repossessions predicted this year will reach about 75,000.

Wookster

Generali wrote: »

If house prices fall so you have no equity or have negative amounts of equity in your home then clearly those options are closed to you.

Ironically I think banks are more likely to reposess people with equity in their property as it means they are more likely to get the full amount outstanding back.

chucky

Wookster wrote: »

Ironically I think banks are more likely to reposess people with equity in their property as it means they are more likely to get the full amount outstanding back.

why would they want to do that!?

traditionally repos are sold at less than market value - the bank would try to sell the property quickly at a discount anyway - how would they be more likely to get the full outstanding amount back?

Generali

longleggyblonde wrote: »

But the actual price of your property, whether you're in negative equity or have a lot of equity, does not alter your position as to whether or not you can afford the mortgage repayments.

Your suggestion of borrowing against your equity to pay your mortgage is utterly ludicrous. That's the worst economic advice I've ever heard. You'll just be adding to your debt and your mortgage repayments will increase!

Ok, I don't think I'm explaining myself very well. So let's take an example of a glamorous young couple (lets call them Mr and Mrs Generali) who buy a house for £200,000 with a £180,000 mortgage.

Example 1: House prices rise by 15% so house is now worth £230,000. Mr Generali loses his job as a banker, is unable to get another one and they struggle to pay the mortgage and get into arrears. They have 3 options:
- Bury head in sand and get repossessed
- Borrow some cash against the house to keep making the payments and buy some time
- Sell the house before they get repossessed, hopefully walking away with some cash

Example 2: House prices fall by 15% so house is now worth £170,000. Mr Generali loses his job as a banker and they struggle to pay the mortgage and get into arrears. They have 1 option:
- Try to get some cash together before repossession happens. If they can't (and the current environment is a tough one for job hunting) they they get repossessed.
- They can't borrow against the equity in their house as there isn't any and they can't sell as the value of the house is less than the value of the mortgage.

In the first example they need not be repossessed. In the second example they have no other option within the bounds of what is reasonable.

That's why falling house prices leads to more repossessions and that's without the fact that a worsening economy leads to more examples like our tragic couple.

treliac

So, in effect, the fall in house prices / negative equity doesn't threaten someone with repossession. If they calculated the cost of their mortgage wisely and nothing else changes, they just carry on paying it.

It's the extra factor of redundancy / loss of earnings that creates the threat of repossession. That factor alone is likely to lead to an inability to pay the mortgage, irrespective of any drop in house prices.

dopester

ad9898 wrote: »

I believe Brown's exact words in '97 whilst standing at the despatch box in the House of Commons were.....

' I will not allow house prices to get out of hand and destabilise the economy '

I've got that early, responsible speech Clown made, soon to be forgotten as HPI fever took hold, uploaded on my YouTube video account.

He said: "I will not allow house prices to get out of control and put at risk the sustainability of the recovery."

dopester

Generali wrote: »

Clearly you wouldn't be repossessed if you're servicing your debt.

If you're not and you have equity in your home you have options available which aren't open to those without equity.

I'm not so sure. Or it depends on the level of equity at least. Say you lost your income but had 80% equity... you might be given breathing space to borrow 10% or more secured against a house to ride out the storm for a few years - but 50% equity might not cut it, with lenders not wanting to increase the size of the loan to value.

The lenders didn't really care for the fact this woman had £1million of equity in her supposed £2.2 million own home - repossessed. Ran her equity position too fine, too much debt to service with insufficient income, and not enough options open to her that satisfied the lenders - rightly so.

Generali

dopester wrote: »

I'm not so sure. Or it depends on the level of equity at least. Say you lost your income but had 80% equity... you might be given breathing space to borrow 10% or more secured against a house to ride out the storm for a few years - but 50% equity might not cut it, with lenders not wanting to increase the size of the loan to value.

The lenders didn't really care for the fact this woman had £1million of equity in her supposed £2.2 million own home - repossessed. Ran her equity position too fine, too much debt to service with insufficient income, and not enough options open to her that satisfied the lenders - rightly so.

It's true what you say in practical terms. It is still the case that if you have equity in your home you can (usually) sell it and pay back the debt. If you don't have the equity you can't sell so are at risk of being repossessed.

The point is that repossessions rise if house prices fall for this reason.