that in 22 years time, when I have it paid off, that the value of my house will have increased.

I'm in full time employement and have no desire to move jobs. NE would impact me if I lost my job as it could impact on my ability to relocate for work and this potentially I could be a draw on the state for longer. It would also increase the chances of me taking a job on a lower salary die to restrictions on relocation.

Ne would also impact if my personal circumstances changed, eg divorce/seperation as it would certainly complicate any issues there.

I have no sympathy for anyone in NE on investment mortgages, especially anyone who was on interest only. If you did not accept/understand the risks of your investment and thought you could simply earn money without adding/inputting any value then you were a speculator, not an investor. Frankly, anyone who took out interest only mortgages on investment properties was an idiot and need to deal with the results of their stupidity. Just because the bank was offering the money, doesn't mean you had to accept.

I also believe that there may be genuine cases of mis-selling, especially where brokers and banks encouraged people to be "flexible with the truth" on application forms. They have to take some responsibility for their actions and I do feel that down the line, we will see court cases regarding mis-selling in the same manner as in the UK in the recent past regarding endownment mortgages

I have some sympathy for people who were trying to get on "the ladder", but it is tempered by the fact that in a lot of cases, they were looking to make a quick profit in a short few years to take the next step. Quick profits usually imply large risks and people did not take the time to understand what they were getting into. My sympathy is also tempered for people who took out 100% mortgages, never saved, spent what they earned on plasma TVs and what ever else. Some of the mess they are in, is of their own making.

I have a lot of sympathy for people who borrowed prudently, whose circumstances have changed, or who bought a house as a home rather then as an investment property or looking to make a profit on it, and are now unable to move on. Those are the people who require assistance in my book


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## queenlex

jerry2623 said:


> people bought property with loans taken out over 20/ 30 years. Why now just because there has been a property drop do they want help.. there loans are long term. There is no such thing as instant gratification. property investment is about time bythe time there loans have been paid back there property will return to the value plus inflation .. Calm is needed. If you bought 3 years ago expecting to exit now with profit you were STUPID sorry


 
I admire your honesty its a pity some of the media cant be more honest and less populist theres always a way around this problem ppl just need to be realistic.  Instead its like "poor so and so needs help because they didnt make a ten grand profit in three years" if they wanted to make a profit or be sure they didnt lose money they need to be patient and in it for the long haul...


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## Complainer

Mpsox said:


> Frankly, anyone who took out interest only mortgages on investment properties was an idiot and need to deal with the results of their stupidity. Just because the bank was offering the money, doesn't mean you had to accept.


While I generally agree with you, don't forget that our tax system actively encourages investors to go interest-only by allowing uncapped interest relief. Investors are better off going interest only and keeping their capital on deposit than reducing their mortgage balance, thanks to the state subsidy on interest payments.


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## liger79

queenlex said:


> Instead its like "poor so and so needs help because they didnt make a ten grand profit in three years" if they wanted to make a profit or be sure they didnt lose money they need to be patient and in it for the long haul...


 

Was that your opinion when the boys down the Dail were pouring billions into the banks of this country?

You can't just paint everyone with the same brush and if you think that people dont derserve or need help then you are very very wrong. Its easy to be smug when your looking down on others.


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## Mpsox

Complainer said:


> While I generally agree with you, don't forget that our tax system actively encourages investors to go interest-only by allowing uncapped interest relief. Investors are better off going interest only and keeping their capital on deposit than reducing their mortgage balance, thanks to the state subsidy on interest payments.


 
Absolutely agree with you, but how many "investors" actually kept their capital on deposit?, in fact, how many "investors" actually had any/much capital at all?


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## annR

*Ne*

I have no sympathy for people who are complaining about not being able to make a profit etc like they did before, or who won't cut back blah blah.  But it irks me to see the banks being so inflexible with people who have good reasons for trying to sell but can't, who are willing to pay their debt but just need to sell for job reasons or whatever.  The banks have just been bailed out by the country they have no place being an obstacle to people who are trying to negotiate something reasonable.  Well I think the recent government announcement covers some of what I'm talking about, just some flexibility but without letting people out of their debt.


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## RIAD_BSC

carpin taxt said:


> Negative quity is some form of contraception? This is one of the biggest entitlement hangovers of the Celtic Tiger. There is nothing wrong with starting a family in an apartment/small house.


 
Have you ever tried to raise kids in a one-bedroomed box apartment?

People in situations like this are not looking for handouts or bailouts or money from anyone. What they want is to be allowed transfer their negative equity from one property to another with the same bank.

In my situation, I bought small property that is now entirely unsuitable for my family's needs (and myself and my wife are probably best placed to judge what does or what doesn't meet our needs).

The loan (at 75% LTV) of a suitable sized home, plus the negative equity carry over on my current property, is well within my budget and affordability criteria, under any stress test scenario. We both have solid, sizeable incomes.

Renting out our current home and renting a more suitable property, something that is often suggested as a solution, is not a real runner for several reasons: the rental market in my area is hugely depressed because of over-supply.. renting it out at all, at any rent, would be a stunning achievement; I would be breaching the covenants on my mortgage because it would no longer be my PPR; I would be liable for tax on the rental income.

There is also the fact that I would become an investor in the property market. I don't want to be an investor, I want to be a homeowner - I never bought my property to make money. I bought a home - it just so happens not to be big enough anymore. I also don't want to raise my children in rental properties because I want them to have stability in their lives - renting is a temporary solution and the landlord can always take the property back if they want to sell it. And that will happen as soon as the market recovers at all..... I don't want to move my children from house to house every year or two....

I can easily afford to move house; the bank is already on the hook for the negative equity anyway; the bank's loan would be secured on a better asset; the negative equity would be reduced because of an injection of equity by me in the form of the deposit for the new house..... but the bank won't allow me to sell and move because, they say, the Financial Regulator has warned them off providing negative equity mortgages.

Can you not see how frustrating that is for someone like me? I don't want a handout from anybody - I have enough money of my own. I don't want to live in a mansion. I'm not frivolous or stupid or greedy. I just want to move house.


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## liger79

RIAD_BSC said:


> Can you not see how frustrating that is for someone like me? I don't want a handout from anybody - I have enough money of my own. I don't want to live in a mansion. I'm not frivolous or stupid or greedy. I just want to move house.


 

+1


Unfortunatly some people here dont see it that way.


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## orka

RIAD_BSC said:


> In my situation, I bought small property ...
> The loan (at 75% LTV) of a suitable sized home, plus the negative equity carry over on my current property, is well within my budget ...
> the negative equity would be reduced because of an injection of equity by me in the form of the deposit for the new house.....
> but the bank won't allow me to sell and move because, they say, the Financial Regulator has warned them off providing negative equity mortgages.


I'm really confused by this. If you have a 25% deposit (plus stamp duty/fees) for a larger property, why not use this to pay off the negative equity on the smaller property? Are the properties so similar in price that 25% deposit for the house doesn't pay off the NE on your small property? You might then have to get a 90% LTV mortgage but with sizeable salaries that shouldn't be a problem. I thought the big NE problem was that people were facing having to get 100% LTV mortgages plus service NE debt on the old property.


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## queenlex

liger79 said:


> Was that your opinion when the boys down the Dail were pouring billions into the banks of this country?
> 
> You can't just paint everyone with the same brush and if you think that people dont derserve or need help then you are very very wrong. Its easy to be smug when your looking down on others.


 
I wasnt saying everyone was in it for a quick buck sorry if it sounded like that.  I think its a disgrace some of the policies that were in place and dont agree with some of those banking decisions but human greed in general in this country was needed to allow the banks to lend this money too so ppl who borrowed way beyond themselves in some cases recklessly need to accept its not totally the banks fault after all they are capitalist institutions trying to make as much as possible for their shareholders though they changed into big slot machines...encouraged by government policies of course.

I wasnt being smug I just think the level of greed in this country overall the last few years was sickening and some ppl sold their soul and would do anything for a few extra quid...when somebody is making a fortune other ppl are generally suffering...thats the nature of capitalism (particularly when its basiscally unregulated) you know.  On a positive note I think the country is more friendly recently due to the end of this getting rich quick nonsense....


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## Chris

truthseeker said:


> To dismiss the problem as people being frivolous, stupid, or not thinking in the long term is not looking at the bigger picture.



If people who bought near the peak of the market were looking at the long term, then why is this topic being discussed? If people had actually planned for the long term, then why did they not make even small provisions for the possibility of unemployment or wage cuts. As already mentioned, negative equity is only really a problem for people who are having difficulty meeting repayments for whatever reason. The only one these people can blame for this is themselves, for not having made any provisions for a rainy day. 

Arguing for banks to be more flexible is utterly rediculous. It was the flexibility of central and commercial banks that was the cause of the financial crisis. Allowing people to go into even more debt, especially unsecured, is utterly short-sighted and completely ignoring even the most recent history. When in a whole stop digging!!!


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## Chris

queenlex said:


> I wasnt being smug I just think the level of greed in this country overall the last few years was sickening and some ppl sold their soul and would do anything for a few extra quid...


Greed is impossible to quantify as it is very subjective. I think the biggest problem was the utter blindness and ignorance of downside risk.



queenlex said:


> when somebody is making a fortune other ppl are generally suffering...thats the nature of capitalism (particularly when its basiscally unregulated) you know.  On a positive note I think the country is more friendly recently due to the end of this getting rich quick nonsense....


No, capitalism does not naturally make some people rich and arbitrarily make less well off people suffer. Capitalism rewards those that take the right risks, and punishes those that take the wrong ones; that's the profit and loss system. And buying a house on leverage is a risk that can go eith way.
The boom bust cycle that causes so much difficulty for the economy is not a feature of unregulated free-market capitalism. It is government intervention, regulation and stimulus (whether socialist or conservative doesn't matter) that causes the malinvestments of the bubbles that always eventually collapse. The most central part to the economy is the monetary and financial system, which completely controlled by governments.
The western world has nothing even remotely resembling free-market capitalism, so blaming busts and people's hardship on lack of regulation is utter nonsense.


----------



## canicemcavoy

Chris said:


> The boom bust cycle that causes so much difficulty for the economy is not a feature of unregulated free-market capitalism.


 
Example?

P.


----------



## truthseeker

Chris said:


> The only one these people can blame for this is themselves, for not having made any provisions for a rainy day.


 
I dont disagree with this, but for some the rain has been falling longer and harder than they would have thought possible, I have friends with no job for 8 months or more - I would think it unusual for young people who are buying a first home to have provision made for a year or so or rainy days.


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## RIAD_BSC

orka said:


> I'm really confused by this. If you have a 25% deposit (plus stamp duty/fees) for a larger property, why not use this to pay off the negative equity on the smaller property? Are the properties so similar in price that 25% deposit for the house doesn't pay off the NE on your small property? You might then have to get a 90% LTV mortgage but with sizeable salaries that shouldn't be a problem. I thought the big NE problem was that people were facing having to get 100% LTV mortgages plus service NE debt on the old property.


 

It is quite simple. My 25% deposit is nowehere near enough to clear the NE. The reason the new house is so close in price to what I paid for my old place (much cheaper in fact) is that property prices have fallen by over 40% since then (the PTSB index way underestimates the fall, in my experience).

On current property, loan outstanding is 380k, value is around 210k, so NE of around €170k.

Property I want to buy is €310k (it would have been valued at close to €600k at the time when I bought my current house for €400k).

I have around €75k saved for a deposit (I have also have money set aside for fees and the €12k or so of stamp duty), meaning I would borrow €235k. Tack on the €170k negative equity, and my new loan would be €405k, close to what I borrowed the last time.

Loans of €405k, secured on asset of €310k, means new NE of €95k.....

Our combined income is now almost €140k (one public servant, one private sector).....

I would have thought this was a win-win for me and the bank..... I get to move house - the bank is on the hook for less NE, secured on a better asset. But the bank said no, because the regulator has warned it off NE mortgages.

To me, what I am looking for is not irresponsible borrowing, I don't want a handout of anyone's cash, but I am hamstrung by the prevailing opinion of people such as Funkf00t........


----------



## Chris

truthseeker said:


> I dont disagree with this, but for some the rain has been falling longer and harder than they would have thought possible, I have friends with no job for 8 months or more - I would think it unusual for young people who are buying a first home to have provision made for a year or so or rainy days.


You are right, it is unusual for young people to have rainy day funds for a year or more; I actually believe that most people in general have less than 2 months ainy day fund (based on friends and colleagues). This does not excuse the fact that people didn't make provisions for at least 12 months. This doesn't have to be through savings alone, there are plenty of insurance products that offer income.




canicemcavoy said:


> Example?
> 
> P.


Without deviating off thread topic too much I suggest that you look into Austrian Business Cycle Theory, many resources on the web. It basically says that interst rates (set by central banks) that are lower than would be available on a free market and the issuing of additional money to 'stimulate' the economy results in over and malinvestments. Businesses can borrow at low costs, making it look like leveraged investments will pay off in the future. This leads to huge investment in capital goods leading to increased production goods prices, which leads to increased consumer prices. Eventually it is realised that the public does not have savings to spend on all the new products and the house of cards comes tumbling down.


Here are some examples from history:
1) the 1873 crash resulted from the introduction of fiat paper currency during the civil war (know as Greenbacks) and the subsequent inflation of the money supply. The downturn didn't end until the Greenback was abandoned.
2) the 1920 depression (http://mises.org/daily/3788) came about 6 years after the introduction of the Federal Reserve and its inflation of the money supply along with fiscal inflation of government to pay for WWI. The US, under Harding, cut spending and taxes drastically in 1921, and the depression ended after a mere 18 months.
3) President Coolidge and the Fed went on to reinflate the monetary system creating the 'golden 20s' which as we all know came to a total collapse in the 1929. Then came the big spenders Hoover and Roosevelt who went on huge public works and economic intervention sprees causing the Great Depression.
4) now let's look at more recent times: after the savings and loans crisis of the late 80s, the economy was reinflated with low interest rates, eventually leading to the dotcom bubble and burst.
5) again the economy was reinflated with cheap credit and new money after dotcom and 9/11 leading to the housing and credit bubble of 2007.
Get the picture?


----------



## goingforgold

Having watched primetime last night and having listened to all recent media speculation it would appear that some form of "nama for the people" (really hate that phrase) is on it's way after this review body publish their findings in September.

I bought a house in 2006 and I'm not in negative equity as I used all my savings and the funds from a previous house sale to take me out of negative equity. Are all these people who claim to be in negative equity really in negative equity? I mean if some sort of bailout for these people is granted will all their personal finances be looked at to ensure they are using all their savings to reduce the impact of negative equity.

Most people I know who claim to be in negative equity are ones who bought big houses or apartments in places they couldn't afford purely beacuse they wanted to! I want to live in a palace too but realised I couldn't afford it. What about giving something back to those of us in society who have lived modestly and have been prudent? I think the media are very biased towards the poor old person in negative equity...we need to get real here!


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## RIAD_BSC

There won't be a 'nama for the people'. The idea is beyond the pale.

There will probably eventually be two things that might happen:

1 - The banks will be allowed to grant some sort of limited negative equity mortgages to people with good incomes, but who can't move house because of NE.

2 - Compliant homeowners in heavy NE, in heavy areears, who have no prospect of paying it back through job loss etc, will be allowed lease or lease-to-buy their repossessed homes back from the bank under some arrangement....

Neither of them involves bailouts in the form of handing over cash...


----------



## goingforgold

RIAD_BSC said:


> There won't be a 'nama for the people'. The idea is beyond the pale.
> 
> There will probably eventually be two things that might happen:
> 
> 1 - The banks will be allowed to grant some sort of limited negative equity mortgages to people with good incomes, but who can't move house because of NE.
> 
> 2 - Compliant homeowners in heavy NE, in heavy areears, who have no prospect of paying it back through job loss etc, will be allowed lease or lease-to-buy their repossessed homes back from the bank under some arrangement....
> 
> Neither of them involves bailouts in the form of handing over cash...


How can you be so sure there will be no form of debt forgiveness? This is gaining huge momentum in the media. It would be absurd but I wouldn't be surprised at anything at this stage. I was speaking to a colleague who spent a lot of money on a property that was priced way beyond his means in my opinion. He now feels hard done by and feels his mortgage should be reduced. It is this sense of ridiculous entitlement that the media are driving. 

People think NAMA has bailed out the developers. No it hasn't, they will still be pursued for their loans. The ordinary person needs to understand this and not think they are entitled to debt forgiveness because the developers got it.


----------



## Chris

goingforgold said:


> Having watched primetime last night and having listened to all recent media speculation it would appear that some form of "nama for the people" (really hate that phrase) is on it's way after this review body publish their findings in September.
> 
> I bought a house in 2006 and I'm not in negative equity as I used all my savings and the funds from a previous house sale to take me out of negative equity. Are all these people who claim to be in negative equity really in negative equity? I mean if some sort of bailout for these people is granted will all their personal finances be looked at to ensure they are using all their savings to reduce the impact of negative equity.
> 
> Most people I know who claim to be in negative equity are ones who bought big houses or apartments in places they couldn't afford purely beacuse they wanted to! I want to live in a palace too but realised I couldn't afford it. What about giving something back to those of us in society who have lived modestly and have been prudent? I think the media are very biased towards the poor old person in negative equity...we need to get real here!



You deserve applause for doing the right thing!

I agree with you on giving something back "to those of us in society who have lived modestly and have been prudent". Now I do not want any sort of handout, but it disgusts me that I now have to pay more taxes on my savings interest and investment capital gains; this is punishing those people that were prudent and made the right decisions, and it is a huge disincentive to investment. Politicians are spewing out the same rhetoric over and over, "it's the banks' fault", "it's the builders' fault", "it's the regulator's fault", the list goes on. But yet it is all these institutions that are being rewarded and not one politician is coming out and saying: "We messed up, it's our fault"; instead we get: "some things we did were not so good, but only with the gift of hindsight". Spineless offspring of female canines, the whole lot of them!

Appologies, rant over.


----------



## Draigean

Shawady said:


> First group, people that are planning on staying their home for a long time and are able to make their repayments. No problem here and if they are on tracker have lower repayments compared to 2 years ago.



What a site this is already!  I just registered tonight as I want opinion and information on a personal matter (but I must do some reading on it first) but I'd like to answer the above point, the way I see it.

"No problem here"?  I cannot agree.  Take this example.

Johnny buys an apartment in central Dublin in July 2007 for €500,000.  In this part of the country prices have dropped by 50%.
Therefore if Johnny had waited 'til July 2010 to buy his apartment, he'd have saved himself €250,000 plus the interest.  That's a problem!


----------



## goingforgold

Draigean said:


> What a site this is already! I just registered tonight as I want opinion and information on a personal matter (but I must do some reading on it first) but I'd like to answer the above point, the way I see it.
> 
> "No problem here"? I cannot agree. Take this example.
> 
> Johnny buys an apartment in central Dublin in July 2007 for €500,000. In this part of the country prices have dropped by 50%.
> Therefore if Johnny had waited 'til July 2010 to buy his apartment, he'd have saved himself €250,000 plus the interest. That's a problem!


so does Johnny expect the taxpayer to give hime €250,000 just so he can feel better? Not going to happen hopefully. When you buy shares or property one has to realise the value of their investment can fall as well as rise. Irish people need to get real here. I bought a lotto ticket yesterday and didn't win. I want the government to give my my €5 back! Where does this end!


----------



## cartman1

Another group of people affected by negative equity are those who have also been caught at the wrong time with high levels of short-term debt i.e. ccs and personal loans who can't then re-finance because they are in negative equity.

There should be no debt forgiveness scheme as it would be unfair to those who didn't over-stretch themselves but the banks should be forced to offer other options such as term extensions, debt for equity swaps and re-mortgaging to include short-term debt if it makes long term sense. They were part of the problem so they have to part of the solution. These measures can always be reversed by individuals in a few years time if there circumstances improve.


----------



## Chris

cartman1 said:


> There should be no debt forgiveness scheme as it would be unfair to those who didn't over-stretch themselves but the banks should be forced to offer other options such as term extensions, debt for equity swaps and re-mortgaging to include short-term debt if it makes long term sense. They were part of the problem so they have to part of the solution. These measures can always be reversed by individuals in a few years time if there circumstances improve.



I agree 100%, rewarding anybody for bad decisions is a rediculous idea. And yes, banks (especially central banks) were the main part of the current problem. But the problem was excessive levels of debt, and allowing people to go into even more debt is just going to make things worse.
As for your suggested solutions, I don't see term extensions as possible, because people are already on 30 or 35 year mortgages; debt for equity swap is not possible, as there is no equity; re-mortgaging to include other debt is just opening the door for more short-term debt.


----------



## canicemcavoy

Draigean said:


> Johnny buys an apartment in central Dublin in July 2007 for €500,000. In this part of the country prices have dropped by 50%.
> Therefore if Johnny had waited 'til July 2010 to buy his apartment, he'd have saved himself €250,000 plus the interest. That's a problem!


 
Property prices either go up or go down.

You seem to be suggesting that when they go up, there is no problem and the purchaser is entitled to all the profit.

However, when they go down, it is a "problem" that presumably must be fixed - presumably by those who did not buy.


----------



## Shawady

Draigean said:


> What a site this is already! I just registered tonight as I want opinion and information on a personal matter (but I must do some reading on it first) but I'd like to answer the above point, the way I see it.
> 
> "No problem here"? I cannot agree. Take this example.
> 
> Johnny buys an apartment in central Dublin in July 2007 for €500,000. In this part of the country prices have dropped by 50%.
> Therefore if Johnny had waited 'til July 2010 to buy his apartment, he'd have saved himself €250,000 plus the interest. That's a problem!


 
But whether the house is still worth 500K or now 250K, it does not affect the mortgage repayments. If anything, because of the recession, interest rates have dropped so the repayments are now less.
I know people in this situation. They are technically in negative equity but because they are on a tracker, their monthly fininacial situation is better because of lower mortgage repayments. If they are not planning on moving, why should the government do anything fo rthem?


----------



## csirl

In my opinion, a lot of the people who want to start families and are trapped in small apartments only have themselves to blame. A lot of them bought with a view to trading up. They thought that they could sell the apartment on at a profit and use the proceeds to fund buying a house. I dont accept that the majority of young couples would not have forseen that they might have kids within the next few years. They bought with short term profit in mind.

They should have bought a more suitable property or rented until such time as they could afford something suitable.


----------



## orka

Draigean said:


> Johnny buys an apartment in central Dublin in July 2007 for €500,000. In this part of the country prices have dropped by 50%.
> Therefore if Johnny had waited 'til July 2010 to buy his apartment, he'd have saved himself €250,000 plus the interest. That's a problem!


It's a severe annoyance but it's not a problem if Johnny's circumstances haven't changed (in which case the problem is with the changed circumstances not the negative equity...).


----------



## GarBow

csirl said:


> A lot of them bought with a view to trading up. They thought that they could sell the apartment on at a profit and use the proceeds to fund buying a house.QUOTE]
> 
> How could the sale of an apartment alone fund a trade up to a house? Surely when prices were rising they would have risen on both properties simultaniously?
> 
> People did, perhaps, buy apartments with a veiw of being in a better financial position in a couple of years and then trading up. The property crash, pay reductions and tax increases have made this an impossibility and not in the short term but for many years to come.
> 
> Some process to facilitate these people should be concidered, not a debt forgiveness but a NE mortgage or similar for those who can prove payment capability exists. As mentioned before, all personal savings and investments should be used to reduce the NE.
> 
> I really think that people who bought a property, be it a house or apartment as their PPR and who now find themselves in this position should be helped out. Not by tax payers money or any other 'bail out' but by lender flexibility and with all moneys being repaid. IMO anyone who purchased property purely as an investment deserve fully to suffer all and any consequences that NE on these proprties may bring. This was pure blind greed in most cases.


----------



## cartman1

Chris said:


> I agree 100%, rewarding anybody for bad decisions is a rediculous idea. And yes, banks (especially central banks) were the main part of the current problem. But the problem was excessive levels of debt, and allowing people to go into even more debt is just going to make things worse.
> As for your suggested solutions, I don't see term extensions as possible, because people are already on 30 or 35 year mortgages; debt for equity swap is not possible, as there is no equity; re-mortgaging to include other debt is just opening the door for more short-term debt.


 
I don't agree Chris. There seems to be an undercurrent with many people (not saying you) who aren't in any financial diffilculties that there shouldn't be any new solutions offered to those who are in difficulty to make their position more manageable without letting them off the hook. 

The solutions I proposed would strike the balance:
1. term extension to 50 years for example - some people may want to pursue this option and then sell up after 30 years when they are retiring and trade down or they could reduce the term in 10 years time if/when their circumstances improve.
2. What I mean by debt for equity swap is that the bank take part ownership of the house in exchange for a reduction in the loan outstanding. Again the mortgagee could always reverse this in the future or they could sell the property in the future as joint owners with the bank.
3.Debt restructuring usually has strict conditions attached and people should be given a second chance. I think a lot of people have learned very harsh lessons in recent years and most are unlikely to do it again.


----------



## Draigean

goingforgold said:


> so does Johnny expect the taxpayer to give hime €250,000 just so he can feel better?



Huh? I don't understand you, have you misunderstood?

You should read the posting guidelines, you've gone off topic.  I wrote nothing about the taxpayer giving Johnny money.

In response to the original post, I merely stated that negative equity is bad for someone like Johnny, because he's essentially wasted €250,000.  This is bad for Johnny.
But it's also bad for Ireland, and the Irish.  Not only is this a huge hole in his pocket, but he'd have spent that money on both worthwhile things and frivolous things.  Things that would have generated regular tax, maybe even employment.
A lose-lose situation.



goingforgold said:


> When you buy shares or property one has to realise the value of their investment can fall as well as rise. Irish people need to get real here. I bought a lotto ticket yesterday and didn't win. I want the government to give my my €5 back! Where does this end!



Granted, it's my fault for not stating this, but Johnny didn't buy this property as an investment, he bought it as somewhere to live.




goingforgold said:


> Irish people need to get real here.



I agree; they need to realise that in the first instance property is shelter.



goingforgold said:


> I bought a lotto ticket yesterday and didn't win. I want the government to give my my €5 back! Where does this end!



€5?  How did you manage that?  It's €1.50 per line, plus €0.50 for the Lotto Plus.  You could have bought €4, €4.50 or €6, but not €5!


----------



## Chris

cartman1 said:


> I don't agree Chris. There seems to be an undercurrent with many people (not saying you) who aren't in any financial diffilculties that there shouldn't be any new solutions offered to those who are in difficulty to make their position more manageable without letting them off the hook.


If there is a solution that doesn't get politicians or tax-payers money involved or increases the debt level then it may be favourable. I think the biggest problem with my opinion of not 'bailing' out private citizens is that it stands in light of governemnts bailing out banks, which I am equally apalled at.



cartman1 said:


> The solutions I proposed would strike the balance:
> 1. term extension to 50 years for example - some people may want to pursue this option and then sell up after 30 years when they are retiring and trade down or they could reduce the term in 10 years time if/when their circumstances improve.


A 50 year mortgage poses huge problems to banks, as the servicability of the loan may be questionable for a pentioner, and I imagine it would be very expensive to underwrite mortgage protection up to such an age.



cartman1 said:


> 2. What I mean by debt for equity swap is that the bank take part ownership of the house in exchange for a reduction in the loan outstanding. Again the mortgagee could always reverse this in the future or they could sell the property in the future as joint owners with the bank.


I think ORKA points out the pitfalls of such an approach.



cartman1 said:


> 3.Debt restructuring usually has strict conditions attached and people should be given a second chance. I think a lot of people have learned very harsh lessons in recent years and most are unlikely to do it again.


While it may be likely for people not to repeat the same mistake any time soon, the moral hazard lies in setting a precedence for future generations. People will always think that the state will help out if they make bad decisions.



Draigean said:


> In response to the original post, I merely stated that negative equity is bad for someone like Johnny, because he's essentially wasted €250,000.  This is bad for Johnny.
> But it's also bad for Ireland, and the Irish.  Not only is this a huge hole in his pocket, but he'd have spent that money on both worthwhile things and frivolous things.  Things that would have generated regular tax, maybe even employment.
> A lose-lose situation.



This is typical neo-Keynesian, economic laziness. Yes, Johnny spent 250k more than he would have now, but that money was not lost to the economy. It was handed over to a builder at the time, who spent it on wages, materials and fancy cars. Johnny also would not be able to spend that 250k now, unless it was cash savings in the first place. There is no loss to the economy here!!! Three is only a paper loss to Johnny.


----------



## csirl

People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.

Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.


----------



## Chris

csirl said:


> People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.
> 
> Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.



Very well said, you could not have put it any better. There's no such thing as a free lunch!


----------



## Marietta

cartman1;1063039The solutions I proposed would strike the balance:
 
1. term extension to 50 years for example [/QUOTE said:
			
		

> 50 year mortgages, you are not serious are you


----------



## orka

Marietta said:


> 50 year mortgages, you are not serious are you


In Japan, they have multi-generational 100 year mortgages...


----------



## glendale

cartman1 said:


> The solutions I proposed would strike the balance:
> 1. term extension to 50 years for example - some people may want to pursue this option and then sell up after 30 years when they are retiring and trade down or they could reduce the term in 10 years time if/when their circumstances improve.



I don't understand why this keep being proposed as a solution to the problem.

An average mortgage of 300k at say 5% over 25 costs 1610 a month, total interest paid 279K

- extend it to 35 years and payments are 1514 a month, total interest paid 335K
- extend it to 40 years and payments are 1446 a month,  total interest paid 394K
- extend it to 45 years and payments are 1398 a month,  total interest paid 454K
- extend it to 50 years and payments are 1362 a month, total  interest paid 517K

I don't think these monthly savings are significant. What is significant is the increase in total interest paid.

What if they are still in NE in 30 years time? I think an idea like this could be just like the rent a room scheme, it was just a trick by the bank to enable people to borrow more. I would say that the vast majority of people who borrowed more on the basis of rent a room never did it in the end.


----------



## canicemcavoy

orka said:


> In Japan, they have multi-generational 100 year mortgages...


 
It's also 5 times more densely populated than Ireland and in 1991, the land under Tokyo’s Imperial Palace was valued at more than all the land in Florida.


----------



## What the

Originally Posted by *orka* http://www.askaboutmoney.com/showthread.php?p=1063373#post1063373 
_In Japan, they have multi-generational 100 year mortgages..._
Originally Posted by *orka* http://www.askaboutmoney.com/showthread.php?p=1063373#post1063373 
_In Japan, they have multi-generational 100 year mortgages..._
People in Japan also have to go to hotels to get a seeing to from the husband/wife because the house is full to the gills with people.  A 100 year mortgage might help the ailing hotel trade here in the longer term 

The only redress I would be happy to go along with is RIAD_BSC situation where he reduces his NE from 170 to 95 and he has shown prudence in the way he manages his affairs. This situation has to be win-win for both bank and homeowner. Homeowner gets a more suitable home and should the world fall down around the homeowner the bank can recover an extra 85k more than they could have if they made RIAD_BSC to stay in their current home


----------



## cartman1

csirl said:


> People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.
> 
> Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.


 
There's nothing abstract about any of the options that I have suggested and none of them involve debt forgiveness or anyone else picking up the tab. It's about the lender and the mortgagee agreeing an arrangement that gives the mortgagee some breathing space to get through probably the most difficult financial period the mortgagee is likely to face in their lifetime. 

It's all very well to say no to everything but what are you proposing as the alternative solution? If we do nothing, this problem will be a continuing drag on consumer spending for a long time and that will impact everyone living in the country.


----------



## Chris

cartman1 said:


> There's nothing abstract about any of the options that I have suggested and none of them involve debt forgiveness or anyone else picking up the tab. It's about the lender and the mortgagee agreeing an arrangement that gives the mortgagee some breathing space to get through probably the most difficult financial period the mortgagee is likely to face in their lifetime.
> 
> It's all very well to say no to everything but what are you proposing as the alternative solution? If we do nothing, this problem will be a continuing drag on consumer spending for a long time and that will impact everyone living in the country.



The solution is for people to start paying down the NE, simple as that! Any other solution will end up costing someone else. Yes, it might take some people 10 years or longer, but that is no excuse for trying to come up with quick fix, short-term solution. 

Consumer spending on houses and TVs and holidays, etc. is what caused this mess. Getting people to spend is so short sighted that it is not surprising that politicians are advocating it. What the western world needs is a reduction of debt levels (public and private) and increase in savings. Doing the opposite is just kicking the can down the road.


----------



## queenlex

Chris said:


> If there is a solution that doesn't get politicians or tax-payers money involved or increases the debt level then it may be favourable. I think the biggest problem with my opinion of not 'bailing' out private citizens is that it stands in light of governemnts bailing out banks, which I am equally apalled at.
> 
> 
> A 50 year mortgage poses huge problems to banks, as the servicability of the loan may be questionable for a pentioner, and I imagine it would be very expensive to underwrite mortgage protection up to such an age.
> 
> 
> I think ORKA points out the pitfalls of such an approach.
> 
> 
> While it may be likely for people not to repeat the same mistake any time soon, the moral hazard lies in setting a precedence for future generations. People will always think that the state will help out if they make bad decisions.
> 
> 
> 
> This is typical neo-Keynesian, economic laziness. Yes, Johnny spent 250k more than he would have now, but that money was not lost to the economy. It was handed over to a builder at the time, who spent it on wages, materials and fancy cars. Johnny also would not be able to spend that 250k now, unless it was cash savings in the first place. There is no loss to the economy here!!! Three is only a paper loss to Johnny.


 
You make some very good points Chris.  The last point is correct too how could there have been a loss???  The only loss that could be argued maybe was that some of the money developers, foreign workers, etc. made individually was invested abroad...  J

ohnny just took a gamble taking such a big mortgage out regardless of whether the property was his PPR or not like many others who overpaid thats just bad luck.  People shouldnt have being banking on their dwellings rising rapidly in value with a view to trading up, imo you should be able to assume property will rise by a small percent every year in the normal scheme of events but not in the range of 10 percent upwards or anything like that.

If they created this NAMA for private individuals some ppl are giong on about who they think is going to pay for it...just like this 'bailing out the banks' nonsense regular people who were prudent would have to pay for mistakes they didnt make so thats really a non-starter too.  Sorrry maybe the last bit is a bit off topic.  At the end of the day ppl are just going to have to ride out negative equity no matter how long it takes they have an asset there they can make use of and they'll just have to find a way of dealing with it really and if they're resourceful they will they should look at it as a challenge at the moment and enjoy the challenge and get some satisfaction from that I think.


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## queenlex

glendale said:


> I would say that the vast majority of people who borrowed more on the basis of rent a room never did it in the end.


 
I would say youre actually right there very few ppl seem comfortable with renting a room once they move in it seems....


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## fizzelina

queenlex said:


> they should look at it as a challenge at the moment and enjoy the challenge and get some satisfaction from that I think.


 
I really don't think the people in extreme difficulty on this site are seeing it as a challenge they can be satisfied by????
This is like your boss saying, ok so we let someone go and you're doing two people's jobs for the same salary but it's a real challenge for you professionally...........
Looking on neg equity as a challenge to be *enjoyed*.........that's a new opinion


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## lightswitch

Chris said:


> Very well said, you could not have put it any better. There's no such thing as a free lunch!


 

I have to say I am somwhat shocked at the attitudes expressed in a lot of the posts on this thread.  Where is your empathy and basic humanity?

Human beings and their lives are more importaint than banks and their profits!!  The banks are insolvent as was mentioned and should therefor be closed like many other businesses are closing right now due to lack of finance.  

My own bank tried, without success to push money down my throat between 2004-6.  I would imagine many people in NE were MIS SOLD loans believing that the banks had their best interest at heart.  Sales, is a profession I know a lot about.  Believe me there were some very highly trained sales people in Banks.  I used to laugh after I left the so called "financial reveiws" they regularly called me in for as I could see their tactics a mile off.  Now I see so much distruction of peoples lives left in the wake I don't find it one bit funny.

As for the free lunch quote,  those who caused and fed the problem are still feeding for free, some of it being paid by my taxes, and probably by some of yours too .


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## Chris

lightswitch said:


> I have to say I am somwhat shocked at the attitudes expressed in a lot of the posts on this thread.  Where is your empathy and basic humanity?
> 
> Human beings and their lives are more importaint than banks and their profits!!  The banks are insolvent as was mentioned and should therefor be closed like many other businesses are closing right now due to lack of finance.
> 
> My own bank tried, without success to push money down my throat between 2004-6.  I would imagine many people in NE were MIS SOLD loans believing that the banks had their best interest at heart.  Sales, is a profession I know a lot about.  Believe me there were some very highly trained sales people in Banks.  I used to laugh after I left the so called "financial reveiws" they regularly called me in for as I could see their tactics a mile off.  Now I see so much distruction of peoples lives left in the wake I don't find it one bit funny.
> 
> As for the free lunch quote,  those who caused and fed the problem are still feeding for free, some of it being paid by my taxes, and probably by some of yours too .



I agree with you, banks should not have been bailed out but let fall into bankruptcy. I also think it is quite plausible that people were mis-sold mortgage products, and the ultimate punishment to the banks should be to take the loss, without any backing from tax payers.

Where I disagree is that people should be now helped out. Every person that took out a mortgage was an adult. No amount of sales pitch can excuse the fact that people did not take account for the possibility of lower or loss of income or a drop in house prices. If anybody is to be blamed for the financial ignorance of people it is the state run education system, which to this day does not adequately cover personal finance.

Do I feel empathy for people in financial trouble? Yes. But no person or business or industry should be bailed out, with tax payers money, for making financially bad decisions.


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## jpd

Must say that I lean towards Chris's attitude as well.


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## lightswitch

Chris said:


> I agree with you, banks should not have been bailed out but let fall into bankruptcy. I also think it is quite plausible that people were mis-sold mortgage products, and the ultimate punishment to the banks should be to take the loss, without any backing from tax payers.
> 
> Where I disagree is that people should be now helped out. Every person that took out a mortgage was an adult. No amount of sales pitch can excuse the fact that people did not take account for the possibility of lower or loss of income or a drop in house prices. If anybody is to be blamed for the financial ignorance of people it is the state run education system, which to this day does not adequately cover personal finance.
> 
> Do I feel empathy for people in financial trouble? Yes. But no person or business or industry should be bailed out, with tax payers money, for making financially bad decisions.


 

Can't disagree with any of that.  I suppose the point I was trying to make is that the public were dealing with highly trained Sales People which is a very different thing to what they might have perceved a Financial Advisor to be.  As I said I know a lot about sales tactics and to put it mildly, the ethics were seriously missing and their advice was seriously misleading.  Had I listened to them I would probably have 4 or more NE properties dotted around the globe.


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## cartman1

I don't disagree with anything that Chris said in his last post either but as I said before neither debt restructuring nor the other options I suggested are debt forgiveness and no external party has to foot any bill. I work in a business that gives trade credit to customers and we have been flexible in providing solutions to those that over-stretched themselves. These are solutions that we wouldn't have countenanced before but we're in extraordinary times so things have to be done differently. It's just common sense and banks should do the same.


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## Blondbiddy

Remember when we all had "homes" and not "houses".


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## johnnygman

Chris said:


> I agree. While I can't say what will be in tonight's prime time program, I'm sure it will be a couple of examples of people with 50% negative equity living in apartments or small houses, that want to move, and are pointing the blame at bankers, builders and investors. Best solution for people in negative equity: increase your mortgage payments or stay where you are.


 

What planet are you on?

An entire generation of young couples are in serious negative equity, which will drastically effect the quality of their lives due to being sold hugely overinflated properties that will take 20 years or more to right recover.
This will be a drain on society for a long time, comments like just pay more off the mortgage are insulting to people who are already stretched to due to massive wage cuts and in many cases the loss of one or both incomes.


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## selenak

Is the govt scheme of part buying some of these properties a runner? I've heard it discussed. 
Kind of like shared ownership giving the current owner options to buy back in the future.


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## Chris

lightswitch said:


> Can't disagree with any of that.  I suppose the point I was trying to make is that the public were dealing with highly trained Sales People which is a very different thing to what they might have perceved a Financial Advisor to be.  As I said I know a lot about sales tactics and to put it mildly, the ethics were seriously missing and their advice was seriously misleading.  Had I listened to them I would probably have 4 or more NE properties dotted around the globe.


Not surprised to hear this, and I agree that sales tactics were very "agressive". But the problem lies within the mistaken belief by people that a sales person is trying to get them a good deal that is of benefit to them. People in general do not have this attitude towards car sales people. Correct me if I'm wrong, considering that you have some experience in this field, but the tactics used to sell a mortgage or a car or anything else, is pretty much the same. And technically a good sales person doesn't really care too much about what it is they are selling, as the punch lines and jargon used doesn't really differ. 




cartman1 said:


> I don't disagree with anything that Chris said in his last post either but as I said before neither debt restructuring nor the other options I suggested are debt forgiveness and no external party has to foot any bill. I work in a business that gives trade credit to customers and we have been flexible in providing solutions to those that over-stretched themselves. These are solutions that we wouldn't have countenanced before but we're in extraordinary times so things have to be done differently. It's just common sense and banks should do the same.


Yes I think banks could be more flexible in a lot of circumstances. However, I see two major issues:
1) Those in negative equity often already have 30 or 35 year mortgages; even if they could justify increasing the term to 40 or 45 years (considering that a lot of people would be pensioners and still be paying their mortgages), this would not make a big enough difference for someone out of work.
2) Due to the bank bailout there is no incentive to be innovative or flexible. Essentially the bailout was to the benefit of creditors, and they are the only ones that can really put pressure on banks to reduce risk and increase chances of recovering funds. But as they have been bailed out, they really don't care what the banks do or don't do; either way they'll get their money back.

I read an excellent article on the reason for the behaviour of bank creditors by economist Russ Roberts. He makes some very logical points, well worth the read: http://mercatus.org/publication/gambling-other-peoples-money



Blondbiddy said:


> Remember when we all had "homes" and not "houses".


Very good point. I was talking to my father in law the other day, who is in his 60s, so still relatively young. And he said that in his and his father's generation you made the money first and then you purchased a house with as small a mortgage as possible; according to him borrowing more than your annual income was a no-go.



johnnygman said:


> What planet are you on?
> 
> An entire generation of young couples are in serious negative equity, which will drastically effect the quality of their lives due to being sold hugely overinflated properties that will take 20 years or more to right recover.
> This will be a drain on society for a long time, comments like just pay more off the mortgage are insulting to people who are already stretched to due to massive wage cuts and in many cases the loss of one or both incomes.


Saying that people were "being sold hugely overinflated properties" takes any responsibility away from the buyer. The way I see it is that many people decided to *buy* overpriced properties.
What effect this will have on society as a whole is arguable, and I'm not trying to say that it won't be negative. However, the effect on society, of making society as a whole pay for the mistakes of a few is an even bigger problem. This is a moral hazard that sets a precedence for future generations, and encourages higher risk taking. It might sound cruel but society as a whole will be better off if individuals are forced to suffer consequences of making mistakes. 
If the outcome of negative equity and property bubble is that the the ideas of a "proprty ladder" and owning a house at any cost are eradicated from society, then I think there will be a huge benefit to be gained.


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