Why do the banks not do negative equity mortgages?

Brendan Burgess said:
In general, I think unwilling landlords should be treated separately from professional investors. For example, they could be given 100% interest relief for the first 3 years.
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I guess you'd find that a lot of landlords would suddenly become 'unwilling'.
 
Complainer said:
I guess you'd find that a lot of landlords would suddenly become 'unwilling'.
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You could have relatively simple rules - eg if the property was bought and was your PPR between 2005 and 2009 and became a rental property after 2008, then you can be classified as 'unwilling' - would stop abuse of landlords now moving into properties and trying to declare themselves unwilling.
 
Hi all,

Just catching up on this now.

I can see most points of view expressed here - those that advocate negative equity portability and those that don't - depending on where I look at them from. I don't think there is an easy answer as the "should one size fit all" argument crops up a lot. Personally bringing my negative equity with me would leave me with a mortgage of €30k more then I have now and one that is 3 times our joint income. It is frustrating to think that if I came to the bank as a new customer I might get this amount but can't as an existing one due to my situation.

Renting and then renting so to speak may be an option we would consider but the thought of it fills me with dread and stress. Not only would it be expensive it would also be something I would not be good at. Neither myself nor my husband could deal with something like an eviction if needed, unruly, antisocial tenants etc.

I suspect that MrDrep may have outlined how things will go and that it may be up to 8 years before I can trade up. In the bigger scheme of things this would not be a disaster for us and hopefully we can keep our heads above water, stay in full employment and continue saving until then. I absolutely appreciate that financially I am in a better position then a lot of people my generation and that "but for the grace of god" could be us. Still though I'd move in a heart beat if I could!
 
Sunny said:
Yeah, they are common with Countries that ended up with this problem. The UK has them. They are not overly used but the option is there for certain people.
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Negative Equity Mortgages introduced today by Bank of Ireland .
 
[FONT=&quot]Provided the new mortgage is affordable and properly stress-tested, I cannot see anything wrong in allowing people to carry negative equity with them.
If the new and old property have similar values, it would allow NE home owners to move to bigger properties in cheaper districts and start a family, or to accept jobs in different cities and it will also generate new buyers and sellers.

In FG's pre-election policy document "Credit Where Credit is Due" they suggested allowing NE mortgages. It reads as follows:
[/FONT][FONT=&quot]
"Trading Down and Negative Equity Mortgages
For some mortgage holders that are in negative equity, trading down would produce a reduction in mortgage debt and more affordable monthly payments. We will work with the Financial Regulator and the industry to facilitate trading down and “negative equity mortgages” by borrowers in this situation. Such options would have to be in the customers’ best interest."

However, this suggestion did not make it into the STATEMENT OF COMMON PURPOSE that they agreed with Labour.[/FONT]
 [FONT=&quot]Have they changed their mind after the elections?

cheers[/FONT]
 

The simple way to stop abuse is to limit it to people who own only 1 house in total and are tax resident in Ireland. Rules out all professional landlords
 

Brendan, your views on this matter are so dismissive of the problems facing many people in NE that I am groaning that you were a member of the government's expert group on mortgages. Your views should be challenged in the strongest possible terms, in my opinion, because you are completely oblivious to the nature of the problems facing some people in NE. You are out of touch with their situations. If your attitude is representative of the overall attitude displayed by that expert group at its meetings, then it is no wonder that some people trapped by NE feel so dispirited. They will never see a glimmer of hope as long as the government and financial regulator listens to this sort of advice....

Explain to me how NE portability is a bad idea for someone who is properly stress-tested on a mortgage that is within their affordability limits? Explain how this is bad for society? The bank is already on the hook for the NE anyway (the existing mortgage is already one of the "negative equity mortgages" you are so opposed to.... something that gets lost in this argument).

You are also assuming that their total indebtedness will always rise. But you forget that property prices have fallen by at least 50% since the height of the boom. Once you have saved a deposit, it is possible to "trade up" to a more suitable property for raising a family, carry the NE over, and still keep the overall debt exposure at near the original level.

Take a couple on combined salaries of 150k. Bought a 100% mortgaged apartment at the top of market for 400k, now worth 200k, have paid 25k off the mortgage.... that's NE of 175k.... they have savings of 50k (I'd surmise there are lots of couples like this in modern Ireland)

They'd be decades trying to pay the NE off before they would be able to move, under your proposals.... Their kids would be grown up before they'd have a more suitable family home.

They could probably buy a three-bed home nowadays for 300k in most areas of Dublin, using a 250k mortgage and their savings of 50k. Carrying over their NE of 175k would give them an overall loan of 425k..... only a fraction above their original loan amount..... and their NE has been reduced to 125k... I cannot see why anybody in their right mind would be opposed to this....

Telling people to become landlords (i.e. property investors) is not a solution at all.... they then have to run all the risks that all investors run, plus they lose their TRS, they have to register with PRTB, they become liable for tax on the rental income, they don't have fixed tenancy in their rental home beyond 4 years (and for anyone raising a family, that is unsuitable) and they run the risk of having to heavily subsidise a potentially-empty home that they have been forced to rent out.

People in NE have enough worries - they do not want to become landlords on top of everything else.... All they want is portability, not financial assistance, or haircuts, or write-offs or to be over borrowed, or to be forced into becoming property investors...

Also, if you make people take out large personal loans to pay off NE, they crystalise the loss. If you allow them to port it to another property, at least future property price rises will help inflate the NE away.

You say that the number of people in this situation - trapped but otherwise able to afford a bigger house - is so small, it makes sense to ban them. That attitude makes no sense to me at all... The effect on these couples of NE is so large, that every effort should be made to help them. And if their numbers are small, as you say, it should not be difficult to help them.

Personally, I believe there are more of them than you think.......

The 'expert' group you were a part of advised allowing NE mortgages only for people who were trading down. I remember reading that, and thinking that I had never read anything so out of touch with people's current needs in my entire life.....
 


Figures look very do able to me. Now you need to sell it to a bank. Have you tried? Would be interesting to know how you get on. Would you be able to cope with a couple of rate rises?
 
 
Bronte, I'm glad you think my figures make some sense. I was starting to think I was missing something. Selling my idea to the bank isnt easy - I proposed it & was told "no way" once they heard of selling for less than the mortgage. I emailed my query/figures to the CEO (EBS) and got a very polite "no".

I could handle a few more rate rises (well, as many as the average person!).
 
 
What we are seeing here is the consequences of short-term thinking and the continuing application of short-termism as a "solution". People who bought "starter" homes were buying with a general intention of moving within a period of time a fraction of their mortgage, none of them ever intended being stuck in cramped one-bed apartments counting the nose-hairs of their equally cramped neighbours for too long. But in order to satisfy themselves they decided to conspire with the banks to gamble their future for a short-term gain (property price inflation on their starter home providing them with capital for moving to their dream "proper" home). Needless to say - everyone has lost. The banks, the punter-buyers, the general populace. And it has undoubtedly caused social strains on an unprecendented scale in this country. Perspective though would indicate that those in negative equity and wanting to move elsewhere are on the whole not in the worst or most strained or even constrained positions that have arisen from the national property hangover.
However, proposing another short-term (and dare I say short-sighted) solution to allow the fraction of buyers who fancy a move for one reason or another is not likely to prove sensible in the long run. Short-term solutions to long-term problems are an exercise in papering over the cracks.
It doesn't matter if you can afford to pay a mortgage which is greater than the value of the property you aspire to - the banks we now own have a duty of care to us to ensure that the assets the accept as collateral are sufficiently valuable.
It doesn't matter if you could walk in a first time buyer and get a mortgage for a property in the amount you want to spend - you are NOT a first time buyer - your situation is different so you need to look at what your CURRENT situation is.
It doesn't even matter that the "amount" of negative equity could posssibly be reduced on the new property - it is still a gamble by you on the market value of the property and a gamble by the bank on your ability to manage the mortgage.
Sounds harsh doesn't it? But why should the country as a whole facilitate short-term thinking in favour of a small minority?
 

I said it looks do able not that it made sense. Your bank doesn't think it makes sense. Can we run through why that is? And also why do you think they said no. It's good to have a real situation with real figures.

Also can you afford interest rate hikes? Why do you want to move. What size and approximate location are you living in.

My questions are not directly at you, but it's very hard to deal with this in an abstract way so if we could discuss a real sitation, yours, it's easier to deal with the concept.
 
johnnygman said:
I too am very worried regarding the quality of advice and attitude displayed by many posters on here toward people who are stuggling with negative equity.
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Not sure who this is directed at. But some of us might have that view for very good reason. Some of us have been on here a long time and tended to notice that a lot of the people in the most difficulty seem to have a lot of needless debt in addition to mortgage problems. That would certainly colour my view of debt forgiveness.

You don't have to be on AAM to have noticed the madness. But now when we don't agree with debt forgiveness we are told we have a bad attitude. There is no one more angry with banks and regulators and governement than myself. But it wasn't just them that got everyone in a mess.

I note that a lot of the posters who want negative equity deals and debt forgiveness do not give all details. All details, that means all credit card debt and all loans and all assets and why. Then I for one will give sympathy, but not a waving of the woe is me I'm in negative equity in a two bed and please help me because I want a 3 bed in a better location.

Please also bear in mind that I don't believe there is anyone on here who does not have a relation in dire straights because of financial woes and also relations who lived the good times, the new house, new fit out, new garden, 4 holidays a year and change of car every 2 years also in financial dire straights. Maybe just maybe we don't want to pay to sort out their messes, we didn't want to pay for the banks either but had no choice in that and no doubt will have no choice in the negative equity generation. So when we don't immediatly give sympathy and we don't get details think about that.
 
An excellent post from RIAD BSC.

I fundamentally disagree with Brendan's view on negative equity mortgages and negative equity portability.

And I am genuinely shocked by the greedy and self centred attitude of others who, despite being in the lucky position of not requiring assistance, can only think of themselves and their own scope to "fumble in the greasy till".
 

So-crates, you are missing the entire point. The banks are already on the hook for NE with these people. They already have a negative equity mortgage. The collateral they have is already insufficient. Preventing these people from moving that NE to a different property is illogical, provided the new mortgage meets stringent stress tests.

Considering how far house prices have fallen (60%?), they may even be able to reduce their overall indebtedness by moving to a more suitable family home at today's bottom-of-the-market prices.

This is not about bailing out people who "fancy a move for some reason or other" as you so disparagingly put it. It is about facilitating people who are otherwise trapped, all for no extra financial risk. No extra risk to the banks, no extra risk to the state, no extra risk to the person in NE. If their overall debt burden does not go up in any meaningful way, there is no extra risk for anybody.

You should try to understand what is being asked for before you dismiss it out of hand.

I feel like banging my head off a brick wall every time somebody on AAM knee jerks against NE mortgages in this way without considering the fact that it might even make financial sense for the person to transfer NE, let alone that it is also a very humane thing to do......

Brendan was part of the expert group that could have helped explain this to the wider public. Instead, the group chose to bury its head in the sand in the hope the problem would go away...... I think that is quite objectionable.
 

Isn't it interesting that you characterise as "greedy" and "self-centred" the unpalatable? How exactly is it greedy and self-centred to consider society as a whole as opposed to the wishes of a small number of individuals who are not actually in constrained financial circumstances? And how is it fumbling in the greasy till to disagree with your stated position? I am at a loss as to how disagreeing with you on the subject of negative equity mortgages equates to greed on the part of myself or others. My reasons for seeing negative equity mortgages as dangerous, short-term thinking have not changed since I first heard them mooted back at the height of the boom - though no-one labelled them "negative equity" mortgages then - they called them 125% mortgages. Oh the recipients had good jobs and were able to afford the higher repayments but as with all short-term thinking the bite was only down the line. Remember I too would have to fund a shortfall if I were to sell. I too bought in the boomtimes. So I am also a candidate for your fantasy mortgage. I didn't, however, buy a place I wanted to move out of in a hurry (I never did understand the lure of the term "starter home" - a marketing ploy if I ever heard one). I didn't borrow to the extent of my capacity or even close to it. I didn't fund the deposit with borrowings. I didn't furnish the place with borrowings. I didn't, in short, view it as a five-year purchase and expect my debts to be cleared by an appreciation in prices within a short period. I was prudent but still find myself with a mortgage for more than my property is worth - yet I don't clamour for others to bear my burden or my risk since I knowingly and willingly engaged in chancing my arm on the property market.

It is neither greedy nor self-centred nor grasping to view with some distaste and indeed alarm a battle-cry for the continuation or even extension of the dangerous and foolish practices that got us into this mess in the first place.

It is also not addressing the valid concerns of others as to the advisability of extending short term "solutions" when your only response is name-calling.
 
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