Brendan Burgess
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Proposals for dealing with negative equity where person wants to trade up
The LRC proposals deal with people who are overindebted. But what about people who are not overindebted who are in negative equity? For example, people who want to trade up.
Johnny and Mary own an apartment worth €300k onwhich they have €400k of borrowings. They now have a child and want to live in a house. They are able to afford the repayments on a €500k mortgage.
They want to borrow an extra €100k to trade up to a house worth €400k (ignoring stamp duty and transaction costs)
Part of the reason the banks are in trouble is because they lent 100% mortgages. Part of the reason some people are in trouble is because they ignored to old practice of saving up for the 10% deposit before getting on the property ladder.
If they sell the apartment and rent, they will have outstanding loans of €100k. Few would suggest that they should be given a 100% mortgage when they have debt or €100k with no assets to show for it.
1)They should not be given a mortgage until they have cleared their debt and until they have saved the deposit for a house.
2)They should be allowed to sell the apartment and convert the mortgage into a personal loan which they would pay off as quickly as possible.
3)They should rent a house until they have the loan cleared off and until they have saved the deposit available to buy a house.
4)They should stop contributing to their pension schemes until the loan is paid off as this is a higher priority for them.
5)They should be allowed limited early access to their pension scheme to reduce the negative equity
6)They should be allowed to give the lender a charge over the tax-free lump sum in their pension scheme in exchange for parking the debt and rolling up the interest.
In Britain, Nationwide Building Society allows people in negative equity to trade up by giving them 125% mortgages.
The LRC proposals deal with people who are overindebted. But what about people who are not overindebted who are in negative equity? For example, people who want to trade up.
Johnny and Mary own an apartment worth €300k onwhich they have €400k of borrowings. They now have a child and want to live in a house. They are able to afford the repayments on a €500k mortgage.
They want to borrow an extra €100k to trade up to a house worth €400k (ignoring stamp duty and transaction costs)
Part of the reason the banks are in trouble is because they lent 100% mortgages. Part of the reason some people are in trouble is because they ignored to old practice of saving up for the 10% deposit before getting on the property ladder.
If they sell the apartment and rent, they will have outstanding loans of €100k. Few would suggest that they should be given a 100% mortgage when they have debt or €100k with no assets to show for it.
1)They should not be given a mortgage until they have cleared their debt and until they have saved the deposit for a house.
2)They should be allowed to sell the apartment and convert the mortgage into a personal loan which they would pay off as quickly as possible.
3)They should rent a house until they have the loan cleared off and until they have saved the deposit available to buy a house.
4)They should stop contributing to their pension schemes until the loan is paid off as this is a higher priority for them.
5)They should be allowed limited early access to their pension scheme to reduce the negative equity
6)They should be allowed to give the lender a charge over the tax-free lump sum in their pension scheme in exchange for parking the debt and rolling up the interest.
In Britain, Nationwide Building Society allows people in negative equity to trade up by giving them 125% mortgages.