How to handle serious negative equity?

[canicemcavoy]

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.

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

 

[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.

 

[lightswitch]

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

[broken link removed]

Something similar being discussed on Frontline tonight.

 

[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.

 

[UFC]

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

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.

 

[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.

 

[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!!

 

[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.

 

[Magpie]

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.

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.

 

[onq]

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

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.

 

[Bronte]

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

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?

 

[Afuera]

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

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.

 

[Afuera]

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.

 

[salvidor]

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

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!

 

[Papercut]

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.

 

[callybags]

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.

 

[Afuera]

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.

 

[callybags]

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?

 

[Sunny]

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)

 

[Afuera]

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.