# Catch 20-10 Lobby on negative equity



## evie (8 Dec 2010)

I have read many threads pointing out the fact that negative equity is only a problem for those who need to move or sell up for any reason and I find myself in one of those categories. My work is a 4 hour round trip from where we own our home and we have 2 small children who are our biggest priority and who have their time with us reduced enough by us both working fulltime with out compromising it further by me taking on an impossible commute. 

We took the decision to rent closer to where I work and to rent out our home as the negative equity meant that selling it was not an option. However in the last 2 years my husband’s income has dropped by 60% and while we are still clinging on in the higher tax bracket for dear life between our 2 incomes we simply cannot afford the additional burden of the rental income tax. We cannot sell thanks to the negative equity, we cannot rent because we cannot afford the tax and we cannot live there because of its proximity to my employment, although it looks like this is the last option available to us before emigration - catch 20-10 I like to call it.

Recently I have been writing to politicians pointing out this predicament and I am writing here because I would really appreciate if people in a similar situation were able to so the same. This of course would be vastly improved if people with a bit of sympathy were to write on our behalf and bolster up the number raising this as a very real issue for our upcoming election. Maybe if we head it off now and give people options we may be able to reduce the mortgage default issue into the future.

People will have their own ideas on solutions and all would be welcome additions to this thread but my 2 are:

1) A negative equity mortgage that would allow you to move, it probably wouldn’t work for us due to our current incomes but it would allow people with good earning potential and negative equity an opportunity to move.
2) A scheme whereby people in negative equity could rent else where without this income tax liability holding their heads under water.

Please, please get onto your politicians and get some solutions to this.


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## elcato (8 Dec 2010)

The problem with point two would be that it would be open to all sorts of abuse I'm afraid. Problems would be
how much NE is in your house
it's unfair on people who are renting out but not in NE


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## evie (8 Dec 2010)

NE about 30,000 we paid off an extra 6000 during the summer to bring it down because we though about fixing our mortgage but we can't fix at the rate being offered and we have no more money. I agree on point 2 the terms would have to be pretty clear to stop abuse but I'm sure a little dollop of political imagination they might be able to come up with some ideas. I think something has to be done though because it is an impossible situation.


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## pjuegos (15 Dec 2010)

I also think that homeowners should be allowed to carry negative equity to a new mortgage, provided that it is stress tested and the NE does not increase with the new mortgage

This is obvious for the case of being offered a job in a different city, or for more personal reasons such as separating from wife/husband...
In FG's suggested 4 year plan it is mentioned that "Alongside the introduction of a new capital gains tax on primary residences, the 7%_ and 9% rates of stamp duty for families trading up and _down _should be reduced to 2% for at least two years to stimulate transactions in the property market"_. 

Also, according to "www herald.ie/national-news/lenihans-budget-misery-for-all-but-cigarettes-and-pint-escape-hikes-2450874.html"
FF suggests stamp duty relief for householders in NE who want to downsize. However, I have not found any mention to this in the budget 2011 official document

However, how to execute the NE transfers is apparently a completely different story. The mechanics of conveyancing do not currently allow NE transfers. The solicitor can only release the deeds on the current house if there is enough money to clear the existing loan, which is not the case for home owners in negative equity.(www boards.ie/vbulletin/showthread.php?t=2055821151&page=3 )

 There has been no mention of this in both FG and FF suggestions. If they want to do it, they will have to modify the legislation. I am also emailing TDs to ask for clarification


Good luck!


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## evie (15 Dec 2010)

> The mechanics of conveyancing do not currently allow NE transfers. The solicitor can only release the deeds on the current house if there is enough money to clear the existing loan, which is not the case for home owners in negative equity.




That is interesting I wonder will they be able to create a mechanism around this like an unsecured personal load for the outstanding amount to be paid seperately. 

I guess it is up to the mortgage providers to decide though because in essence if they could give a mortgage of say 120% of the home value, the funds will still be there to complete the sale from the solicitors point of view.

I don't doubt it is tricky but holding people in houses they literally can't stay in is not the solution in my opinion, we will need to have a little bit of well thought out flexibility to get things back on their feet.


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## pjuegos (15 Dec 2010)

I am not too sure lenders would want to give unsecured personal loans. Also, this could come with very high interest for the borrower....

If there is will to do it, it would be possible to change legislation to do it. Probably, the biggest chance for that to happen would be with a new government after the elections, which will have "in principle" to execute the campaign promises...


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## JoeB (15 Dec 2010)

But will they? (new government following election promises)

Nick Clegg of the Lib Dems in the UK promised not to increase university fees, and what do they do when thet get into government?.. they vote to increase university fees. Some of them tried to retract their previous committments but they had been filmed by students when giving the committment, so impossible to retract now.

So politicitions will say one thing and do another.


In any event most people wouldn't be happy if people who had overborrowed got money for free... this is a major moral hazard and would be widely detested.. unless of course the majority of people benefitted from the scheme.


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## RIAD_BSC (15 Dec 2010)

Who is suggesting giving anyone money for free?


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## JoeB (16 Dec 2010)

Well, the OP suggested that people in NE should receive favourable tax treatment, or exemption from certain taxes. This amounts to free money.


But I'm not an ogre... I wouldn't really mind if favourable tax treatment was given to certain individuals who really need it... but it's not fair to expect some taxpayers to bear the cost of other tax payers overspending.

I know we have bailed out the banks but no-one is happy about it.. why should private companies get bailed out? Have we done anything about the moral hazard? (it doesn't appear so)
Have we done anything about 'systemic' banks or 'too big to fail'? (Again, no)

So I'm sick at our government's cowardice in guarantee-ing private companies that acted recklessly...


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## Bronte (16 Dec 2010)

Point 1 might work but I don't see the banks allowing it.  

In your own case have you asked the bank if you can sell and pay back the negative equity as a loan?  Have you done the figures on what the rental tax would be?


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## evie (16 Dec 2010)

> In your own case have you asked the bank if you can sell and pay back the negative equity as a loan? Have you done the figures on what the rental tax would be?


 
Hi Bronte we have asked the bank and we are about to go and meet them about getting a loan. 

We have rented the house out and for various reasons we been able to manage to date, maternity leave and not using up full tax allowance among others. This year a drop in income coupled with rising taxes is going to be really difficult for us but to be honest I am also concerned about the potential to drop tax relief on mortgage interest down from 75% that would really hit us hard so we want to have decisions made before next year's budget.


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## RIAD_BSC (16 Dec 2010)

JoeBallantin said:


> Well, the OP suggested that people in NE should receive favourable tax treatment, or exemption from certain taxes. This amounts to free money.
> 
> 
> But I'm not an ogre... I wouldn't really mind if favourable tax treatment was given to certain individuals who really need it... but it's not fair to expect some taxpayers to bear the cost of other tax payers overspending.


 

Most folk mix up people in negative equity with people who cannot afford their mortgages. They are not the same thing. The difference is crucial.

I am in NE, and can comfortably afford my mortgage (touch wood). I didn't overborrow - my repayments are within my means.

My problem (somewhat similar to the OPs) is that I cannot move to a more suitable property to raise my family because the regulator has banned the the bank from allowing me transfer the NE on my current house to a new house..... in other words, I am trapped in a house that is no longer suitable for my family's needs, because the regulator has banned NE mortgages.

I don't want free money, I didn't overborrow, I bought a house that I could afford at the beginning of 2007 and have been caught out by a 50% property crash, I can still afford it, I don't want to overborrow now, I don't want to be bailed out by taxpayers, I just don't want to be prevented from moving home.

House prices have dropped 50% since I bought my house. For what I paid in 2007, I could probably now find a house more suitable to my family's needs now for a price 25% lower than what I paid for my current house in 2007.

By the time I inject equity in the form of a 20% deposit on a new house, even with the transfer of my NE, my mortgage would be only a fraction higher than what it is now. If the new loan was stress-tested to death, I'd still be able to afford it.

The bank is already on the hook for the NE on my current home. But even though it wants to, the bank can't allow me simply transfer that NE to a new address because the regulator has banned it from doing so. Even though my borrowings would only rise a fraction (the bank's NE exposure would probably actually go down, after the equity injection)

That's just plain ridiculous, in my opinion.

The OP wants the same solution that I want - to be allowed to transfer NE (I'm not looking to borrow beyond my means).

As for the "free money" thing re the tax, what the OP seems to be saying is: "If you won't allow me transfer my NE, then stop using the tax system to treat me like a property investor if I rent a new house more suitable for my family life."

If I rent out the house I own to someone else, so that I can myself rent a new more suitable home for myself, the taxman treats me as a property investor, taxes the rental income (and takes away my TRS), and gives me an even bigger monthly hole to plug on the mortgage. I am not a property investor - but the taxman would treat me like one because I wouldn't live in the house I bought, as I'd be renting another one myself.

Asking for that anomaly to be addressed is not "asking for free money". It is asking for fairness.


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## elcato (16 Dec 2010)

I agree with Riad's sentiments and would even like to see the solution implemented. The problem as I stated earlier is that it brings out the begrudger who feel as if someone is getting a break and that they should get the same. You can be damn sure that people will start renting out their own house and rent themselves if they can get a full tax break on it. The solution would be to make sure no gain can be got by doing what I suggest here and I'm not sure (plus I''m too lazy to do the maths) it's possible.


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## JoeB (16 Dec 2010)

Well, yes, some good points there.

But how do you suggest that the government decides on who is a property investor, and who's simply renting out their home while they move somewhere more suitable? There may not be a way to do this.

You say that the Regulator has banned NE mortgages. Well, perhaps that's a good thing in general. The bank could probably work around it if they wished, by offering you a personal loan at mortgage rates. But of course they'd have no security so that is a problem alright. But then they have insufficient security anyway, even now, as the house value is less than the mortgage outstanding.


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## elcato (16 Dec 2010)

> You say that the Regulator has banned NE mortgages. Well, perhaps that's a good thing in general.


I presume they allow a seller to sell up for less than the mortgage and make them liable for the remainder ? Anyone know whether this has been accepted by a bank (apart from cases for repossession or inability to pay)


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## RIAD_BSC (16 Dec 2010)

JoeBallantin said:


> Well, yes, some good points there.
> 
> But how do you suggest that the government decides on who is a property investor, and who's simply renting out their home while they move somewhere more suitable? There may not be a way to do this.
> 
> You say that the Regulator has banned NE mortgages. Well, perhaps that's a good thing in general. The bank could probably work around it if they wished, by offering you a personal loan at mortgage rates. But of course they'd have no security so that is a problem alright. But then they have insufficient security anyway, even now, as the house value is less than the mortgage outstanding.


 

Re the renting thing, one way to distinguish proper investors from people in a NE situation is via the fact that investors usually also own their own home, as well as their investment. If you only own one home, but don't live in it and rent yourself elsewhere, there's a fair chance you are a NE person who has moved out. If they really wanted to do it, they could find a way.

You make a good point re the personal loan at mortgage rates. There may be a solution in that, but I sense that if the regulator knew about it, he would move to curb that also.

To Elcato: I see your point also. But the optimum solution is to allow me transfer my NE. The renting thing is a poor 2nd prize. I don't want to be a renter anymore, that's why I bought my house in the first place. For people in NE with good, secure incomes, the best solution is a NE mortgage.


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## pjuegos (17 Dec 2010)

Unfortuntately,there are still many obstacles/missconceptions about the NE mortgage concept:
-financial regulator that is afraid to allow banks to do it.
-Irish law, which does not currently allow NE transfers
-The public, who cannot understand that home owners in NE do not necessary have to be in arrears, are not suggesting any debt forgiveness and just want to move with their debt. 

If I want to sell my house for 200000, buy another house in a different place for 200000, and carrying my NE from property to property, what would be the problem/risk in doing such thing?
In addition, there will be at least a new buyer and a new seller


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