# How to handle serious negative equity?



## Brendan Burgess

What are the options for those in serious negative equity who also have huge borrowings?


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## canicemcavoy

*Re: Change the law on bankruptcy for those in serious negative equity?*

Marc Coleman also did a piece that compared those in negative equity to people locked up in Guantanamo:

http://www.independent.ie/opinion/a...-break-chains-of-negative-equity-1943913.html

I'm sure Brendan you will agree this as hysterical as anything that Redser and Morgan have come up with.

Famously, Marc himself bought at a house at the height of the market, then wrote a book (1 star on Amazon) entitled "The Best is Yet to Come". Not exactly Derek Acorah then. He's now demanding "state help with repayments". Which is another of saying he wants other taxpayers to pay for his mortgage. 

And, god help us, multi-generational mortgages. Because what this country needs right now is to foist even debt onto our children too.

Now that NAMA is a done deal, looks like everyone is bringing out the begging bowl.


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*

Much as I do have sympathy for people in negative equity those of us who were not sucked in during the "boom" should not have to bail them out. 

I lived well, but within my means during those years and should in no way have to contribute towards those who for whatever reason over extended themselves.

This is a free market economy. Unfortunately people have to feel the pain during times like these as well as the gains during times just past. Otherwise nothing will have been learned and we will go into an even bigger bubble next time.


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## Brendan Burgess

*Re: Change the law on bankruptcy for those in serious negative equity?*

Hi lightswitch 

That is why I said: 


> In general, I would be against the taxpayer bailing out those in negative equity.



I have spoken to people who are in serious negative equity and are blaming the banks and the Financial Regulator. But they are still going on two holidays a year and driving two cars. 

So there is a serious moral risk in helping people out. But it does have to be balanced against consigning ordinary citizens to being long-term financial zombies. 

Brendan


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## jhegarty

*Re: Change the law on bankruptcy for those in serious negative equity?*

What we don't need is the US situation where people use bankruptcy as a form of finical planning.


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*



jhegarty said:


> What we don't need is the US situation where people use bankruptcy as a form of finical planning.


 
Exactly.  A bailout for people who over extended themselves would send exactly this message.  What is the point in engaging your brain when not doing so has no consequences?  Its the same as sticking your hand in the fire and not getting burnt.


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## Brendan Burgess

*Re: Change the law on bankruptcy for those in serious negative equity?*

There would be serious consequences - going bankrupt or insolvent. 

But it would allow the person to participate in the economic activity of the country.

As I have said, it's a very difficult balance to strike.

Brendan


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## MANTO

*Re: Change the law on bankruptcy for those in serious negative equity?*



lightswitch said:


> much as i do have sympathy for people in negative equity those of us who were not sucked in during the "boom" should not have to bail them out.
> 
> I lived well, but within my means during those years and should in no way have to contribute towards those who for whatever reason over extended themselves.


 
+1


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## canicemcavoy

*Re: Change the law on bankruptcy for those in serious negative equity?*



> But against that, we don't want a generation of people condemned to negative equity for the next twenty years or for the rest of their life.


 
What about those who admit they knew they overpaid for their property, even at the time?

I'm still unclear as to what is so bad about being in negative equity. The person still has a roof over their head. They're paying the price they thought the property was worth.


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## Brendan Burgess

*Re: Change the law on bankruptcy for those in serious negative equity?*



canicemcavoy said:


> I'm still unclear as to what is so bad about being in negative equity. The person still has a roof over their head. They're paying the price they thought the property was worth.



Good point and yet another complication. 

Negative equity is not in itself a big problem unless the person has to move home or split up. 

The big problem will be for people who are unable to service their mortgage and who have negative equity. 

So do we do something for those on salaries of €40k with a mortgage of €300k - but not do anything for someone on a salary of €100k with a mortgage of €400k? 

Again, if someone has negative equity on their home of €200k but has a pension fund of €200k, the pension fund should be made available to pay off their debts. 

Brendan


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## Latrade

*Re: Change the law on bankruptcy for those in serious negative equity?*

It's such a complicated aspect, I'm unsure what way to go and I haven't come across any real coherent argument from any side, expert or analyst either. I’ve no idea if my house is in negative equity, but then I had no idea how much "profit" I was in during the boom either because it's my home, not an investment and I wasn't particularly interested.

However, one of the significant issues is just how much debt is personal debt rather than state debt. So while it may be uncomfortable for anyone who was prudent during those years, it may have to be another bullet to bite in order to recover. Just like we have to accept NAMA, even though we may resent the reason it was brought in.

I'm not too happy with the proposals though. I'd prefer greater incentives to keep the house and reduce debt. If that can be done hand in hand with other measures for the really desperate, then it may be a necessary evil. 

Mind, the only idea/concept I've come across for incentivising debt reduction is in the form of tax breaks. I'm sure we can eliminate the tax breaks that helped to create the system in the first place and replace them with a more focussed system that rewards repaying of debt. It may even mean savings overall to the state.


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*

"So while it may be uncomfortable for anyone who was prudent during those years, it may have to be another bullet to bite in order to recover."

Recover to what though?  We were going through a boom and now we are going through a recession!  Some people spent too much money on property, TV's, holidays, cars etc...

If they are bailed out they will behave in exactly the same way when the "recovery" takes place.  Only this time people like me, who had to bail them out, will say to hell with this, and join them!!

Now lets see, who will bail us all out then?

NAMA is a completely crazy idea that we are stuck with.  NAMA for the people is total madness.  If things progress in this direction I will seriously look at emigration as there really is only so much Banana Republic I can take.


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## TheBlock

*Re: Change the law on bankruptcy for those in serious negative equity?*



canicemcavoy said:


> And, god help us, multi-generational mortgages. Because what this country needs right now is to foist even debt onto our children too.
> quote]
> 
> 
> Can Anyone explain to me why this would be a bad thing? Isn't this the system that is used in France and other european countries, why do we not allow 40-50 year mortages?
> 
> I'd just like to hear the pro's and con's of this as I have thought a little about this as a way out for some people. It would allow low repayments now and excellerated payments when incomes go up again.


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## Latrade

*Re: Change the law on bankruptcy for those in serious negative equity?*



lightswitch said:


> "So while it may be uncomfortable for anyone who was prudent during those years, it may have to be another bullet to bite in order to recover."
> 
> Recover to what though? We were going through a boom and now we are going through a recession! Some people spent too much money on property, TV's, holidays, cars etc...
> 
> If they are bailed out they will behave in exactly the same way when the "recovery" takes place. Only this time people like me, who had to bail them out, will say to hell with this, and join them!!
> 
> Now lets see, who will bail us all out then?
> 
> NAMA is a completely crazy idea that we are stuck with. NAMA for the people is total madness. If things progress in this direction I will seriously look at emigration as there really is only so much Banana Republic I can take.


 
I'm not suggesting a NAMA for the people, I'm just stating that there may be more to be served by providing assistance in some of the problem cases. 

I'm not excusing or defending the habits of people during the "good" times, I just don't see how it benefits us to turn around and say tough leaving them with 200K debt. Take the example of a couple who bought at the height, one is now out of work and they've split up and are in negative equity. It's bad timing, it's lack of foresight, but what is to be gained by leaving them in that situation aside from a satisfaction that maybe that'll learn em.

It's not about bailing them out it's about an incentive and means to try to pay the debt first and second with a mechanism to not have to go down the bankruptcy route. 

We have NAMA, it was needed, but not a nice thing to have to swallow. It is now in our national interests to make sure as much of the bad debt is repaid rather than to let it all fall on our shoulders if they default or claim bankruptcy. 

It doesn't have to be bailing out and supporting any prior excess, but it may prove more beneficial to us in the medium to short term to look at this in a more reasonable manner.


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## Brendan Burgess

*Re: Change the law on bankruptcy for those in serious negative equity?*

It is important that we don't arrive at a solution which allows people off scot free. 

If they avail of an arrangment, something like the following would have to happen: 

1) Be barred from all new forms of credit - including credit cards and overdrafts and HP. 
2) pay 20%(?) of their earnings by attachment to their creditors.
3) Agree that all future inheritances go to their creditors 
4) Not purchase property for 10 years. 
5) Pay the current value of their pension scheme to creditors.

The arrangment would be painful enough that they would have an incentive to discharge themselves from it if at all possible. 

Brendan


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## jhegarty

*Re: Change the law on bankruptcy for those in serious negative equity?*



Brendan said:


> It is important that we don't arrive at a solution which allows people off scot free.
> 
> If they avail of an arrangment, something like the following would have to happen:
> 
> 1) Be barred from all new forms of credit - including credit cards and overdrafts and HP.
> 2) pay 20%(?) of their earnings by attachment to their creditors.
> 3) Agree that all future inheritances go to their creditors
> 4) Not purchase property for 10 years.
> 5) Pay the current value of their pension scheme to creditors.
> 
> The arrangment would be painful enough that they would have an incentive to discharge themselves from it if at all possible.
> 
> Brendan



2) Should be a sliding scale depending on earnings. Minimun 20%, but rising the more you earn.

6) Not hold more than €5k in an assets or bank accounts


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*



Brendan said:


> It is important that we don't arrive at a solution which allows people off scot free.
> 
> If they avail of an arrangment, something like the following would have to happen:
> 
> 1) Be barred from all new forms of credit - including credit cards and overdrafts and HP.
> 2) pay 20%(?) of their earnings by attachment to their creditors.
> 3) Agree that all future inheritances go to their creditors
> 4) Not purchase property for 10 years.
> 5) Pay the current value of their pension scheme to creditors.
> 
> The arrangment would be painful enough that they would have an incentive to discharge themselves from it if at all possible.
> 
> Brendan


 
When I first read this Brendan I thought, OK this makes more sense.

Then I thought if I were living I a trophy home, filled to the brim with everything imaginable, with a nice trophy car or 2 in the drive way, possibly a few "speculation" houses in negative equity, these terms would very much appeal to me.  

If we are in any way going to compensate those who got burned then we need to in some way "reward" those of us who have to carry the can for them.  Of course that can't/wont happen.

Should we not just live with the effect of market forces?  These people are in debt, they are not facing starvation after all.

I might chance my user name to one very p'd off tax payer.


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## Latrade

*Re: Change the law on bankruptcy for those in serious negative equity?*



Brendan said:


> It is important that we don't arrive at a solution which allows people off scot free.
> 
> If they avail of an arrangment, something like the following would have to happen:
> 
> 1) Be barred from all new forms of credit - including credit cards and overdrafts and HP.
> 2) pay 20%(?) of their earnings by attachment to their creditors.
> 3) Agree that all future inheritances go to their creditors
> 4) Not purchase property for 10 years.
> 5) Pay the current value of their pension scheme to creditors.
> 
> The arrangment would be painful enough that they would have an incentive to discharge themselves from it if at all possible.
> 
> Brendan


 
Couldn't agree more and it has to be pretty tough when it comes to the end. I guess my point is that it is a stronger system if there's an incentive to keep the property and keep the debt in the first place. There's certainly an incentive for us as taxpayers and the State because of NAMA and I guess it sounds pretty inconceivable to most of us that keeping your own home isn't enough incentive. However, we have to accept that to some this it isn't enough, or certainly their circumstances don't permit it to be enough. 

I'd be loathed for anyone one who was excessive to get away without some form of payment. But given the extraordinary nature of our circumstances, the less the impact on bad debts the better for all of us.


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*

Of course the above is assuming they get to keep all their properties cars etc, can't see how you could actually take the stuff off them?


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## Latrade

*Re: Change the law on bankruptcy for those in serious negative equity?*



lightswitch said:


> When I first read this Brendan I thought, OK this makes more sense.
> 
> Then I thought if I were living I a trophy home, filled to the brim with everything imaginable, with a nice trophy car or 2 in the drive way, possibly a few "speculation" houses in negative equity, these terms would very much appeal to me.
> 
> If we are in any way going to compensate those who got burned then we need to in some way "reward" those of us who have to carry the can for them. Of course that can't/wont happen.
> 
> Should we not just live with the effect of market forces? These people are in debt, they are not facing starvation after all.
> 
> I might chance my user name to one very p'd off tax payer.


 
How many are the trophy houses and how many are facing starvation? To be honest I don't know, but the system has to take into account assets to a greater extent and demand a payment where it is more beneficial to stay on and pay the debt rather than declare bankruptcy.

As for rewarding those who are not in a similar position, again it's difficult to see any real mechanisms. Again, without harping too much, but a tax break for paying debt could be one avenue hand in hand with a permanent SSAI type of system for people who save.


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## canicemcavoy

*Re: Change the law on bankruptcy for those in serious negative equity?*



Brendan said:


> It is important that we don't arrive at a solution which allows people off scot free.
> 
> If they avail of an arrangment, something like the following would have to happen:
> 
> 1) Be barred from all new forms of credit - including credit cards and overdrafts and HP.
> 2) pay 20%(?) of their earnings by attachment to their creditors.
> 3) Agree that all future inheritances go to their creditors
> 4) Not purchase property for 10 years.
> 5) Pay the current value of their pension scheme to creditors.


 
Brendan, is that 20% _on top of_ paying off the current mortgage?


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## Brendan Burgess

*Re: Change the law on bankruptcy for those in serious negative equity?*

I am only making the point that people should not get off scot free. That is a rough idea, but it would need to be teased out. And the Court or Assessor would make the final decision based on individual circumstances.

I am very strongly of the personal opinion, that the Family Home Protection Act should not apply to houses worth more than, say, €500k. If someone is bankrupt, their property should be sold and their creditors paid off. 

People should pay for their mistakes. But they should also have a chance of making a fresh start without exploting the creditors.


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## lightswitch

*Re: Change the law on bankruptcy for those in serious negative equity?*

[broken link removed]

Something similar being discussed on Frontline tonight.


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## bond-007

*Re: Change the law on bankruptcy for those in serious negative equity?*

There should be a simple option for a person so hopelessly in debt to declare bankruptcy. The 1988 Act needs urgent reform. Banks will not bankrupt a person, but would rather crucify a debtor with instalment orders and the threat of jail. A system similar to the UK is needed here.


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## UFC

*Re: Change the law on bankruptcy for those in serious negative equity?*



			
				emmetdoyle said:
			
		

> I have a client at the moment, as single mother with an 18 month old baby, in a three bed semi bought in 2006 for €240k worth realistically €220k one day in early 2008 her partner who is on the mortgage disappeared went out one day and didnt return! She didnt over extend she didnt have a second property or two holidays or two cars.... but what she did have was a mortgage payment on her own a childminders electric insurances vhi etc etc and as her ex was on the mortgage she could do nothing she couldnt sell change the mortgage to interest only etc basically the bank screwed her to collapse.... now this is just one example but I can tell you the country is crawling with genuine people who bought homes whose jobs went and who simply cant pay the mortgage are entitled to no state benefits and are in trouble....


 
This has got me thinking.

We already have a large problem in this country where young mothers pretend to be single so they get extra benefits. We need to be careful that any debt forgiveness scheme doesn't create a new scam where married/co-habiting folk pretend to be seperated so they qualify for a debt write off. 

I think this could become a significant problem, similar to our current level of social welfare scamming.


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## PaddyBloggit

There should be no bail out for those in negative equity.

As previously said people paid what they thought the property was worth at the time and were happy to pay it at the time. Nobody forced people to buy. They made (or should have made) an informed decision.

I never made money during the so called Celtic Tiger years, I earned a wage and lived within my wage and I budgeted accordingly. If I had the cash I bought it. If I didn't I did without. 

I'll never die a rich man, but I'll have lived comfortably and within my means.


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## philcheetham

The one thing which worries me about the whole 'negative equity' argument is that there seems to exsist two sides of the argument. 

Both involve people (individuals or couples) who are in negative equity. These are the arguments:


(1) People (individual/couple) buy a property back in 2007 for 380k. The property now is worth 300k. They are in negative equity. They are moaning because they can't sell their property and make a profit. They cannot go on their holidays each year, live the lifestyle they have previously. 

(2) People (individual/couple) buy a property back in 2007 for 380k. The property is now worth 300k. They are in negative equity. They are not moaning because they can't sell their property and make a profit. They cannot go on their holidays each year, live the lifestyle they have previously...........Because the people (individual/couple) have lost 20% (each) of their wage due to pay cuts, they are struggling to pay for their mortgage. AIB/Ulster bank/other bank increase their mortgage rate because 'it is inevitable'. 



This is the situation which, with every announcement of 'bank will raise interest rate' is released, people will find themselves in. 

The country will only be in a worse state - more and more people will default on their mortgage. Not because they are in negative equity (anyone who bought a house in the last 4/5years is). But because people WILL default on mortgage payments. I am one of them if our interest rates rise by even the slightest - my wage now is not coherant/plausible for the mortgage i own. Where do i go? I cannot get a NAMA style agreement!!



RANT OVER!!


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## Brianne

My opinion is that hard cases will make soft laws and while of course there are people out there with very average houses who have lost their jobs and are in trouble, there are also many who would think nothing of declaring themselves bankrupt or whatever to avoid the inevitable pain of having to pay back their debts.As a couple who had and have very secure jobs always, not necessarily very high paying ones, we would always have had access to credit. However, money may be easily borrowed but always has to be paid back and some of the carry on and that's the only word I could use, that we have witnessed around was unbelievable. Why should people who thought nothing not just of borrowing for their house but also their weddings, honeymoon, cars, holidays, shopping in New York , why should they be let off scot free?? I think it would be morally bankrupt. Don't get me started on senior bankers. I have a list of people I would jail for not doing their jobs and for reckless behaviour and think that there should be penalties EU wide and world wide with world wide rules to prevent this debacle happening again in the banking sector but as regards individuals, to be fair to bankers, none of them put a gun to anyone's head. One has to take personal responsibility for one's debts.


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## Magpie

*Re: Change the law on bankruptcy for those in serious negative equity?*



lightswitch said:


> Much as I do have sympathy for people in negative equity those of us who were not sucked in during the "boom" should not have to bail them out.
> 
> I lived well, but within my means during those years and should in no way have to contribute towards those who for whatever reason over extended themselves.
> 
> This is a free market economy. Unfortunately people have to feel the pain during times like these as well as the gains during times just past. Otherwise nothing will have been learned and we will go into an even bigger bubble next time.




Thats not fair at all. There are some people that never had the foreign holidays, never wanted to make a profit, never overstrecthed and got greedy, and are in worse trouble. Think about it, if you stayed within your means and bought the smallest cheapest home you could in the boom, you are worse off now because those homes are even harder to sell. 
I bought in 2006 (worst point ever!), for 275k. We had waited for 3 years because we thought the price rises couldn't last forever, yet they seemed to be, and when we got notice on our 3rd rented house in a row (so the ll could sell for a massive profit) we thought if we don't buy now we won't ever be able to. We took professional advice and were told that there would be a "soft landing" and prices would tail off. 
Off course in hindsight we got it wrong, but how were we to know? All we did was what people have always done, bought a small house for our family at the best price we could find. Now houses in my road are for sale at 185k and won't sell, because there are newer and nicer houses being sold for peanuts down the road. 

I'm stuck here, in a house too small for my family which has grown since 2006. I have a mortgage far higher than my house is worth, large repayments, we have had paycuts, loss of overtime and I can't get a job. We are paying our mortgage, but if redundancy comes, we're finished. And what was my crime? Buying a family home at the worst time, and not being an economist or a fortune teller. I've never had cc debts or car loans or credit union loans or anything else. We didn't even have floors for the 1st 3 months in out house until we could buy them upfront, it was 6 months till we had a proper bed. What will happen to us if we can't pay? They'll take our home AND we'll be paying off the difference for the rest of our lives. Tough luck says you, you signed up. 

Not only are we trapped in negative equity, we also have to put up with constantly being told its our own fault, and how stupid we are. Some of never got any gain, just the pain. And c'est la vie, we'll put up with it and do the best we can. You don't have to keep kicking us when we are down though.


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## onq

*Re: Change the law on bankruptcy for those in serious negative equity?*



Magpie said:


> Thats not fair at all. (snip)
> Not only are we trapped in negative equity, we also have to put up with constantly being told its our own fault, and how stupid we are. Some of never got any gain, just the pain. And c'est la vie, we'll put up with it and do the best we can. You don't have to keep kicking us when we are down though.



I agree.

Some people forgot that we were all part of a society during the boom and Ireland became a cold and arrogant place.
Some people today are reacting adversely to the thought of taking on more debt to support others in this crisis - that's normal enough.
There is a perception out there that many people in negative equity bought unwisely, but I agree with you - we heard the same advice about a soft landing.

We let one client walk away from paying us fees because a deal fell through for him and we expected a large job from him this year.
This didn't happen and now we are wishing we hadn't been so generous - but at the time it was the right thing to do and I'd do it again if circumstances were repeated.

Similarly you had been uprooted three times and you had to make a stand and buy - that's quite understandable.
However while currently the market is very difficult, there is a view about that things will improve later this year, given the number of showings and sales in the small to medium house market so far this year.

Your real concern is twofold - the size of house and the mortgage.
If you can live with one for now and maintain the other you and your family will get through this.
In the meantime you already have useful skills and perhaps you could consider upskilling to improve your chances of getting a job, if the economic climate improves as its meant to do in Q3 this year.

HTH

ONQ.


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## Bronte

*Re: Change the law on bankruptcy for those in serious negative equity?*



Magpie said:


> Not only are we trapped in negative equity, we also have to put up with constantly being told its our own fault, and how stupid we are.  You don't have to keep kicking us when we are down though.


 
Not everybody things it was ordinary people's fault.  There should be a Nama for the people same as there is for the banks.  

Personally I think you'd be better off walking away from the house, I think people haven't got to the reality of the negative equity and that no matter how hard they try they will be paying for the rest of their lives.  Far better off to hand back the keys and let the banks do what they can, then at least it gets sorted in a year or so and you don't have it hanging around your neck until retirement.  If your only asset is your home what can the bank do to you, what is the absolute worst they can do, would it be worse than what you have now?  Do you want to be trapped until you are in retirement?


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## Afuera

*Re: Change the law on bankruptcy for those in serious negative equity?*



Bronte said:


> Far better off to hand back the keys and let the banks do what they can, then at least it gets sorted in a year or so and you don't have it hanging around your neck until retirement.  If your only asset is your home what can the bank do to you, what is the absolute worst they can do, would it be worse than what you have now?


Your suggestion is not possible in Ireland. Should a bank take bankruptcy proceedings against someone who defaults, they can have recourse to future income. I think that maybe after 12 years the slate can be cleaned, but it is likely that going through such a procedure would greatly limit a person's ability to ever borrow again.

The sad fact is that the quickest way for someone in Magpie's situation to become financially solvent is to emigrate and default on everything here.


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## Afuera

carpin taxt said:


> Negative equity only becomes an issue when you try to sell your house. If you're happy to live in the house that you bought and can afford the mortgage repayments, the fact that your house is in "negative equity" should be irrelevant.


This is a common misconception. Negative equity is also a problem for the general economy, in that it reduces the amount of disposable income out there. 

Those that are in negative equity end up spending a lot more income over their lives servicing the costs of a property than the younger generation that come after them.

That income could have been used for productive means, such as starting businesses or investing, instead of paying back financial debt. It could represent a big opportunity cost.

If the percentage of people in negative equity is high enough, you can reach a stage where there is little to no investment happening in the economy, and hence no future growth is possible. In effect it can cause it to become  a "zombie" economy.


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## salvidor

*Re: Change the law on bankruptcy for those in serious negative equity?*



Bronte said:


> Far better off to hand *back* the keys and let the banks do what they can



I have heard this idea of "handing *back* keys to the bank" a few time and as well as it not being possible within the current bankruptcy laws, the idea that they were the banks in the first place to be handed back to amazes me.

The property was bought off someone else, not the bank - should I go out and find them and hand the keys *back*??

I do think that something needs to be done to allow those with no prospect of paying off there debt to walk away from it - in the order of declaring (reformed) bankruptcy, similar to what has been outlined above - 5 years (or more?) to pay off what you can and then start again - and you get wiped out and start with a clean slate - completely.  This would need proper administration to ensure that it is not used as a financial planning tool by some.  And you only ever avail of it once...

I know that there is definitely the possibility of abuse here, in that I buy the house, car, yacht, run up 10K each on 5 credit cards etc - and I don't have an answer to this - maybe there is a process which reviews all cases and deems which are legit and which are not...?  More mine fields, I know!


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## Papercut

Afuera said:
			
		

> This is a common misconception. Negative equity is also a problem for the general economy, in that it reduces the amount of disposable income out there.



It’s not a misconception in the context in which *carpin taxt* mentioned. 

  If a person takes out a mortgage on a property & has no intention of selling that property, their disposable income is not affected by property prices, only by interest rates if they are on a variable rate or changes in personal circumstances (unemployment, reduced working hours etc) They took out a loan which they are repaying. They still have the same disposable income (allowing for inflation, wage cuts, interest rates etc).

  Negative equity only comes into play when their income is reduced to a point where they cannot afford to make their mortgage repayments, & are forced to sell their home, which is now worth less than their outstanding mortgage. So if a person’s circumstances haven’t changed & have no intention of moving, negative equity is _not_ an issue, & they don't give two hoots about it.


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## callybags

Papercut said:


> It’s not a misconception in the context in which *carpin taxt* mentioned.
> 
> If a person takes out a mortgage on a property & has no intention of selling that property, their disposable income is not affected by property prices, only by interest rates if they are on a variable rate or changes in personal circumstances (unemployment, reduced working hours etc) They took out a loan which they are repaying. They still have the same disposable income (allowing for inflation, wage cuts, interest rates etc).
> 
> Negative equity only comes into play when their income is reduced to a point where they cannot afford to make their mortgage repayments, & are forced to sell their home, which is now worth less than their outstanding mortgage. So if a person’s circumstances haven’t changed & have no intention of moving, negative equity is _not_ an issue, & they don't give two hoots about it.


 
I agree 100% with this.

This is more or less the position I am in, and since I have no intention of moving in the foreseeable future, I don't have a clue whether I am in negative equity or not (probably am) as I have not been remotely interested in property prices in my area. 

I count myself very lucky to be in this position.


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## Afuera

Papercut said:


> Negative equity only comes into play when their income is reduced to a point where they cannot afford to make their mortgage repayments, & are forced to sell their home, which is now worth less than their outstanding mortgage. So if a person’s circumstances haven’t changed & have no intention of moving, negative equity is _not_ an issue, & they don't give two hoots about it.


While this may make a nice soundbite in the press, it is not backed up by fact. In all instances, negative equity affects the quality of life you can afford compared to your neighbors.

Take an example of two people with the same job and wages, living in the same type of house in the same area, but where one bought in 2007 and the other in 2010. The person who bought in 2010 will be wealthier and able to pay for a better quality of life than the person who bought in 2007. Moreover, they will have excess disposable income that could be invested in a productive part of the economy.

The worst thing, is that this will continue for the life of the mortgage. The person who bought in 2007 will be paying more of their life's earnings for a roof over their head than the person who bought in 2010.

I'm sorry, it may be unpopular to say it, but it is too blinkered a view to only focus on how negative equity affects a person when they have to sell.


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## callybags

Afuera said:


> I disagree. In all instances, negative equity affects the quality of life you can afford compared to your neighbors.
> 
> Take an example of two people with the same job and wages, living in the same area, but where one bought in 2007 and the other in 2010. The person who bought in 2010 will be wealthier and able to pay for a better quality of life than the person who bought in 2007.
> 
> The worst thing, is that this will continue for the life of the mortgage. The person who bought in 2007 will be paying more of their life's earnings for a roof over their head than the person who bought in 2010.
> 
> *It is too blinkered a view, to only focus on how negative equity affects a person when they have to sell*.


 
How can a person be affected by what their neighbour paid for their house?


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## Sunny

Afuera said:


> While this may make a nice soundbite in the press, it is not backed up by fact. In all instances, negative equity affects the quality of life you can afford compared to your neighbors.
> 
> Take an example of two people with the same job and wages, living in the same type of house in the same area, but where one bought in 2007 and the other in 2010. The person who bought in 2010 will be wealthier and able to pay for a better quality of life than the person who bought in 2007. Moreover, they will have excess disposable income that could be invested in a productive part of the economy.
> 
> The worst thing, is that this will continue for the life of the mortgage. The person who bought in 2007 will be paying more of their life's earnings for a roof over their head than the person who bought in 2010.
> 
> I'm sorry, it may be unpopular to say it, but it is too blinkered a view to only focus on how negative equity affects a person when they have to sell.


 
That just reflects the fact that someone bought an asset for cheaper and probably has less of a mortgage.
Thats not negative equity though. Negative equity affects your net worth. It doesn't affect your disposable income. (unless you try and pay your mortgage quicker to get out of negative equity)


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## Afuera

callybags said:


> How can a person be affected by what their neighbour paid for their house?


I'm not saying they are directly affected by their neighbor's actions per se. I am just pointing out that comparatively, the person in negative equity will be worse off, even if they have no intention of selling.

I guess there is also the danger that a floor on wages will be dictated by those that are not in negative equity and have more room to accept cuts.


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## Sunny

Negative equity means that the outstanding mortgage is greater than the value of the house. It has absolutely nothing to do with the affordability of the mortgage or disposable income.


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## Afuera

I know what negative equity is thanks very much.

Since someone in negative equity has invariably overpaid for a property, this has ongoing repercussions to them. If it is funded by long term debt, such as a mortgage, it will be a drain on their cash flow into the future.


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## callybags

How can you say they have "overpaid" for the property, just because it is in negative equity.

Does that mean that everyone that buys a car overpays for it?


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## Sunny

Afuera said:


> I know what negative equity is thanks very much.
> 
> Since someone in negative equity has invariably overpaid for a property, this has ongoing repercussions to them. If it is funded by long term debt, such as a mortgage, it will be a drain on their cash flow into the future.


 
 Everyone who takes out a long term mortgage will have a drain on their cash flow. What has that got to do with negative equity?

You are talking about people with different size mortgages. That is a different argument to the effects of negative equity.


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## annR

Afuera said:


> The worst thing, is that this will continue for the life of the mortgage. The person who bought in 2007 will be paying more of their life's earnings for a roof over their head than the person who bought in 2010.
> 
> I'm sorry, it may be unpopular to say it, but it is too blinkered a view to only focus on how negative equity affects a person when they have to sell.


 
That's not negative equity you're talking about, that's just the fact that one person has a higher mortgage than their neighbour because the house cost more when they bought it.  It's tough but nobody is going to help them with that - after all nobody guaranteed them prices wouldn't fall - that was a risk they took on themselves.


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## Afuera

callybags said:


> How can you say they have "overpaid" for the property, just because it is in negative equity.


It is difficult to be in negative equity unless you have paid over the odds.



callybags said:


> Does that mean that everyone that buys a car overpays for it?


Cars as an asset class in unusual due to extremely high cost of ownership.


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## Afuera

Sunny said:


> You are talking about people with different size mortgages. That is a different argument to the effects of negative equity.


They are two sides of the same coin though.

As an illustration, take for example a recently built estate somewhere in Ireland. Those in negative equity will have to have larger mortgages than their neighbors.


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## Afuera

annR said:


> after all nobody guaranteed them prices wouldn't fall - that was a risk they took on themselves.


What about all the "economists" talking about a soft landing?


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## Shawady

Some people are in negative equity, but because interest rates have been slashed are actually better off financially in regards disposable income.
The big problem is whether people will be able to move or not in the coming years. This will mean a reduction in stamp duty but the government may move to an annual property tax soon anyway.

I have friends that bought 1-bed apartments at the height of the boom as starter homes. Now they are in a position where they might want to start a family but cannot move and may not want to raise a family in a small apartment. So the long term consequences may be more social than financial for some people.


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## Papercut

Afuera said:
			
		

> It is too blinkered a view, to only focus on how negative equity affects a person when they have to sell.


   I wasn’t actually focusing on how negative equity affects a person when they have to sell. You clipped off the bit where I mentioned context & you are focusing on a person's neighbours rather than the person themselves – which is twice as blinkered IMO. You can't expect to be approved for a mortgage merely because your neighbour has been, you can't expect to fit into a size ten purely because your neighbour has either. That's just the way life is I'm afraid.


			
				Afuera said:
			
		

> I disagree. In all instances, negative equity affects the quality of life you can afford compared to your neighbors.



You use an extreme example. The exact same example could be used to demonstrate the affects on quality of life for those in positive equity. Time has never stood still. Neither have house prices. The purchase example could also be used in relation to a tee-shirt, a dvd player or a package holiday (at the exact same time). Getting hung up on how much someone else paid for an item     is fruitless as you are not walking in their shoes. It’s better to live your own life according to your own means & accept the choices you have made.

The fact is that the majority of home owners are unaffected by negative equity. You may choose to believe otherwise, which is your right.


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## Magpie

Afuera said:


> It is difficult to be in negative equity unless you have paid over the odds.



It wasn't over the odds at the time, it was the going rate. The odds change, thay are somewhat arbitrary.


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## Howitzer

Conversely 2 people may have paid the same price for 2 houses beside each other. They may both have paid over the odds, but only 1 one is in negative equity. Riddle me that.

100% mortgages. Interest Only mortgages. Payment holidays. Mortage top-ups.

All of these were lifestyle choices. There are consequences to lifestyle choices. As it turns out Negative Equity can be one.

People may have been encouraged to make these choices, but they were their choices nonetheless.



Brendan said:


> People buying their first home have very big expenses in the first few years. I recommend that they start with an interest-only mortgage.


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## salvidor

Shawady said:


> So the long term consequences may be more social than financial for some people.



This also holds true for people who bought further from their place of work, with a view to trading up to a closer location.


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## Sunny

Howitzer said:


> .
> 
> 100% mortgages. Interest Only mortgages. Payment holidays. Mortage top-ups.


 
Whatever about the others being lifestyle choices, I do actually have a problem with 100% mortgages. It was the most blatant mis-selling of a financial product I have ever seen in retail banking. What's worse is that is was openly done with the Financial Regulators approval.

I do agree about personal repsonsibility though.


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## Shawady

salvidor said:


> This also holds true for people who bought further from their place of work, with a view to trading up to a closer location.


 
True, and the over-supply of property is going to be more of a problem outside of Dublin.
http://www.rte.ie/business/2010/0305/housing.html


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## Howitzer

Sunny said:


> Whatever about the others being lifestyle choices, I do actually have a problem with 100% mortgages. It was the most blatant mis-selling of a financial product I have ever seen in retail banking. What's worse is that is was openly done with the Financial Regulators approval.
> 
> I do agree about personal repsonsibility though.


I don't understand how it's mis-selling. They applied for a 100% loan and that's what they got. In reality all it did was normalise the situation where people previously got their deposits from the credit union.

I don't really see it as being much different from the others as a lifestyle choice.

"I want a house today. Why save? Get a 100% mortgage - it's your life, live it your way."

Or some such nonsense. I'm sure there were a couple of adds along those lines. The "Your place or mine" ones spring to mind. They were all nonsense. But so is most marketing. Where was the mis-selling? If ugly Irishmen could sue a bank because getting an apt didn't turn them into Casanova I think we're really in trouble.


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## Sunny

It was mis-selling because that product was designed for certain people. It was never meant to be widely available. When First Active introduced the product, many commentators raised objections. First Active's and the regulators response was that it would not be widely available and would only be suitable for people in certain professions. Within days, First Active were handing out flyers on O'Connell St and advertising on the back of buses. All the other banks jumped on the bandwagon and the Financial Regulator kept their mouth shut. Eventually they realised the danger and attempted to make the banks hold more capital against the mortgages. So if takes our Financial Regulator so long to see the dangers in the product, what chance does some 24 year old bricklayer have?

It is no different to selling investment products to people. Sometimes people need to be protected from their own ignorance when it comes to finance. Thats why we have consumer law and regulators.


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## Howitzer

I would say it's poor regulation rather than mis-selling. If it wasn't within the confines of the regulations it would be mis-selling - the issue is that is was, and was widely available.


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## canicemcavoy

Sunny said:


> Sometimes people need to be protected from their own ignorance when it comes to finance. Thats why we have consumer law and regulators.


 
That's the problem with mortgages; it involves people who are for the most part, financially illiterate, and in some case, intellectually deficient, making a decision to spend 10 times or more their annual salary on a single item. Some people need to be protected from themselves, since society ends up paying for their mistakes.


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## onq

Afuera said:


> While this may make a nice soundbite in the press, it is not backed up by fact. In all instances, negative equity affects the quality of life you can afford compared to your neighbors.
> 
> Take an example of two people with the same job and wages, living in the same type of house in the same area, but where one bought in 2007 and the other in 2010. The person who bought in 2010 will be wealthier and able to pay for a better quality of life than the person who bought in 2007. Moreover, they will have excess disposable income that could be invested in a productive part of the economy.
> 
> The worst thing, is that this will continue for the life of the mortgage. The person who bought in 2007 will be paying more of their life's earnings for a roof over their head than the person who bought in 2010.
> 
> I'm sorry, it may be unpopular to say it, but it is too blinkered a view to only focus on how negative equity affects a person when they have to sell.



You seem to be confusing a difference in the price paid with negative equity.

The price you paid for the house affects what else you can afford to buy - kids learn this playing Monopoly.

Even in the example you cite, prices actually rose from 2007 to 2008.

If your income falls for whatever reason, difficulties in paying a large mortgage arise whether the house is in positive equity or not.

Negative equity means your house is worth less than the outstanding mortgage amount.

The definition of Negative equity is the same whether you're a millionaire or on the dole, whether you've played the markets of been played by them.

ONQ.


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## onq

canicemcavoy said:


> That's the problem with mortgages; it involves people who are for the most part, financially illiterate, and in some case, intellectually deficient, making a decision to spend 10 times or more their annual salary on a single item. Some people need to be protected from themselves, since society ends up paying for their mistakes.



I got to know a guy who was renting an apartment as opposed to buying a house and who was putting some of what he had left over into financing his studies for a masters degree.

He didn't understand other peoples' preoccupation with owning a house.

I couldn't understand then why he didn't see the security in owning his own home.

I can't say I'm feeling too secure now, I know a lot of people who are definitely feeling insecure and I know some who are downright panicky.

Meanwhile, my man in the apartment has a secure job, a steady income [not huge] and a maturing pension fund.

His example may be a life changing example for some of us to consider so I pass it on.

ONQ.


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## onq

Howitzer said:


> I would say it's poor regulation rather than mis-selling. If it wasn't within the confines of the regulations it would be mis-selling - the issue is that is was, and was widely available.



I don't understand the term mis-selling and I note your discrimination between whatever it is and something "poorly" regulated, although again the term means very little to me.
I am wary of any assertion which others could use to set the stage for the fig leaf of regulation as a means of denying liability.

The risk of 100% mortagages during periods of low interest cannot be adequately assessed by lay people.
It is manifestly the duty of the lender to uphold their fiduciary responsibility to the borrower or face charges of negligence.

Financial Institutions had been acting as professional guardians of "your best interest"  for years prior to the noughties.
This oversight was something they invoked when assessing loan applications for the benefit of the applicant.
It allowed them to make a fair assessment of the applicant's ability to re-pay the sum borrowed.

I have no problem with financial institutions being professional and setting limits on what people can obtain in terms of personal finance or loans.
But this precedent of good practice for years highlights the shortcoming of recent practices.
The financial institutions cannot now disavow responsibility for the current crisis.

All the advertisements finishing with "XXXX is a company regulated by the financial regulator" were particularly misleading.
It gave a sense that all of the lending activity was being overseen by people who knew what was going on.
It put a gloss of competence on the activity of unrestrained, unqualified lending by financial institutions.

One official I know confirmed the problem to me succinctly: "We went from lending money to selling money".
I'd add "in a manner which was largely unregulated and failed to protect the consumer."

Now the blue chip investments that were our banks have failed us, just like the other pillars of society - the government and the church.
As a people and a nation we are thrown back on our resources of intelligence, creativity and good humour.
Perhaps the best is yet to come, if only we can spend a few quid to get our economy moving again.
And in that our financial institutions will have to have their duty spelt out to them in clear terms.

Chin up, everyone.

ONQ.


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## annR

Shawady said:


> Some people are in negative equity, but because interest rates have been slashed are actually better off financially in regards disposable income.
> The big problem is whether people will be able to move or not in the coming years. This will mean a reduction in stamp duty but the government may move to an annual property tax soon anyway.
> 
> I have friends that bought 1-bed apartments at the height of the boom as starter homes. Now they are in a position where they might want to start a family but cannot move and may not want to raise a family in a small apartment. So the long term consequences may be more social than financial for some people.


 
Shawady, I agree.  And even people who are not in negative equity might find it difficult to move.  We are not in negative equity and hope to trade up sometime in the next 5 years.  However I am looking around at the houses in my estate which have been on the market for a couple of years and wondering if we will be able to sell the house at all.


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## onq

annR said:


> Shawady, I agree.  And even people who are not in negative equity might find it difficult to move.  We are not in negative equity and hope to trade up sometime in the next 5 years.  However I am looking around at the houses in my estate which have been on the market for a couple of years and wondering if we will be able to sell the house at all.



We sold two houses to buy one in 2001-2002.

The market slumped as 2001 wore on.

Eventually the lady whose "tough love" advice had helped sell one house advised us to drop our price from 180K to 164.5K on the second because that was .5K lower than a house that wasn't in as good condition which had been on the market for eight weeks.
I went mental at the thought of "losing" so much money, but Margaret laughed and reminded me that it wasn't "my" money - it was money I hoped to get.
We followed her advice and had a firm offer in two weeks.
Assuming there is ANY market, there is always a price point at which a good - or a house - may be sold.

HTH

ONQ.


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## Bronte

Howitzer said:


> I don't understand how it's mis-selling. They applied for a 100% loan and that's what they got. In reality all it did was normalise the situation where people previously got their deposits from the credit union.
> 
> .


 
You're forgetting that they then got a credit union loan to buy a state of the art kitchen, manicured lawn and brand new 4X4, not forgetting the holiday of a lifetime in Dubai.


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## Bronte

*Re: Change the law on bankruptcy for those in serious negative equity?*



Afuera said:


> Your suggestion is not possible in Ireland. Should a bank take bankruptcy proceedings against someone who defaults, they can have recourse to future income. I think that maybe after 12 years the slate can be cleaned, but it is likely that going through such a procedure would greatly limit a person's ability to ever borrow again.
> 
> The sad fact is that the quickest way for someone in Magpie's situation to become financially solvent is to emigrate and default on everything here.


 
It's interesting that nobody has given a concrete solution to Magpie's situation.

If you have a low salary, one income, kids, house too small, massive negative equity, on interest only, 40 year mortgage are you better off to stay and keep paying, how long before you would ever get to the end of it before you could sell. Never.

Would you not be better off to hand back the keys and let the banks do what they will, what exactly can they do to you if you have one low income and a wife and 2 or 3 kids. People say they can go after your salary for 12 years, so what, they can only go after what is left after you provide for your family and you'd be better off renting a proper decent family home on your income than staying put and ending up paying the bank for the rest of your life and getting nowhere while living in a house too small for your needs and living with the thought that you can never get out of the financial mess. I'd rather have the 12 years of pain and knowing it will end than have the thought that it will never come to an end.

Everybody is making great big assumptions that one of these years property is going to come back and that will sort out the property mess. Well I don't think it's going to happen, the banks are massaging the figures of the amount of people in a financial mess and the builders are hiding property, waiting for NAMA and when this all comes out, well we're not allowed to discuss property prices so I won't say what I think will happen then.

We'll see soon who are the fools in the current situation, those who try and pay their way out of the mess or those who were on Paddy O' Gorman last week handing back the keys.


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## Sunny

*Re: Change the law on bankruptcy for those in serious negative equity?*



Bronte said:


> It's interesting that nobody has given a concrete solution to Magpie's situation.
> 
> If you have a low salary, one income, kids, house too small, massive negative equity, on interest only, 40 year mortgage are you better off to stay and keep paying, how long before you would ever get to the end of it before you could sell. Never.
> 
> Would you not be better off to hand back the keys and let the banks do what they will, what exactly can they do to you if you have one low income and a wife and 2 or 3 kids. People say they can go after your salary for 12 years, so what, they can only go after what is left after you provide for your family and you'd be better off renting a proper decent family home on your income than staying put and ending up paying the bank for the rest of your life and getting nowhere while living in a house too small for your needs and living with the thought that you can never get out of the financial mess. I'd rather have the 12 years of pain and knowing it will end than have the thought that it will never come to an end.


 
Under the current system in Ireland, you would never get a credit card, personal loan, overdraft or any other sort of credit again even after the 12 years are up. The whole point is that at the moment, there is no end to the consequences of personal bankruptcy so handing back the keys and getting on with your life is not possible.


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## Bronte

*Re: Change the law on bankruptcy for those in serious negative equity?*



Sunny said:


> Under the current system in Ireland, you would never get a credit card, personal loan, overdraft or any other sort of credit again even after the 12 years are up. The whole point is that at the moment, there is no end to the consequences of personal bankruptcy so handing back the keys and getting on with your life is not possible.


 
How does that work?  You are put on a blacklist for life?


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## Joey99

Maybe this is not obvious but an effective bankruptcy reform will go along way toward solving the negative equity problem to the extent it needs to be solved. If banks know they have to deal sensibly with a borrower who cannot afford  the mortgage that will be a big step forward. A scheme to allow people to roll over and carry forward their negative equity to a new home would also be a big plus.


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## Magpie

carpin taxt said:


> It's been stated before, and this is a fundamental issue here, but mortgage affordability and negative equity are two separate issues! Negative equity simply means your house is now worth less than the price you paid for it. It does not impact on the amount of your existing mortgage payments in any way shape or form.



They are not seperated if you can no longer afford to pay your mortgage, as being in negative equity means you cannot sell the house and clear your mortgage!


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## canicemcavoy

Magpie said:


> They are not seperated if you can no longer afford to pay your mortgage, as being in negative equity means you cannot sell the house and clear your mortgage!


 
You appear to be confusing association with causality.


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## Magpie

canicemcavoy said:


> You appear to be confusing association with causality.



I'm really not. Mortgage affordability and negative equity may or may not be connected depending on individual circumstances.


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## Howitzer

carpin taxt said:


> true, but the solutions being suggested do not apply to individual situations. What has been discussed is a blanket solution for everyone in negative equity, as if negative equity itself was the problem.
> 
> If someone has lost their job and can no longer afford their mortgage, i have every sympathy, but their are a number of protections already in place, not least a moratorium on repossessions, directed by the government. Plus banks, provided the mortgage holder is engaging with them, are sure to be sympathetic to situations such as the one you describe.
> 
> However, if someone has a house that is now worth less than the outstanding mortgage but can continue to pay their mortgage, there is no reason for them to be bailed out, which is what is being mooted under a _nama for homeowners_.


+100


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## Bobbyg

Just curious if this would work of if banks/developers would even consider it.

You have an apartment that is in negative equity with no problems covering the repayments and both of the couple have stable jobs. You now would like to buy a house but can not move because you are in negative equity.

Would a developer consider taking your current apartment as part payment? i.e. you give your apartment + cash for the new house, and would the bank allow you top up your current mortgage to make up the difference?

Probably a stupid question but I was just curious.


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