Is Negative Equity really that big a problem?

[Draigean]

so does Johnny expect the taxpayer to give hime €250,000 just so he can feel better?

Huh? I don't understand you, have you misunderstood?

You should read the posting guidelines, you've gone off topic. I wrote nothing about the taxpayer giving Johnny money.

In response to the original post, I merely stated that negative equity is bad for someone like Johnny, because he's essentially wasted €250,000. This is bad for Johnny.
But it's also bad for Ireland, and the Irish. Not only is this a huge hole in his pocket, but he'd have spent that money on both worthwhile things and frivolous things. Things that would have generated regular tax, maybe even employment.
A lose-lose situation.

When you buy shares or property one has to realise the value of their investment can fall as well as rise. Irish people need to get real here. I bought a lotto ticket yesterday and didn't win. I want the government to give my my €5 back! Where does this end!

Granted, it's my fault for not stating this, but Johnny didn't buy this property as an investment, he bought it as somewhere to live.

Irish people need to get real here.

I agree; they need to realise that in the first instance property is shelter.

I bought a lotto ticket yesterday and didn't win. I want the government to give my my €5 back! Where does this end!

€5? How did you manage that? It's €1.50 per line, plus €0.50 for the Lotto Plus. You could have bought €4, €4.50 or €6, but not €5!

 

[Chris]

I don't agree Chris. There seems to be an undercurrent with many people (not saying you) who aren't in any financial diffilculties that there shouldn't be any new solutions offered to those who are in difficulty to make their position more manageable without letting them off the hook.

If there is a solution that doesn't get politicians or tax-payers money involved or increases the debt level then it may be favourable. I think the biggest problem with my opinion of not 'bailing' out private citizens is that it stands in light of governemnts bailing out banks, which I am equally apalled at.

The solutions I proposed would strike the balance:
1. term extension to 50 years for example - some people may want to pursue this option and then sell up after 30 years when they are retiring and trade down or they could reduce the term in 10 years time if/when their circumstances improve.

A 50 year mortgage poses huge problems to banks, as the servicability of the loan may be questionable for a pentioner, and I imagine it would be very expensive to underwrite mortgage protection up to such an age.

2. What I mean by debt for equity swap is that the bank take part ownership of the house in exchange for a reduction in the loan outstanding. Again the mortgagee could always reverse this in the future or they could sell the property in the future as joint owners with the bank.

I think ORKA points out the pitfalls of such an approach.

3.Debt restructuring usually has strict conditions attached and people should be given a second chance. I think a lot of people have learned very harsh lessons in recent years and most are unlikely to do it again.

While it may be likely for people not to repeat the same mistake any time soon, the moral hazard lies in setting a precedence for future generations. People will always think that the state will help out if they make bad decisions.

In response to the original post, I merely stated that negative equity is bad for someone like Johnny, because he's essentially wasted €250,000. This is bad for Johnny.
But it's also bad for Ireland, and the Irish. Not only is this a huge hole in his pocket, but he'd have spent that money on both worthwhile things and frivolous things. Things that would have generated regular tax, maybe even employment.
A lose-lose situation.

This is typical neo-Keynesian, economic laziness. Yes, Johnny spent 250k more than he would have now, but that money was not lost to the economy. It was handed over to a builder at the time, who spent it on wages, materials and fancy cars. Johnny also would not be able to spend that 250k now, unless it was cash savings in the first place. There is no loss to the economy here!!! Three is only a paper loss to Johnny.

 

[csirl]

People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.

Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.

 

[Chris]

People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.

Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.

Very well said, you could not have put it any better. There's no such thing as a free lunch!

 

[Marietta]

50 year mortgages, you are not serious are you

 

[orka]

50 year mortgages, you are not serious are you

In Japan, they have multi-generational 100 year mortgages...

 

[glendale]

The solutions I proposed would strike the balance:
1. term extension to 50 years for example - some people may want to pursue this option and then sell up after 30 years when they are retiring and trade down or they could reduce the term in 10 years time if/when their circumstances improve.

I don't understand why this keep being proposed as a solution to the problem.

An average mortgage of 300k at say 5% over 25 costs 1610 a month, total interest paid 279K

- extend it to 35 years and payments are 1514 a month, total interest paid 335K
- extend it to 40 years and payments are 1446 a month, total interest paid 394K
- extend it to 45 years and payments are 1398 a month, total interest paid 454K
- extend it to 50 years and payments are 1362 a month, total interest paid 517K

I don't think these monthly savings are significant. What is significant is the increase in total interest paid.

What if they are still in NE in 30 years time? I think an idea like this could be just like the rent a room scheme, it was just a trick by the bank to enable people to borrow more. I would say that the vast majority of people who borrowed more on the basis of rent a room never did it in the end.

 

[canicemcavoy]

In Japan, they have multi-generational 100 year mortgages...

It's also 5 times more densely populated than Ireland and in 1991, the land under Tokyo’s Imperial Palace was valued at more than all the land in Florida.

 

[What the]

Originally Posted by orka http://www.askaboutmoney.com/showthread.php?p=1063373#post1063373
In Japan, they have multi-generational 100 year mortgages...
Originally Posted by orka http://www.askaboutmoney.com/showthread.php?p=1063373#post1063373
In Japan, they have multi-generational 100 year mortgages...
People in Japan also have to go to hotels to get a seeing to from the husband/wife because the house is full to the gills with people. A 100 year mortgage might help the ailing hotel trade here in the longer term

The only redress I would be happy to go along with is RIAD_BSC situation where he reduces his NE from 170 to 95 and he has shown prudence in the way he manages his affairs. This situation has to be win-win for both bank and homeowner. Homeowner gets a more suitable home and should the world fall down around the homeowner the bank can recover an extra 85k more than they could have if they made RIAD_BSC to stay in their current home

 

[cartman1]

People tend to talk about these schemes in the abstract and use terms such as "the bank/government/lenders/etc/etc/etc/" should do X,Y, Z etc. The bottom line is that any proposals which forgive, postpone or restructure debt cost money. And someone is going to get the bill i.e. the taxpayer.

Anyone who advocates one of these schemes is essentially asking the rest of us if we are willing to pay for someone elses financial difficulties. The reality is that the vast majority of the taxpaying public are already been hit hard with extra taxes and reduced incomes. I do not want to pay for someone elses mistakes or poor judgement.

There's nothing abstract about any of the options that I have suggested and none of them involve debt forgiveness or anyone else picking up the tab. It's about the lender and the mortgagee agreeing an arrangement that gives the mortgagee some breathing space to get through probably the most difficult financial period the mortgagee is likely to face in their lifetime.

It's all very well to say no to everything but what are you proposing as the alternative solution? If we do nothing, this problem will be a continuing drag on consumer spending for a long time and that will impact everyone living in the country.

 

[Chris]

There's nothing abstract about any of the options that I have suggested and none of them involve debt forgiveness or anyone else picking up the tab. It's about the lender and the mortgagee agreeing an arrangement that gives the mortgagee some breathing space to get through probably the most difficult financial period the mortgagee is likely to face in their lifetime.

It's all very well to say no to everything but what are you proposing as the alternative solution? If we do nothing, this problem will be a continuing drag on consumer spending for a long time and that will impact everyone living in the country.

The solution is for people to start paying down the NE, simple as that! Any other solution will end up costing someone else. Yes, it might take some people 10 years or longer, but that is no excuse for trying to come up with quick fix, short-term solution.

Consumer spending on houses and TVs and holidays, etc. is what caused this mess. Getting people to spend is so short sighted that it is not surprising that politicians are advocating it. What the western world needs is a reduction of debt levels (public and private) and increase in savings. Doing the opposite is just kicking the can down the road.

 

[queenlex]

If there is a solution that doesn't get politicians or tax-payers money involved or increases the debt level then it may be favourable. I think the biggest problem with my opinion of not 'bailing' out private citizens is that it stands in light of governemnts bailing out banks, which I am equally apalled at.


A 50 year mortgage poses huge problems to banks, as the servicability of the loan may be questionable for a pentioner, and I imagine it would be very expensive to underwrite mortgage protection up to such an age.


I think ORKA points out the pitfalls of such an approach.


While it may be likely for people not to repeat the same mistake any time soon, the moral hazard lies in setting a precedence for future generations. People will always think that the state will help out if they make bad decisions.



This is typical neo-Keynesian, economic laziness. Yes, Johnny spent 250k more than he would have now, but that money was not lost to the economy. It was handed over to a builder at the time, who spent it on wages, materials and fancy cars. Johnny also would not be able to spend that 250k now, unless it was cash savings in the first place. There is no loss to the economy here!!! Three is only a paper loss to Johnny.

You make some very good points Chris. The last point is correct too how could there have been a loss??? The only loss that could be argued maybe was that some of the money developers, foreign workers, etc. made individually was invested abroad... J

ohnny just took a gamble taking such a big mortgage out regardless of whether the property was his PPR or not like many others who overpaid thats just bad luck. People shouldnt have being banking on their dwellings rising rapidly in value with a view to trading up, imo you should be able to assume property will rise by a small percent every year in the normal scheme of events but not in the range of 10 percent upwards or anything like that.

If they created this NAMA for private individuals some ppl are giong on about who they think is going to pay for it...just like this 'bailing out the banks' nonsense regular people who were prudent would have to pay for mistakes they didnt make so thats really a non-starter too. Sorrry maybe the last bit is a bit off topic. At the end of the day ppl are just going to have to ride out negative equity no matter how long it takes they have an asset there they can make use of and they'll just have to find a way of dealing with it really and if they're resourceful they will they should look at it as a challenge at the moment and enjoy the challenge and get some satisfaction from that I think.

 

[queenlex]

I would say that the vast majority of people who borrowed more on the basis of rent a room never did it in the end.

I would say youre actually right there very few ppl seem comfortable with renting a room once they move in it seems....

 

[fizzelina]

they should look at it as a challenge at the moment and enjoy the challenge and get some satisfaction from that I think.

I really don't think the people in extreme difficulty on this site are seeing it as a challenge they can be satisfied by????
This is like your boss saying, ok so we let someone go and you're doing two people's jobs for the same salary but it's a real challenge for you professionally...........
Looking on neg equity as a challenge to be enjoyed.........that's a new opinion

 

[lightswitch]

Very well said, you could not have put it any better. There's no such thing as a free lunch!

I have to say I am somwhat shocked at the attitudes expressed in a lot of the posts on this thread. Where is your empathy and basic humanity?

Human beings and their lives are more importaint than banks and their profits!! The banks are insolvent as was mentioned and should therefor be closed like many other businesses are closing right now due to lack of finance.

My own bank tried, without success to push money down my throat between 2004-6. I would imagine many people in NE were MIS SOLD loans believing that the banks had their best interest at heart. Sales, is a profession I know a lot about. Believe me there were some very highly trained sales people in Banks. I used to laugh after I left the so called "financial reveiws" they regularly called me in for as I could see their tactics a mile off. Now I see so much distruction of peoples lives left in the wake I don't find it one bit funny.

As for the free lunch quote, those who caused and fed the problem are still feeding for free, some of it being paid by my taxes, and probably by some of yours too .

 

[Chris]

I have to say I am somwhat shocked at the attitudes expressed in a lot of the posts on this thread. Where is your empathy and basic humanity?

Human beings and their lives are more importaint than banks and their profits!! The banks are insolvent as was mentioned and should therefor be closed like many other businesses are closing right now due to lack of finance.

My own bank tried, without success to push money down my throat between 2004-6. I would imagine many people in NE were MIS SOLD loans believing that the banks had their best interest at heart. Sales, is a profession I know a lot about. Believe me there were some very highly trained sales people in Banks. I used to laugh after I left the so called "financial reveiws" they regularly called me in for as I could see their tactics a mile off. Now I see so much distruction of peoples lives left in the wake I don't find it one bit funny.

As for the free lunch quote, those who caused and fed the problem are still feeding for free, some of it being paid by my taxes, and probably by some of yours too .

I agree with you, banks should not have been bailed out but let fall into bankruptcy. I also think it is quite plausible that people were mis-sold mortgage products, and the ultimate punishment to the banks should be to take the loss, without any backing from tax payers.

Where I disagree is that people should be now helped out. Every person that took out a mortgage was an adult. No amount of sales pitch can excuse the fact that people did not take account for the possibility of lower or loss of income or a drop in house prices. If anybody is to be blamed for the financial ignorance of people it is the state run education system, which to this day does not adequately cover personal finance.

Do I feel empathy for people in financial trouble? Yes. But no person or business or industry should be bailed out, with tax payers money, for making financially bad decisions.

 

[jpd]

Must say that I lean towards Chris's attitude as well.

 

[lightswitch]

I agree with you, banks should not have been bailed out but let fall into bankruptcy. I also think it is quite plausible that people were mis-sold mortgage products, and the ultimate punishment to the banks should be to take the loss, without any backing from tax payers.

Where I disagree is that people should be now helped out. Every person that took out a mortgage was an adult. No amount of sales pitch can excuse the fact that people did not take account for the possibility of lower or loss of income or a drop in house prices. If anybody is to be blamed for the financial ignorance of people it is the state run education system, which to this day does not adequately cover personal finance.

Do I feel empathy for people in financial trouble? Yes. But no person or business or industry should be bailed out, with tax payers money, for making financially bad decisions.

Can't disagree with any of that. I suppose the point I was trying to make is that the public were dealing with highly trained Sales People which is a very different thing to what they might have perceved a Financial Advisor to be. As I said I know a lot about sales tactics and to put it mildly, the ethics were seriously missing and their advice was seriously misleading. Had I listened to them I would probably have 4 or more NE properties dotted around the globe.

 

[cartman1]

I don't disagree with anything that Chris said in his last post either but as I said before neither debt restructuring nor the other options I suggested are debt forgiveness and no external party has to foot any bill. I work in a business that gives trade credit to customers and we have been flexible in providing solutions to those that over-stretched themselves. These are solutions that we wouldn't have countenanced before but we're in extraordinary times so things have to be done differently. It's just common sense and banks should do the same.

 

[Blondbiddy]

Remember when we all had "homes" and not "houses".