# Have we learnt nothing from the last property collapse?



## tallpaul (21 Oct 2022)

I'm going to rant/generalise.

It seems that the next generation coming along still seem to have the same fixation as previous ones that any surplus cash should be chucked into second and third houses on the blind assumption that they will appreciate in value/earn easy high rents even if the purchaser has high levels of exiting debt!! 'Sure how hard can it be? 2K a month for doing nothing, It'll pay for itself in a few years' It is original posts like this that makes my blood boil.

When will people learn to live within their means (as someone once said...) and get about the business of reducing their existing debt without getting into more hock and putting all their eggs into one Irish property basket?? Not forgetting the unremitting hell that being a landlord in Ireland seems to be at present. Has the OP even CONSIDERED the direction of interest rates/inflation over the next five years? 

I'm convinced, now more than ever, that budgeting/debt management should be drummed into children in school


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## NoRegretsCoyote (21 Oct 2022)

tallpaul said:


> When will people learn to live within their means (as someone once said...) and get about the business of reducing their existing debt without getting into more hock and putting all their eggs into one Irish property basket??


Records began fifty years ago and since then inflation adjusted property prices have increased by 250%. This is a real gross annual return of 3.5%. That's before depreciation of course but ignores rents.

Yes, it was a rollercoaster but three periods of big gains and only two periods of losses.

*Irish property is not riskless but if you have the stomach to stay in it for at least two decades you will get a return.*


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## Paul F (21 Oct 2022)

NoRegretsCoyote said:


> Yes, it was a rollercoaster but three periods of big gains and only two periods of losses.


Only two periods of losses _so far_


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## NoRegretsCoyote (21 Oct 2022)

Paul F said:


> Only two periods of losses _so far_


Half a century is a lifetime investment horizon for most people.

I don't know of any housing market in a developed economy where anyone has made a capital loss on residential property over the span of two decades.

Ireland is more volatile than most places, but returns are there if you have the patience.


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## Protocol (21 Oct 2022)

Maybe an excessive bias towards property investment by individuals is *rational*?

As long as you can manage negative cashflows, leverage/BTLs seems to allow people to do well buying second and third houses.

The high and complicated taxes on owning shares / funds / EFTs don't help.

What really encourages people is the idea that they just need a 20% deposit, and then "*somebody else will pay the mortgage*".

Put 20% down, and as long as you are the type of person who can be a landlord, and as long as you can deal with negative cashflows to repay the capital, then the tenant pays most of the mortgage, and you have an asset after 25 years.


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## tallpaul (21 Oct 2022)

Thanks to the mods for moving this.

I'm not doubting for a second that holding onto a house for 25 years will not make a return on an investment. Far from it.

However my point is that someone with 29 years left on their mortgage and a debt of €275K and who has a lump sum available seems to instinctively think that another property and more debt is a better idea than running down the balance of what they currently owe. It also completely ignores life's normal risks of unemployment/ill health etc. I don't believe it is a wise or prudent course of action.

Actually on a re-read it is even worse. The lump sum is only €20K!! To use as a deposit to get into further debt of €250K to owe over half a million...

Perhaps I'm just old fashioned...


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## jfrank (21 Oct 2022)

tallpaul said:


> Thanks to the mods for moving this.
> 
> I'm not doubting for a second that holding onto a house for 25 years will not make a return on an investment. Far from it.
> 
> ...


I certainly would be of a similar mind to you. I did not invest in Ireland in the 00s boom but then again, I suppose I missed out.... who knows. At least now my mortgage is fully paid off and just one daughter with two more years in Uni. I would like to think I am off the hook at that stage.


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## Purple (21 Oct 2022)

NoRegretsCoyote said:


> Records began fifty years ago and since then inflation adjusted property prices have increased by 250%.


I'd guess most assets linked to the Irish economy have grown significantly in the last 50 years. We were a basket case back. I think the growth rate in the last 20 years is more informative.


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## Purple (21 Oct 2022)

tallpaul said:


> Thanks to the mods for moving this.
> 
> I'm not doubting for a second that holding onto a house for 25 years will not make a return on an investment. Far from it.
> 
> ...


Crashed happen not when risky assets become riskier but when safe assets become risky.
It was property last time, it'll probably be bonds this time but it will be something and Ireland's property market is far more plugged in to the international market now than it was in 2008.


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## Boyddbookman (21 Oct 2022)

NoRegretsCoyote said:


> Half a century is a lifetime investment horizon for most people.
> 
> I don't know of any housing market in a developed economy where anyone has made a capital loss on residential property over the span of two decades.
> 
> Ireland is more volatile than most places, but returns are there if you have the patience.


Certain parts of France have performed very poorly over 2 decades.  While there is always the risk of having paid over odds initially, certainly there are areas that have not provided any return when one factors in Net Present Value of Current Market Value (over a 20 year period, this can easily reduce current values by 60% in real terms, that is why I like an IRR measure so much as it "normalises" today's value of your EURO against the present day notional value of your original investment).  Include property taxes at an assumed 0.6% per year that is another 12% erosion over a 20 year period.... the remaining 20% is a 1% increase over a 20 year period.   Hardly stellar.

Across a small portfolio of properties in Ireland (based outside Dublin), capital growth over a 15 year period ranges from 3% or 4.75% NET (Risk adjusted present value net of all costs).  Has traditionally kept ahead of inflation... but not if inflation continues to run above 5%.   I can't see much return by way of capital growth left in BTLs in Ireland and the taxation structure is prohibitive for the BTL revenue model.


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## Sunnygirl69 (21 Oct 2022)

tallpaul said:


> I'm going to rant/generalise.
> 
> It seems that the next generation coming along still seem to have the same fixation as previous ones that any surplus cash should be chucked into second and third houses on the blind assumption that they will appreciate in value/earn easy high rents even if the purchaser has high levels of exiting debt!! 'Sure how hard can it be? 2K a month for doing nothing, It'll pay for itself in a few years' It is original posts like this that makes my blood boil.
> 
> ...


I'm not sure what is the 'next generation'  for you TallPaul but for me the next generation, are unable to get on the property ladder at all. This includes my children & most of their friends. So no I don't think they need to be taught anything like that in school..... They see 1st hand how government housing policy has failed them!


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## cremeegg (21 Oct 2022)

tallpaul said:


> I'm going to rant/generalise.
> 
> It seems that the next generation coming along still seem to have the same fixation as previous ones that any surplus cash should be chucked into second and third houses on the blind assumption that they will appreciate in value/earn easy high rents


It's not a blind assumption, it is a lesson from history, a bitter lesson if you were on the wrong side of it.


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## DazedInPontoon (21 Oct 2022)

NoRegretsCoyote said:


> Records began fifty years ago and since then inflation adjusted property prices have increased by 250%. This is a real gross annual return of 3.5%. That's before depreciation of course but ignores rents.


I've been thinking about historic trends a lot lately, and how the older I get the smaller those sample sizes feel like, especially given the rate at which the world is changing and how long cyclical behaviour can be. I'm not saying you're wrong, but I would question whether 50 or even 100 years of data is enough to be predictive of the future.

Longer time frames like https://en.wikipedia.org/wiki/Strauss–Howe_generational_theory are becoming more interesting to me.


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## NoRegretsCoyote (21 Oct 2022)

Boyddbookman said:


> Certain parts of France have performed very poorly over 2 decades.


Perhaps, but my benchmark was "no capital loss over two decades" and for France you'll see that was never remotely the case.


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## Gordon Gekko (21 Oct 2022)

tallpaul said:


> Thanks to the mods for moving this.
> 
> I'm not doubting for a second that holding onto a house for 25 years will not make a return on an investment. Far from it.
> 
> ...


Maybe you are old fashioned.

Risk assets deliver returns.

What if someone has 29 years left on their fixed rate mortgage, has already maxed out their AVCs and their fixed rate overpayment, and already has an emergency fund?


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## Paul F (22 Oct 2022)

Gordon Gekko said:


> What if someone has 29 years left on their fixed rate mortgage, has already maxed out their AVCs and their fixed rate overpayment, and already has an emergency fund?


That would be a strong financial position by most reckonings – although even then an emergency fund will only see you through a period of hardship for a few months.

Also, "maxing out your fixed rate overpayment" might or might not be a limit that exists: even if your lender only lets you make, say, a 10% overpayment per year without penalty, it is often the case that the penalty for an overpayment beyond the 10% limit is very low or even zero. In the case where there is no penalty, if you have an interest rate of 2.5% on your mortgage, making an overpayment is the same as having a _tax-free, risk-free_ investment that returns 2.5% per annum.

What this overpayment approach doesn't give you that a buy-to-let does is leverage. If you have a "spare" 90k – and assuming there are no break fees for overpaying – you can overpay your mortgage and earn 2.5% (on €90k) per annum. Or you can get a ~€300k buy-to-let (with a €210k mortgage) and earn 3.5%?? ± ???% over the long term (on €300k). So the BTL approach (which in this case relies on borrowing) lets you invest €300k – instead of €90k if you overpay the mortgage on your home.

The returns on a BTL, as with all investments, are unpredictable. We don't know if a 3.5% return over the long term into the future is a reasonable assumption.

[Edit: The 3.5% figure comes from NoRegretsCoyote's above post and refers only to capital gains. The inflation-adjusted gross annual return on property in Ireland over the last _fifty_ years was 3.5%, with two periods of large price declines in that time. Any capital gain will be taxed at 33% when you sell. The 3.5% figure does not account for rental income, which for many people is taxed at about 30% to 50% after deducting allowable expenses.]

Leverage (otherwise known as "debt") works both ways: if everything goes in your favour, the BTL will make you a lot more than overpaying your mortgage. If the housing market takes a long downturn, or mortgage interest rates stay high for a long time, you will suffer – in proportion to the extent you are leveraged. If the above "± ???%" troubles you, a BTL probably isn't for you.

One thing that is often lost in many of these discussions is pensions. There is a common perception that pensions are the same as any other investment, e.g., buying shares or having a buy-to-let. But pension contributions (in Ireland) get huge tax relief. Even a pension that does "only OK" will far outperform most investments when you factor in the tax relief. See this post for my attempt to put some numbers on it:





						When to overpay mortgage?
					

I'm 6 months in to a 25 year €265k KBC mortgage at 2.4%. I am allowed overpay by 10% of the mortgage value within the 5 year period. As far as I understand it is a KBC policy not a condition of the mortgage so BOI may not allow.  So I am able to over pay by €26,500 within the next 4.5 years...



					www.askaboutmoney.com
				




The priorities for most people should usually be:

Paying off expensive debt (credit cards, personal loans, car loans, etc.)
Building up an emergency fund in a savings/current account (3 to 6 months' living expenses)
Saving money for any expenses you will have over the next few years (kids; buying a car; childcare; home renovations; adult children going to college, etc.)
Maxing out your pension contributions
Overpaying your mortgage (or _possibly_ investing in a BTL or shares)
in approximately that order.


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## peemac (22 Oct 2022)

In 2007 a bank would have actively encouraged such a person to buy a property and put themselves into a crazy level of debt.

In 2022 there's no bank that would entertain such a scenario.

And that is good


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## Jim2007 (22 Oct 2022)

NoRegretsCoyote said:


> Records began fifty years ago and since then inflation adjusted property prices have increased by 250%. This is a real gross annual return of 3.5%. That's before depreciation of course but ignores rents.
> 
> Yes, it was a rollercoaster but three periods of big gains and only two periods of losses.
> 
> *Irish property is not riskless but if you have the stomach to stay in it for at least two decades you will get a return.*


And the annualised return of an equity portfolio is around 8%-9% over the same period.  So you are investing in a high risk asset class, failing to diversify and probably borrowing to invest and for all of that you are getting a return of about a 3rd of what is on offer.  There is a reason why Irish households lost more than the average European household in the last recession and it is right in front of you.


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## Jim2007 (22 Oct 2022)

tallpaul said:


> I'm going to rant/generalise.
> 
> It seems that the next generation coming along still seem to have the same fixation as previous ones that any surplus cash should be chucked into second and third houses on the blind assumption that they will appreciate in value/earn easy high rents even if the purchaser has high levels of exiting debt!! 'Sure how hard can it be? 2K a month for doing nothing, It'll pay for itself in a few years' It is original posts like this that makes my blood boil.
> 
> ...


In order to learn from mistakes, people would have to admit that they made them, it's much more comfortable to blame the banks, the government, the bond holders and just about anyone else they can think of.

There is some justification for a mortgage on a home, given the asinine housing policy, but if someone goes beyond I have no sympathy for them - if you do stupid thing you should expect to get burned.


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## NoRegretsCoyote (22 Oct 2022)

Jim2007 said:


> And the annualised return of an equity portfolio is around 8%-9% over the same period.



That's an apples-to-oranges comparison. I only referenced capital gain, not including rental profits.


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## Paul F (23 Oct 2022)

Jim2007 said:


> And the annualised return of an equity portfolio is around 8%-9% over the same period.


I get the impression, based on my reading, that 6%-7% is a more common assumption for the returns on an equity portfolio.


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## DK123 (23 Oct 2022)

As far as i can remember from reading "the cult of the equity" on askaboutmoney a cuple of years ago the annualised return of an equity portfolio in real terms  is around 3 to 4 % over a good number of years say 40 years or more.[Just an observation]


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## Jim2007 (23 Oct 2022)

Paul F said:


> I get the impression, based on my reading, that 6%-7% is a more common assumption for the returns on an equity portfolio.


Even if that is what you feel comfortable with it 50% more than the original return of about 3%.


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## Jim2007 (23 Oct 2022)

DK123 said:


> As far as i can remember from reading "the cult of the equity" on askaboutmoney a cuple of years ago the annualised return of an equity portfolio in real terms  is around 3 to 4 % over a good number of years say 40 years or more.[Just an observation]


If you start out with an under estimate I guess 3%/4% on a single property is OK then.  But if we returned 3% - 4% we'd loose the client.


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## Paul F (23 Oct 2022)

Jim2007 said:


> And the annualised return of an equity portfolio is around 8%-9% over the same period.





Paul F said:


> I get the impression, based on my reading, that 6%-7% is a more common assumption for the returns on an equity portfolio.


Does the 8%-9% annualised return account for inflation?

(I need to ask myself the same question about my 6%-7% estimate.)


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## lff12 (16 Nov 2022)

tallpaul said:


> Thanks to the mods for moving this.
> 
> I'm not doubting for a second that holding onto a house for 25 years will not make a return on an investment. Far from it.
> 
> ...


Its complicated & it assumes that the next 25 years will look a lot like most of the past 50.
If people are willing to be realistic about what kinds of returns they can make, and stick to original plans, its still a good investment for a patient investor. However, I've seen so many rental units on the market that were remortgaged 2 and 3 times in 20 years I can only assume that its too easy to get caught up in hubristic ideas about the sector & assume that what went well 10 years ago still applies. (The "landlords have to flee the market now" is in many ways a reversal of the "what can possibly go wrong" of the height of the Tiger era).

That said, I would put the following learnings down:
- Central Banks more aware of accountability for regulation
- Minimum deposits far higher to avoid high risk
- greater record sharing among lenders to avoid poor credit decisions
- tax evasion has been largely eliminated from the sector
- idea that the regulations in the sector didn't need any enforcement now gone
- more balanced media (I know some will disagree) - I don't remember any time when IPOA were represented as anything but monstrous vultures in the media
- issues relating to minimum standards - when I started renting in the 90s there was a general acceptance that renters had to just "make do" with inferior conditions
- in general, the idea that tenants are somehow deserving of their situation is long gone
- but at the same time, the idea that you are morally entitled to lie to banks in order to get a mortgage at any cost is also long since gone

I think tax enforcement is one of the more underdiscussed factors in the sector and has a lot to do with many changes. (It was far easier to charge low rents and keep a low profile in the days when tax compliance was still poor).


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## Silversurfer (16 Nov 2022)

lff12 said:


> Its complicated & it assumes that the next 25 years will look a lot like most of the past 50.
> If people are willing to be realistic about what kinds of returns they can make, and stick to original plans, its still a good investment for a patient investor. However, I've seen so many rental units on the market that were remortgaged 2 and 3 times in 20 years I can only assume that its too easy to get caught up in hubristic ideas about the sector & assume that what went well 10 years ago still applies. (The "landlords have to flee the market now" is in many ways a reversal of the "what can possibly go wrong" of the height of the Tiger era).
> 
> That said, I would put the following learnings down:
> ...


Just looking at your first point that the Central Bank is more accountable for regulation? My own observation is that there are a large number of ‘trophy cars’ on the road and parked outside very modest homes. Is this personal borrowing or remortgaged money?


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## Purple (17 Nov 2022)

Silversurfer said:


> Just looking at your first point that the Central Bank is more accountable for regulation? My own observation is that there are a large number of ‘trophy cars’ on the road and parked outside very modest homes. Is this personal borrowing or remortgaged money?


It's probably inflated pensions due to QE and the money the  owner didn't eat during the Covid lockdowns.


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## Silversurfer (17 Nov 2022)

Purple said:


> It's probably inflated pensions due to QE and the money the  owner didn't eat during the Covid lockdowns.


Your right. Are you sure it was due to not ‘eating’ or did you mean to say not ‘earning’?


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## fistophobia (17 Nov 2022)

There is no cost of living crisis.
Irish people are still piling into property like its 2006.
A new estate just launched in Enniskerry, Wicklow. All 27 luxury houses sold on day one.


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## Purple (18 Nov 2022)

Silversurfer said:


> Your right. Are you sure it was due to not ‘eating’ or did you mean to say not ‘earning’?


I meant eating. Restaurants etc were closed.


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## David_Dublin (18 Nov 2022)

Silversurfer said:


> Just looking at your first point that the Central Bank is more accountable for regulation? My own observation is that there are a large number of ‘trophy cars’ on the road and parked outside very modest homes. Is this personal borrowing or remortgaged money?


I'm not sure of the relevance of this. U dont know if the house is rented, or the car leased or owned. Or if the person is into cars and not houses. Or the car is a demo and they work for the dealership. You see far more trophy cars in front of trophy houses, whatever that tells us.


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## cremeegg (18 Nov 2022)

fistophobia said:


> There is no cost of living crisis.
> Irish people are still piling into property like its 2006.
> A new estate just launched in Enniskerry, Wicklow. All 27 luxury houses sold on day one.


What do you mean no cost of living crisis, my electricity bill for a large family home for the last 2 months was €59. It cannot go on like this.


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## interested21 (18 Nov 2022)

fistophobia said:


> There is no cost of living crisis.
> Irish people are still piling into property like its 2006.
> A new estate just launched in Enniskerry, Wicklow. All 27 luxury houses sold on day one.


The people buying luxury homes in Enniskerry have the disposable income to absorb the everyday price increases without their lifestyle taking a hit. People who were already just about scraping by do not.

Have you not noticed a big increase in the price of a tank of fuel or your weekly shop? I certainly have. Just because I can afford it doesn't mean it's not a huge problem.

Since this thread is about property: a few of my peers (~30 year old FTB tech workers) are re-evaluating their plans to purchase this year since we're all suddenly feeling a lot less secure in our jobs.


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## Purple (18 Nov 2022)

interested21 said:


> The people buying luxury homes in Enniskerry have the disposable income to absorb the everyday price increases without their lifestyle taking a hit. People who were already just about scraping by do not.


Or they have the capital from the increase in value of their existing home or they inherited money or they have shares or they have a cash lump sun from a pension or a combination of the above.  


interested21 said:


> Have you not noticed a big increase in the price of a tank of fuel or your weekly shop? I certainly have. Just because I can afford it doesn't mean it's not a huge problem.


It's aa problem but not a crisis. 


interested21 said:


> Since this thread is about property: a few of my peers (~30 year old FTB tech workers) are re-evaluating their plans to purchase this year since we're all suddenly feeling a lot less secure in our jobs.


Yep, sentiment (or panic, as it's also known).


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## Silversurfer (18 Nov 2022)

David_Dublin said:


> I'm not sure of the relevance of this. U dont know if the house is rented, or the car leased or owned. Or if the person is into cars and not houses. Or the car is a demo and they work for the dealership. You see far more trophy cars in front of trophy houses, whatever that tells us.


The point that I am making is the cost of these cars would go a long way towards a good deposit on a home. Regardless of whether the car is leased or bought through  a personal loan is irrelevant. An expensive car in front of an expensive home is not unusual.


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## lff12 (22 Nov 2022)

interested21 said:


> The people buying luxury homes in Enniskerry have the disposable income to absorb the everyday price increases without their lifestyle taking a hit. People who were already just about scraping by do not.
> 
> Have you not noticed a big increase in the price of a tank of fuel or your weekly shop? I certainly have. Just because I can afford it doesn't mean it's not a huge problem.
> 
> Since this thread is about property: a few of my peers (~30 year old FTB tech workers) are re-evaluating their plans to purchase this year since we're all suddenly feeling a lot less secure in our jobs.


Exactly but also - the key figure here is "27 homes" - tiny in the greater scheme of things. If developers can make the same profit building 27 luxury piles in fancy places that has a limited market, then its a lower risk than building 800 homes in North County Dublin and hoping there are 800 buyers out there to find them. Also the level of financing required to build 27 homes is probably a lot smaller than the grand schemes of 1000+ units of the 90s.

As for the FTB tech workers, thanks to our greatly diverged arrears changes, they would probably have greater security of tenure if they bought a home they subsequently couldn't afford to pay for than renting. Non payment of rent is one of the two exceptions for the eviction ban, but we read every week in the papers of thousands of home owners who are in medium to long term arrears. To put that in context: in the mid 00s, banks could start repossession procedures 6 months after the last payment was made.


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## lff12 (22 Nov 2022)

And that brings me to a point I missed: there was very poor governance of arrears prior to 2008 with regard to repossessions. I had family who were facing repossession with 6 months of arrears and less than 10k of a mortgage left to pay in 2006. Such a case simply wouldn't happen now - it would be brushed away by managed procedures that made such a small figure in arrears terms easily manageable for the borrower in a way they wouldn't possibly countenance in 2006.

Yes its unfair that some people are able to spend years in arrears without appearing to make meaningful efforts to repay, but those who don't engage do end up before the courts and generally end up losing both the cases and their homes.  I think thats learning something.

But we certainly do need a serious way to manage persistent refusals to engage (perhaps by better FLAC services that keep people away from grifters who prey on such people).


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## Purple (23 Nov 2022)

lff12 said:


> but those who don't engage do end up before the courts and *generally end up losing both the cases and their homes*


Do they?


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