Five Million Home Owners Face Negative Equity

whathavewedone

I don't think any government could issue guarantees about interest rates. If we get high inflation interest rates will have to be raised.

I do actually think that the majority of banks will allow people in negative equity to remortage at reasonable rates in a couple of years. By reasonable I mean anything below 7.5%, not necessarily 5%. I also think they should and will only be offered to people who can demonstrate a clear ability to pay their mortgages at the rates offered and who have flawless credit records. That would rule out people with a lot of debts apart from their mortgage.

I think this will happen because if we do end up with high interest rates towards the end of the recession there would be carnage if all the people in negative equity/no equity got put on the SVR. The banks wouldn't get their money back in most cases as, unlike in the last recession, they amounts needed to be recovered including admin fees etc would be 50k plus, hundreds of thousands in some cases. People would simply go bankrupt. I just don't see how that would help the banks to get back to health.

A lot of the people who bought in the boom will have been families who simply wanted somewhere to live. These people will be in the most negative equity as the bigger the house the more money they will owe. They are also likely to be older than most FTBS which means the chances of them paying back 70k plus back to the banks before they die are slim.

Consequently I think if interest rates do go sky high it will be new buyers (either FTBS or people wanting to trade up or down) that will have to pay them. Obviously savers would benefit too.

All governments worry about what the Daily Mail says. Can you imagine what the Daily Mail would say if 3/4 of "middle england" get repossessed? Whoever was in power at the time wouldn't get in again for decades.

System

whathavewedone wrote: »

I don't think any government could issue guarantees about interest rates. If we get high inflation interest rates will have to be raised.

Shame

whathavewedone wrote: »

I do actually think that the majority of banks will allow people in negative equity to remortage at reasonable rates in a couple of years. By reasonable I mean anything below 7.5%, not necessarily 5%. I also think they should and will only be offered to people who can demonstrate a clear ability to pay their mortgages at the rates offered and who have flawless credit records. That would rule out people with a lot of debts apart from their mortgage.

The problem is (and I ranted about this in another thread) the difference between lenders. As an Abbey customer I need 5% deposit to secure a 7.09% mortgage with a £2,499 fee on top, whereas other lenders are allowing 5-5.5% mortgages with no deposit and much smaller fees.

As far as I'm aware my credit history is topnotch and I don't even have any other debts, even my student loan has gone as of last month. Do lenders ever change the rate case by case?

I find the rest of your post quite comforting, it seems like common sense to me but like I say I know next to nothing about this mess.

whathavewedone

I should add that I don't think we'll see higher interest rates until the bottom of the housing market has been reached.

Even if we do it is highly unlikely that banks will allow people in negative equity to remortgage until it is blindingly obvious to everyone that the bottom has been reached.