# Negative equity and increased repossessions



## bond-007 (25 Oct 2008)

Lets say in a worst case scenario where negative equity got worse and loads I mean thousands were in trouble and facing repossession what would happen. What would the banks do? Surely there would not be enough people around to buy these houses. 

Would they still repossess houses in a market where there are no buyers?


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## mercman (25 Oct 2008)

Isn't this happening at the moment. Homes are simply not selling at present.


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## bond-007 (25 Oct 2008)

But banks are not yet chucking people out of their homes by the 100 yet.


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## mercman (25 Oct 2008)

Not yet. However when the Bank Management start vacating their own homes then the fun will start. Sure they will repossess homes -- only after all avenues have failed. Somebody said to me yesterday that they wouldnot be surprised to see a further reduction in House prices of 20% and they could be so right.


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## Towger (26 Oct 2008)

bond-007 said:


> But banks are not yet chucking people out of their homes by the 100 yet.


 
There are two problems with chucking people out:

1. It is hard and expensive to do in Ireland.
2. If things really get bad there is no point in chucking people out, the bank won’t be able to sell the house for any reasonable amount of money. So they are better off leaving them there and getting some repayment/rent in the hope of better days to come. This to some extent depends on the amount of money owed and the location of the property. You will always be able to sell a good property in a good location.


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## LDFerguson (27 Oct 2008)

bond-007 said:


> Lets say in a worst case scenario where negative equity got worse and loads I mean thousands were in trouble and facing repossession what would happen. What would the banks do? Surely there would not be enough people around to buy these houses.
> 
> Would they still repossess houses in a market where there are no buyers?


 
Can we make something clear?  Negative equity arises when the value of your property drops below the outstanding loan secured on it.  If you can keep up your mortgage repayments and are happy living in your home, it has no effect on you.  

It's only when people stop paying their monthly loan repayments for a prolonged period that the banks begin lengthy proceedings to repossess the house.


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## bond-007 (27 Oct 2008)

I understand that. 

What is for certain, more and more people will get into trouble as job losses get worse. And when the banks take the houses back there will be shortfalls.


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## camlin90 (27 Oct 2008)

bond-007 said:


> What would the banks do? Surely there would not be enough people around to buy these houses.
> 
> Would they still repossess houses in a market where there are no buyers?



"Market with no buyers" is a myth. Maybe it exists for video cassette recorders and gramophones - but houses aren't obsolete just yet.

Banks will just be forced to sell the houses at their fundamental values. 
In other words, a three-bed mid-terrace in a respectable area will sell for around 5 times average industrial wage. In Dublin, that's around 200K.

Plenty of people about with cash on deposit, waiting for the staring contest to end.  Capitulation of sellers is inevitable.
The smart buyers with the cash are in no rush. Each day they wait, the interest accumulates on their deposits. When the floodgates of repossessions open, they will make the market.

It happened in the UK. Ireland is not different.


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