Why do the banks not do negative equity mortgages?

[Bronte]

I know quite a few young couples who are stuck in apartments and are desperate to buy houses with a view to starting a family. They're postponing this because their in negative equity. Most would have combined income of €100,000 - €120,000. They could easily afford a mortgage on a larger property and the absorption of the apartment's negative equity into that apartment. They just can't bridge the €50,000 - €80,000 to get them out of the negative equity problem. .

You can't have it both ways. If they can easily afford a bigger mortgage then they can easily either rent out their apartment or pay down the negative equity and then buy. Personally I find it incredible that people on 100K to 120K salaries can claim an inability move and hence an inability to afford a child. Can you explain how much is their current mortgage, the repayments, the size of their current apartment etc so that I can see it as clearly as you.

To put some context on it I have a sibling who has a very young kids and moved out of a vastly negative equity property in Dublin and is renting it out at below mortgage amount but is managing that and where they are living now on a much lower salary than you've quoted.

I'm not sure but I'm getting the impression that people want to move into houses with the click of a switch and take on even more debt while claiming they cannot do anything about the negative equity of the tiny apartment they have bought and would also like that to go away with the stroke of a wand.

 

[johnnygman]

There seems to be such an attitude of, "if they are getting it, I want it" very childish and unhelpful.I doubt anyone here who is not in massive negative equity understands the difficulties problems that this mess has caused for young families. Most of the people who are taking this attitude are the one who perhaps through nothing more than blind luck and timing/age are not in this terrible position. It's the ordinary families that I feel for, this was not their doing.
This issue hugely affects labour mobility and as pointed out causes huge social problems, people need to realise that the Goverment will only do somthing in relation to this if it helps the economy and society in general and stop thinking so much about "what's in it for me" I am not in negative equity thank God but as someone pointed out earlier I could easily have been if the timing had been different and would not like to be stuck with that noose around my neck. Take a drive though the midlands North West and tell me you dont feel sorry or want something done some of these people who have paid their taxes like you and I. I find it very sad to see people making comments such as "I would be sickened" if they did something to help thinking only of themselves.

 

[csirl]

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.

This isnt as easy as it seems.

Consider a family who have to move location for employment reasons - main earner made redundant, but offered job in new location. Say, for example, their house will fetch €1k per month in rental income. And renting a similar house at the new location also costs €1k per month.

On the surface this sounds ok, however, after taxes and expenses, they will be lucky to get €600 per month net for their own house, thus leaving a shortfall of €400 per month. They may not be able to move because they cannot cover this shortfall.

The above is restricting labour force mobility - people cannot follow employment and consequently cannot work their way to a better situation. The hypothetical family above may end up costing the State a lot more in the long run as they will default on the mortgage if the main earner cannot get work in his locality and they will be on benefits (a lot more than €400 per month!!!) for as long as they are at the original location.

 

[Sunny]

I think many people are at cross purposes here. I think people should be helped but I don't think there should be taxpayers money used and I don't think there should be debt forgiveness. There are a few things that can be tried but there is no simple ideal answer. Some possibilities include negative equity mortgages as argued here, extending mortgages up to 50, 60 year terms to reduce current payments, deal with personal bankruptcy laws, look at freeing up money tied up in long term pension funds, speeding up reprocession process to stop arrears climbing (the current moratorium is hurting a lot borrowers).

All them in my opinion have serious drawbacks but we are going to have problems for the next 20 years. We need to look at every possible solution.

 

[bugler]

Space is an issue you can deal with. A bigger problem with families in apartments will be build quality, lack of a garden, and the behaviour that goes on in larger developments by a minority of people.

 

[Leaky1]

Bronte, you asked for figures of how us neg equity people could afford to tradeup IF we're allowed carry neg eq to a new home.

My current mortgage ?179k, 24yrs remaining, monthly repayment ?970. Neg eq of 50k.
New ppr ?180k (ppr 200k less 10% deposit) + 50k neg= 230k mortgage. Paid over 30yrs, monthly payments ?1,100.

Joint salaries ?60k, secure jobs. To me those payments look do-able.

 

[Shawady]

Im not planning to have children right now, but if I was there would just be no space in the apartment for it. Two of us are crammed in there like sardines right now.

I have friends in the same situation (actually worse - only in one-bed apartment) and I have a lot of sympathy for you but I think having one or two children in an apartment is doable.
We had to move out of my house for 3 months last year and move into a tiny one-bed with my two children, ages 3 and 5. We all shared the same bedroom. Us in one bed and the two children in another. It was a bit of a pain but you do get used to it. It is probably a better option than not having kids at all, if that is what you want.

 

[johnnygman]

Debt forgiveness is more than godly -- it makes fiscal sense by Marc Coleman


I think the author hits the nail on the head right here.

 

[csirl]

http://www.independent.ie/opinion/a...than-godly-it-makes-fiscal-sense-2614950.html

I think the author hits the nail on the head right here.

Though, it should be noted that Marc Coleman is in the middle of a Seanad Election campaign and many of his target voters are young people in negative equity.

I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.

However, there must be some practical ways in which people, who did not overstretch, and who need to move house, can be helped. I would have no difficulty with a scheme whereby someone can transfer their negative equity mortgage to a new property, provided that strict rules apply and that they are willing to pay a bit extra to cover any extra risk or any additional costs (so it is cost neutral for the taxpayer).

I dont have a fleshed out solution, but we could be thinking along the lines of things like the following:

1. Allowing the transfer of a mortgage to another property of the same value whereby both bank and borrower remain in the same financial position. In fact, if a small additional premium is paid by the borrower (e.g. an extra 0.5% in interest) it would be good for the banks/exchequer. This also does not forgive wreckless borrowers.

2. For trader uppers, allow them to take out a new mortgage, provided their total repayments (remaining portion of neg equity loan and new mortgage) are within acceptable limits. Make them take out comprehensive mortgage protection insurance for the entire loan, incl. transferred neg equity and make it compulsory for their mortgage repayments to be by direct deduction at source from their salary. Also, charge a small additional premium on the loan as per 1 above.

 

[johnnygman]

I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.

Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?
Surely this is far more immoral than helping these young families and taxpayers out, I do not categorise them all as reckless as pointed out, it was beyond many of thems control how they and us all ended up in this mess. Something needs to be done or many of these people would just be better off handing back the keys to these properties and leaving this country and starting their families and living abroad where they can expect to have perhaps a job and an opportunity of some quality of life.
This country will be in a much worse position then if net emigration starts to get any worse as I have seen this happening already and getting worse.
It's a difficult problem for sure but we need to tackle it immediately in my opinion and get something contructive in place.

 

[Bronte]

Bronte, you asked for figures of how us neg equity people could afford to tradeup IF we're allowed carry neg eq to a new home.

My current mortgage ?179k, 24yrs remaining, monthly repayment ?970. Neg eq of 50k.
New ppr ?180k (ppr 200k less 10% deposit) + 50k neg= 230k mortgage. Paid over 30yrs, monthly payments ?1,100.

Joint salaries ?60k, secure jobs. To me those payments look do-able.

What's the interest rate on both those mortgages. You've increased the term of the 'new' mortgage so it make it look like there is not much of a difference between the two repayments. What would happen if interest rates went up say 3%, would you be able to afford that. Also there are selling costs and buying costs. Post up all the figures to show how it makes sense.

Has any country ever tried the negative equity mortgage?

 

[Sunny]

Has any country ever tried the negative equity mortgage?

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.

 

[Bronte]

What would the criteria be? In general.

 

[Leaky1]

I increased the term of the 'new' mortgage in my example, I dont see an issue with it. 12mnths ago my mortgage had 32yrs left but I paid lumpsum to reduce it to 24yrs (thats why my deposit is only 20k). Yes,I havent costed sell/buying costs. We've 6k extra which could be used for it.

The interest rate used is my current rate, 4.5%. Im also due promotion in a few months, so that'll be extra income

 

[bluemac]

I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.

Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?
Surely this is far more immoral than helping these young families and taxpayers out, I do not categorise them all as reckless as pointed out, it was beyond many of thems control how they and us all ended up in this mess. Something needs to be done or many of these people would just be better off handing back the keys to these properties and leaving this country and starting their families and living abroad where they can expect to have perhaps a job and an opportunity of some quality of life.
This country will be in a much worse position then if net emigration starts to get any worse as I have seen this happening already and getting worse.
It's a difficult problem for sure but we need to tackle it immediately in my opinion and get something contructive in place.

Would be interesting lets just say we have bailed out the banks by 80 Billion. how much would it cost us to help families in negative equity? 1 Billion?, or am i way off the mark?

and could we pass this onto the banks in future years or the bond holders now who lent the banks this money? a Haircut as such to get the country back on its feet.

 

[Gekko]

You can't have it both ways. If they can easily afford a bigger mortgage then they can easily either rent out their apartment or pay down the negative equity and then buy. Personally I find it incredible that people on 100K to 120K salaries can claim an ability move and hence an inability to afford a child. Can you explain how much is their current mortgage, the repayments, the size of their current apartment etc so that I can see it as clearly as you.

To put some context on it I have a sibling who has a very young kids and moved out of a vastly negative equity property in Dublin and is renting it out at below mortgage amount but is managing that and where they are living now on a much lower salary than you've quoted.

I'm not sure but I'm getting the impression that people want to move into houses with the click of a switch and take on even more debt while claiming they cannot do anything about the negative equity of the tiny apartment they have bought and would also like that to go away with the stroke of a wand.

Negative equity portability isn't debt forgiveness...it's just debt restructuring to mitigate social problems. People should remember that we're primarily a society rather than an economy. I'm merely advocating creative thinking and flexibility for people who could move home "with the stroke of wand" were it not for negative equity.

I agree with other posters. The self satisfied and smug attitude of people in relation to topics such is this is infuriating. If you haven't been bitten by the collapse of Ireland Inc, you're just lucky - Simple as that.

I'll get no bailout, but I have no problem whatsoever with something being done with taxpayers' money to assist a young family to escape a ghost estate in Ballygobackwards. They weren't greedy. They just wanted to buy a home for their family. And now they're the victims, not the criminals.

 

[Sunny]

What would the criteria be? In general.

Like all mortgages, they simply come down to affordability. The rates on the mortgage are you usually split e.g. 5% on the first say 95% of the LTV and then 6% for the next 30% LTV or whatever.

The idea of negative equity mortgages is simply a tool to deal with the problem of negative equity. They are not designed to be available to everyone and they won't solve the problem by itself.

 

[csirl]

I dont agree with debt forgiveness. It doesnt sit well with the moral compass i.e. those who were most wreckless are rewarded most. I also dont agree with any plans that will cost the ordinary taxpayer any additional money.

Then how does bailing out banks and bank bondholders, mostly pension funds and many of them Irish pension funds and bond investors with taxpayers money with no penalty for taking the investment risk sit morally?

.

If it were me, I wouldnt give a cent to the banks/bondholders - also against my moral compass. Interestingly, there is very little Irish money in Anglo - mainly UK and Germany.

 

[johnnygman]

Negative equity portability isn't debt forgiveness...it's just debt restructuring to mitigate social problems. People should remember that we're primarily a society rather than an economy. I'm merely advocating creative thinking and flexibility for people who could move home "with the stroke of wand" were it not for negative equity.

I agree with other posters. The self satisfied and smug attitude of people in relation to topics such is this is infuriating. If you haven't been bitten by the collapse of Ireland Inc, you're just lucky - Simple as that.

I'll get no bailout, but I have no problem whatsoever with something being done with taxpayers' money to assist a young family to escape a ghost estate in Ballygobackwards. They weren't greedy. They just wanted to buy a home for their family. And now they're the victims, not the criminals.

Very well put Sir, I am in same boat as yoursellf in that it would be my taxes being used to try and sort this problem, same as it is with the banks, the bondholders and in essence the bonds held in nearly all of our pension funds.
It is not a moral issue for me, it is about getting the country and the people back on their feet and getting us all back on track, the smug labelling of the carnage that has been wrought on our young people and young familes are what Is annoying me. Terms like greedy and criminal are beyond the Pale and have no place in a discussion that is trying to be contructive.

 

[Brendan Burgess]

This isnt as easy as it seems.

Consider a family who have to move location for employment reasons - main earner made redundant, but offered job in new location. Say, for example, their house will fetch €1k per month in rental income. And renting a similar house at the new location also costs €1k per month.

On the surface this sounds ok, however, after taxes and expenses, they will be lucky to get €600 per month net for their own house, thus leaving a shortfall of €400 per month. They may not be able to move because they cannot cover this shortfall.

Hi csirl

Well put, but the principle is correct - people should not feel the need to buy another house when they can rent.

It would be worth your while making a submission to the relevant Minister that those who own a house but rent another can set the rent paid against the rent received. This would be fairer and would help labour mobility.

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.