Banks to offer mortgages to facilitate moving house where negative equity is present

[Neg Covenant]

Can anyone please explain what government mechanisms have been put in place to avoid banks getting into a bubble scenario again where they require bailing out?

Tougher more intusive regulation, Unification of Financial Regulator and Central Bank, increased capital requirements. Apart from that, there is massive debate going on about co-ordinated international and EU-level banking reform.

 

[canicemcavoy]

Tougher more intusive regulation

What legal guarantees are in place?

[broken link removed]

I can only find references here to the merging of FinReg and the Central Bank. It alludes to "legislation" - does anyone have a link to the text of any proposed bills, or is this just vapourware?

I'm actually not sure why a merger a good thing; I would have thought that four eyes were better than two, and rather than two fail points as before, we now only have one.

 

[Complainer]

Of course paying down the debt will reduce negative equity.
Negative Equity = Value of House - Balance of Mortgage

Paying down the debt doesn't change their overall financial position. They had €20k in savings before hand, so whether this is a positive balance in their savings account or a lower negative balance in their mortgage account doesn't change their equity position. It is just moving money around.

By your logic, the negative equity on the existing property will increase if the market drops in any event. Therefore any increase in negative equity on the new house should only be marginally greater, if at all, than it would have been on the existing house.

Nope - the risk is greater on the new house because of the higher value of the new house. A 10% fall on a €400k house will hurt more than a 10% fall on a €250k house.

 

[Moral Ethos]

It will all end in tears. The banks have learned nothing.

 

[Sunny]

Nope - the risk is greater on the new house because of the higher value of the new house. A 10% fall on a €400k house will hurt more than a 10% fall on a €250k house.

Not necessarily. You are assuming they are both in the same economic situation. It could be equally painful for both as it is more likely the person living in the €400k house has higher earnings. Therefore a 10% fall is a 10% fall. As a matter of fact, I probably have more problems with a 10% fall on my €250k property than the guy in a €1.5m house.

 

[Chris]

I agree with the point you're making, but public sector employees - really? The way I remember it, they were first aimed at a select group of professions (medical, legal). I don't recall 100% mortgages being ever targeted at public sector staff.

Permanent public sector employees, like guards, nurses, civil servants were some of the few professions that initially were given 100% mortgages, but this quickly trickled down to other private sector professions. High income professionals (medical, legal) usually don't have the same difficulty in coming up with at least some sort of deposit.

I take it you are not familiar with Galbraith's book?

The reason he wrote it was so those who did not remember the crash would still learn the lessons. Unfortunately, 78 years later which is uncannily close to the length of a human life, we have fallen into the same trap.

Please provide an example of any property bubble in history which crashed by more than 50% which was followed by another property bubble within the next 10 years?

As Galbraith was a Keynesian people should always be very suspect of any of his writings. Claiming that all we need to do in order to protect against bubbles is remember them is typical Keynesianism in that it believes the boom/bust cycle is random and not a result of government policy.

There was a massive equity bubble in the late 90s (dotcom) which was fuelled by cheap credit. When this burst in 2000 massive money printing went on and credit was made even cheaper, which ultimately fuelled another bubble. This next bubble was real estate which burst in 2007. That's a mere 7 years from one bubble to the next.

 

[Complainer]

Permanent public sector employees, like guards, nurses, civil servants were some of the few professions that initially were given 100% mortgages, but this quickly trickled down to other private sector professions. High income professionals (medical, legal) usually don't have the same difficulty in coming up with at least some sort of deposit.

Nope, you're rewriting history, Chris. The first 100% mortgage was from Ulster Bank in 2003 and was specifically targeted at a select group of professions, including the medical/legal guys that you reckon wouldn't have needed it. See http://www.askaboutmoney.com/showthread.php?t=5014

In fact, the medical & legal professions are first on the list! No mention of civil/public servants being covered here at all.

Not necessarily. You are assuming they are both in the same economic situation. It could be equally painful for both as it is more likely the person living in the €400k house has higher earnings. Therefore a 10% fall is a 10% fall. As a matter of fact, I probably have more problems with a 10% fall on my €250k property than the guy in a €1.5m house.

I'm talking about the same person here, so they are in the same economic situation. The person is currently in a €250k apartment, and will be using this new dubious loan to move to a €400k house. The impact of a 10% fall in the market will be greater after the move, than before the move.

 

[Neg Covenant]

As Galbraith was a Keynesian people should always be very suspect of any of his writings. Claiming that all we need to do in order to protect against bubbles is remember them is typical Keynesianism in that it believes the boom/bust cycle is random and not a result of government policy.

Have you read J.K. Galbraith's "The Great Crash, 1929"?? I am guessing you haven't considering the warnings he gave to politicians when called to give testimony in later years.

BTW - I strongly recommend J.K. Galbraith's "The Great Crash, 1929" to everybody. It is a short page-turner that the lay reader can finish in few days. You will laugh out loud at the stupidity of those involved and you'll be amazed at the parallels with our own crash.

There was a massive equity bubble in the late 90s (dotcom) which was fuelled by cheap credit. When this burst in 2000 massive money printing went on and credit was made even cheaper, which ultimately fuelled another bubble. This next bubble was real estate which burst in 2007. That's a mere 7 years from one bubble to the next.

You have missed the point.

The questions was: "Please provide an example of any property bubble in history which crashed by more than 50% which was followed by another property bubble within the next 10 years?"

The crash we just has was not a dot com crash. The crash we had was a property crash. People on this thread are warning against creating another property bubble.

 

[breathnach1]

In negative equity of about 50k, have planning permission to build a house which i need as family getting bigger.

I think I can build the house for 30k less than current value of house in neg equity. Surely this would be a good qualifying factor for a neg equity mortgage ??

 

[Pat Bateman]

This is the common scenario where the "negative equity mortgage product" would be perfectly acceptable and appropriate:

Young couple purchase apartment for €400,000 3 years ago with a mortgage of €360,000 and €40,000 savings.

The plan was to trade up to a house in 3-5 years.

The apartment is now worth €290,000 and the outstanding mortgage is €350,000.

The couple have savings amounting to €50,000.

They have joint income of €140,000 per annum.

They want purchase a house for €440,000 and start a family because they're of the view that an apartment isn't suitable for raising a child.

They see themselves in the new property for the rest of their lives.

Why shouldn't this "product" be made available to this couple?

The €60,000 negative equity is effectively unsecured. By transferring it to the new property it becomes secured.

The above is a winner for everyone - The couple and the bank.

 

[Chris]

Have you read J.K. Galbraith's "The Great Crash, 1929"?? I am guessing you haven't considering the warnings he gave to politicians when called to give testimony in later years.

BTW - I strongly recommend J.K. Galbraith's "The Great Crash, 1929" to everybody. It is a short page-turner that the lay reader can finish in few days. You will laugh out loud at the stupidity of those involved and you'll be amazed at the parallels with our own crash.

Yes I have read it and I also endured reading some chapters of "The Good Society", which is even worse in its conclusions. Keynesian economics has failed to adequately explain any bubble in history, always dismissing government intervention through fiscal and monetary policies as irrelevant. If you want to know what really caused the 1929 crash and subsequent great depression read Rothbard's "The Great Depression".

You have missed the point.

The questions was: "Please provide an example of any property bubble in history which crashed by more than 50% which was followed by another property bubble within the next 10 years?"

The crash we just has was not a dot com crash. The crash we had was a property crash. People on this thread are warning against creating another property bubble.

No I have not, the point Galbraith makes is that we only need to keep or memories fresh on past bubbles and this will somehow lead to less "speculation", which he blames for the bubble, dismissing monetary inflation and credit expansion. What part of the economy turns into a bubble is irrelevant.

On it's own negative equity mortgages will not re-inflate a bubble, but it is an attempt at interfering with market conditions.

 

[Bob Nellies]

i am in my early thirties and 5 years into my mortage.

the property is in negative equity. i can't rent it out as the shortfall on the mortgage is too high (40%). Also, there is a huge surplus of new houses in my area now selling at vastly reduced prices. So the chance that i would even attract a buyer for my property is remote.

if i rent closer to work, my own rent will exceed my current mortgage repayments and i will also have to make up the shortfall on the mortgage.

My commute is almost 3 hours every day.


It is for similar reasons that people who bought apartments in the last 5 years cannot rent out the property and move elsewhere.

We are trapped. For years.

 

[Neg Covenant]

Yes I have read it and I also endured reading some chapters of "The Good Society", which is even worse in its conclusions. Keynesian economics has failed to adequately explain any bubble in history, always dismissing government intervention through fiscal and monetary policies as irrelevant. If you want to know what really caused the 1929 crash and subsequent great depression read Rothbard's "The Great Depression".

Fair play to you if you have read it. I think you have a wider beef with Galbraith and Keynes. That anti-Keynes/pro-Keynes stuff does not interest me. I think the risk of us having a property bubble starting now is remote to say the least.

No I have not, the point Galbraith makes is that we only need to keep or memories fresh on past bubbles and this will somehow lead to less "speculation", which he blames for the bubble, dismissing monetary inflation and credit expansion. What part of the economy turns into a bubble is irrelevant.

On it's own negative equity mortgages will not re-inflate a bubble, but it is an attempt at interfering with market conditions.

It is not an attempt to interfere with market conditions. It is a market solution proposed by players in the market acting from commercial self interest with a view to allowing the market to function more freely. Maybe it was my mention of Galbraith that annoyed you rather than anything to do with Negative Equity Mortgages? That is the danger with partisan views of the social sciences. People miss the point because they are too busy fignting for their "side" of a spurious argument.

 

[liger79]

I see this as being an option for couple who bought 04 onwards that are in a situation where they have split up and need to sell the house. I am in such a situation. i went into UB this week and the Advisor never made reference to such a product. Instead of advising me that i could look for a house with a lower value if i was able to sell my current place and tranfer my part of the debt to a new mort he advised that i could stretch my funds and apply to take over a mortgage and the full debt.

I'm very annoyed right now.