Will the bank do a trade-down negative equity mortgage?

[pjuegos]

I don't know if you've read my earlier posts, so I'll just say before I post, I'm for negative equity portability. I do however, think its not practical, and difficult to implement.

This isn't a swap of address. It's a sequence of steps involving:

1. A house is short-sold (i.e. for less than the value of the mortgage)
2. A house is bought with a mortgage providing LTV > 100%

Between steps 1 and 2, the person has unsecured debt with the bank.
.

Yes, it is a problem. It would just be a change of address if NE mortgage products were officially approved and backed by the government and the mortgage regulator.

As I said in a previous post:

legal problem: my basic understanding is that the mechanics of conveyancing do not currently allow such operation. The solicitor can only released the deeds on the current house if there is enough money to clear the existing loan, which is not the case for home owners in negative equity. So, a law change might be needed

FG promised before the elections working with the mortgage regulator to allow home owners in NE to trade down. If they finally get to execute this electoral promise (who knows?) , my basic understanding is that they will have to modify the law to avoid the problems you were mentioning.

pj

 

[orka]

... It would just be a change of address if NE mortgage products were officially approved and backed by the government and the mortgage regulator.

Why would it just be a change of address? If there's a time gap between selling a house in NE and buying a new one, the bank is left with unsecured debt between the two transactions. That leaves them open to the borrower not going ahead with the house purchase and bankrupting away the unsecured debt.

 

[pjuegos]

Why would it just be a change of address? If there's a time gap between selling a house in NE and buying a new one, the bank is left with unsecured debt between the two transactions. That leaves them open to the borrower not going ahead with the house purchase and bankrupting away the unsecured debt.

what I mean is that it would be a change in address if there was a system in place that could prevent that to happen, which I assume it will require a change in existing law.

How do they do it in the UK? They already have NE transfers in place .guardian.co.uk/money/2011/jan/27/negative-equity-mortgage-lloyds

pj

 

[orka]

what I mean is that it would be a change in address if there was a system in place that could prevent that to happen, which I assume it will require a change in existing law.

How do they do it in the UK? They already have NE transfers in place .guardian.co.uk/money/2011/jan/27/negative-equity-mortgage-lloyds

I don't know how you could have a system in place to prevent it happening if the sale precedes the purchase - once the NE house is sold, it's sold and I can't think of any mechanism for a bank to force someone to complete the purchase of another house. Compelling the purchase to be done first would leave the risk of the borrower/bank being stuck with 2 properties if the NE house sale doesn't go through. I'm not sure how feasible totally contemporaneous transactions would be but that could work. The only other way (other than the bank just trusting the borrower to do the right thing...) is to only allow it where there is a secured guarantor for the time between the sale of the NE house and the purchase of the next house.

The UK scheme doesn't explain how they get around the problem but it seems to be only available where the borrower has enough savings for a deposit on the next house - so maybe they take control of the savings for the gap time - so at least if the borrower doesn't buy the next house, they have some contribution towards the unsecured loan they have been left with.

 

[Ms2011]

The only other way (other than the bank just trusting the borrower to do the right thing...) is to only allow it where there is a secured guarantor for the time between the sale of the NE house and the purchase of the next house....

...so maybe they take control of the savings for the gap time - so at least if the borrower doesn't buy the next house, they have some contribution towards the unsecured loan they have been left with.

I would be perfectly happy to deal with either of these stipulations.

 

[orka]

The UK product mentioned in the above article should make anyone in NE consider carefully whether they should pay down the NE or hold on to their savings. The UK product requires you to have a deposit for the new property - but you won't have that if you have paid down your NE - even though your overall financial position is the same.

 

[JoeB]

It should be possible to close out two sales simultaenously. I agree that this is awkward, but I now feel strongly that NE mortgages should be allowed.

I can't see a solution to the gap time between buying and selling except to reduce the gap completely, by closing sales at the same time. This does create a chain which makes the whole conveyancing thing more complex, but what other solutions are there?

The bank shouldn't be expected to take risks in order to facilitate this, and it's unlikely that everyone will be able to get secured creditors to guarantee the debt while it's unsecured.
I would disapprove of the goverment acting as 'guarantor of last resort'.

Attempts should be made to minimise transaction costs, and all taxes and charges relating to certain types of these transfers should be tax free.


In cases where the bank have the same security in terms of loan to value that they had previously they should of course allow NE portability.

But is it possible to sell a small apartment, and buy a bigger house for the same money? How is this possible now, if it wasn't possible in the past?


I agree that someone who wants to sell in Dublin and purchase in Galway might be ok, but people in small one beds in Dublkin will not be able to buy two beds in Dublin for the same price as a one bed.. so savings would be required.

If savings are required then the bank may prefer that these are used to pay down debt, and aren't used to facialitate NE portability. This is a problem.. I would disapprove of banks being forced to take certain actions... the government should set up a government bank if they wish to lend money, rather than requiring private companies to do so.

I would be in favour of the government guarantying some small degree of extra debt incurred in NE moves, but only where there is a clear social benefit.,.. ie moves for employment etc. But people would need job offers, i.e guaranteed jobs in the new location.. this will be difficult. Can employers have a job on hold for several months while the person tries to arrange a complex move? I don't see why employers would go for it...