Why do the banks not do negative equity mortgages?

I think this is a very difficult argument and as Morgan Kelly wrote, pits those who can pay their mortgages against those who can't. Not everyones problems are as black and white as ability to repay their mortgage. I suspect my own story is very common.

We bought a small "first time buyers house" in 2005. We should have a) taken the higher mortgage being offered which I didn't think we could afford at the time or b) waited a few more years before buying and just bought a house we could live in for our whole lives. (I know a lot of people will disagree with A being a good choice but it's one I wish I took).

My bank will not allow me to sell without clearing the NE (I was't looking for it to be written off but moved to a new mortgage). I cannot save it and a deposit fast enough to allow me to move in the next 2 years. I now have a tiny house that is delaying my decision to start a family, hopefully not for so long that it becomes too long.

I absolutely accept buying the house was a mistake and one that may fundamentally change my whole life but should the Government help me? The bank told me I cannot take the NE into a new mortgage because the Gov won't allow them. But if they would is it the right strategy for the country/economy as a whole. It would suit me alright but then there are hundreds of individual stories and situations. On the flip side should I be "punished" because I can repay my mortgage while those who can't get help???

I don't think it's a conversation that'll go away any time soon.
 
I now have a tiny house that is delaying my decision to start a family, hopefully not for so long that it becomes too long.
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Here's my opinion; don't delay starting a family.
That could be a decision you really regret.
People bring up children in all sizes of house and flat.
 
There's a very strong social argument for helping people like Oscaresque.

The negative equity issue is creating social problems in that it's in some cases dissuading people from starting families.

Creative thinking is called for. I cannot see any logical argument against allowing "negative equity portability".

The vast majority of people were not greedy. They merely bought homes for their families, and they've now been bitten by a property and banking collapse.
 
I would have to say that I sympathise with Oscaresque a lot on this one. Myself and the wife are at an age when we should be kicking on with children but due to financial issues it would just be a bad idea. I do think there could be a social issue develop in Ireland out of this as I am sure I and Oscaresque are not the only people to be caught between a rock and a hard place
 
I certainly have sympathy for anyone caught in this trap at a personal level.

Gekko said:
Creative thinking is called for. I cannot see any logical argument against allowing "negative equity portability".
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The logical arguement against this is that it is creating an artificial floor to support property prices at unrealistic levels. This in turn is keeping many other people out of the property market, and indeed stopping those people from moving on with having kids etc.
 

How is the Government stopping the banks from tranferring your NE to a new mortgage? There is nothing to stop the bank from doing it apart from the bank itself and their credit policy.
 
My own reasons for wanting to move are the same as Oscaresque. Having a child in a 1-bed apt doesnt seem realistic to me. I'm not looking for debt forgiveness, just want the neg equity to be portable. However my bank EBS also said its not possible - said the government wont allow it. I spoke to BoI about this too, they said they have a proposal to put to the goverment but till then it's a no.
 

How is it doing that?

Oscaresque can repay the mortgage. It's just a timing issue.
 
Complainer said:
Because it would be allowing Oscar to buy the new property at a price that he couldn't otherwise afford.
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No it's not. He can I assume afford the new property. What he can't afford to do is pay off the negative equity and save a deposit for the new property at the same time. Therefore he simply wants to transfer the negative equity into a new mortgage and pay it off over the longer term.
 
Sunny said:
No it's not. He can I assume afford the new property. What he can't afford to do is pay off the negative equity and save a deposit for the new property at the same time.
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So then he can't afford it, as things currently stand. If he gets state support to buy something that he can't afford, then this is artificially keeping up the price of the other property. Without these supports, the prices of the other properties will have to drop.
 

What State Support? He is not talking about debt relief.
 
Leaky1 said:
Sorry to be selfish but it would annoy me to be stuck with my tiny 1-bed apt with a payable mortgage, while other people who over-extended themselves would get help to live in houses I can only dream of.
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amen . I'd be sickened if anything was done in fairness be it for negative equity or arrears. OK arrears well maybe some form of protection when the arrears are a result of unemployment etc. but arrears because someone couldn't be arsed is a different kettle of fish.

As for negative equity, well people over extended themselves, thats the risk you take when you buy something.

I think the only fairest option is to make what ever solution is implemented universal. so if they do something about the price or offer interest relief then it should apply to everyone regardless of if their property is in negative equity or not. I shouldnt be penalised by not being allowed to avail of relief just becauase i decided to buy an apartment that was in my means and didn't stretch myself.
 
Sunny said:
What State Support? He is not talking about debt relief.
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He's not really clear on what possible solutions he is proposing. It could be debt relief, or changing of banking regulatory approach to allow portability of negative equity, or some other solution. I haven't seen any solution that doesn't have some impact on other people.
 
Sunny said:
How is the Government stopping the banks from tranferring your NE to a new mortgage? There is nothing to stop the bank from doing it apart from the bank itself and their credit policy.
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One of the banks proposed to the Financial Regulator that, in very limited circumstances, that they would issue negative equity mortgages. The Financial Regulator stopped them doing it, pending a review. As far as I know, they are still not allowed to do so.


Negative equity mortgages are a very bad idea. They would be suitable in so few cases, that I think it's right to ban them.

People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.

Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.
 
Brendan Burgess said:
People who have to move, can rent out their home and rent another. They should not buy another until they are in a position to do so.
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Rents have fallen and many people cannot afford to become landlords (with associated costs) as the monthly rental will not cover the mortgage repayments and they cant afford to rent themselves and also make up that shortfall. In addition many properties are not suitable for renting due to location or amenities.

Brendan Burgess said:
Alternatively, banks should be encouraged to allow people in negative equity to sell as long as they agree to pay off the shortfall.
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How would they then be able to buy again with a massive NE personal debt hanging over their heads for the next x amount of years?

I dont disagree that the above are options but they may not be viable options for many people.
 
I agree with the general sentiment of negative equity mortgages but they might be among the best of a load of bad options.

They won't be suitable for everyone but as long as the new loans are affordable and properly stress tested and the bank is happy to take on the negative LTV, then they have to be considered. (Perhaps some sort of insurance could be taken out on the part of the loan over the value of the property). Not saying it is perfect but we have to look at options.
 
truthseeker asked

How would they then be able to buy again with a massive NE personal debt hanging over their heads for the next x amount of years?
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That is the whole point. With massive negative equity, they should not be taking on the further risks of property ownership. They are better off renting.

Sunny

I don't see why we have to look at this option at all. It seems to be based on the Irish obsession with owning their own home. I think that home ownership is a good idea, but only for people who have a deposit. Not for those who are in debt before they buy their home.

If I told you I had a €50,000 credit card debt with nothing to show for it, I don't think that you would recommend that a bank be encouraged to give me a €200,000, 100% mortgage.
 

I asked my bank if they would allow me to sell with a shortfall and pay it off as a loan - they also refused to agree to this.

My neg equity is approx 50 or 60k, which is too large to save a lumpsum to pay off while saving a deposit. But it would be manageable if it could be carried and rolled into a new mortgage - and I would want it to be adequately stress tested!

I do agree with Brendan that there isn't a need to dive right back into buying a property - renting a new home would be an option. However I don't think that renting out your neg equity home is an option for everyone - for reasons of location, or even just the fact that I don't think I have the business-sense to do it properly. I don't believe I'm assertive enough to deal with some of the problem tenant situations that seem to arise. I am a practical enough person to not start a family until we have suitable accomodation, but that could mean waiting too long and being too old to have kids - it is a reality for some people. I'm kicking myself for believing the rubbish about a property ladder (more like snakes & ladders).

Like I said there should be options for people that are properly stress tested, but my bank isn't offering me any of them.
 
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