2 million homeowners and 500,000 BTL'rs in NE if price falls hit 30%

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Now, I can understand the BTL figure, as it is they who have proped the market up since 2004, but what I can't understand for the life of me is how 1 in 4 mortgage holders will be in NE if prices only fell 30% ??. With house prices rising in a lot of areas by upto 300% in the last decade, what have people been doing with the equity in their home to be NE if prices only drop by this modest amount ? Shocking.

The Financial Services Authority (FSA) said that if property prices fall by 30 per cent from their peak - as is likely - two million homeowners and 500,000 buy-to-let investors will be in negative equity.
This would mean that one in four homeowners with mortgages and half of buy-to-let borrowers may be unable to sell their properties or remortgage until property prices rise.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/5018160/2m-homeowners-to-fall-into-negative-equity-FSA-warns.html

Edit. If it is correct that mewing has put such a large amount of people close to the edge, may I suggest Brown introduce 'another package of measures' of putting 'Financial Studies' on the National Curriculum, as a mandatory subject along with Maths and English, as it would seem a large part of the population are financially illiterate.

amcluesent

>what have people been doing with the equity in their home to be NE if prices only drop by this modest amount ?<

MEWing. How else did they get the cottage in France, luxury 4*4 and a 'track day' Lotus Elise, Jocasta's pony, the swimming pool in the basement, plasma TV in every bedroom, 3 holidays a year, her-indoors boob-job and facelift, ...

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amcluesent wrote: »

>what have people been doing with the equity in their home to be NE if prices only drop by this modest amount ?<

MEWing. How else did they get the cottage in France, luxury 4*4 or two, Jocasta's pony, the swimming pool in the basement, plasma TV in every bedroom, 3 holidays a year, her-indoors boob-job and facelift, ...

Agreed, and if that's the case, I have little or no symapthy with them.

amcluesent

But as we live in a democracy the 'tyranny of the majority' will ensure that policy is to bail-out the MEWers, and punish the prudent.

polyalloy

amcluesent wrote: »

But as we live in a democracy the 'tyranny of the majority' will ensure that policy is to bail-out the MEWers, and punish the prudent.

People start to doubt democracy, free market, and rightly so.

whathavewedone

Well not necessarily.

A large number of people bought between 2004 and 2008. We had a 25% deposit when we bought in 2007 which seemed like a reasonable deposit at the time. We put more money in October 2008 when we came to remortgage in order to maintain our ltv to get a decent rate fixed mortgage (5.6% - if only we'd forseen interest rates falling as they have done, we could have gone on the SVR and overpaid like mad for a year:mad: ).

Luckily we have a good savings pot so if prices do only fall by 30% peak to trough we will still have a deposit and should be able to build it up to 25% again fairly quickly.

Don't forget the people who bought with 95% and 90% mortgages over the last 4 years either. And the people who bought with 100% mortgages.

Most of the people that I know who mewed did so to fund extensions, loft conversions etc which should in the long run increase the value of their properties but even in a rising market you would expect not to recover the amount spent for a few years. Again most people who borrow money to make these kind of improvements did not do so to make money but simply to accommodate a growing family. That being the case negative equity for a few years is not a problem so long as people can pay their mortgages.

I have mentioned this elsewhere but my older sister had negative equity for several years in the 1990s. She sold up in 1995 (at the end of the recession) and brought her negative equity with her to a house which she borrowed additional money to purchase and renovate. She bought it for 90k, lived there until 1999 and then sold it for just under 250k.

So negative equity doesn't have to be the end of the world.

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whathavewedone wrote: »

Well not necessarily.

A large number of people bought between 2004 and 2008.

My thread starter wasn't aimed at people like yourself, I understand from a fianancial point of view people who bought for the first time or who had little equity in their home between these dates may be close to NE or in it, what shocked me was the ratio, 1 in 4, that is a hell of a lot of people.

Ian_Griffiths_Halifax

amcluesent wrote: »

her-indoors boob-job and facelift, ...

Just about the only positive!

Surely this can be off-set as a rise in asset value which also gets a high interest rate?

Ian_Griffiths_Halifax

I was at a Conference on Monday and we were told that the average BTL mortgage was only 60% LTV. That surprised me as I would have thought it would be much higher than that.

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Ian_Griffiths_Halifax wrote: »

I was at a Conference on Monday and we were told that the average BTL mortgage was only 60% LTV. That surprised me as I would have thought it would be much higher than that.

I guess it would depend on who is doing the valuation, or if any were done at all, and they were basing the 60% LTV on 2007 prices, after all, a look on Rightmove would seem to prove that a lot of people seem to have no idea that their house is worth less than it was in 2007.

whathavewedone

Well I wasn't talking just about people like myself but I do think you underestimate the amount of people who bought for the first time or traded up over the last four years.

It is true that a lot of people remortgaged during the period of time that the market was rising but I just wanted to make the point that the majority of mewers only did so to make their homes better to live in. I think it was a minority who mewed to pay for holidays and cosmetic surgery. As for plasma screens they only cost about £200 in Tescos...hardly enough to plunge most people into financial meltdown.

Of course someone who bought in 2002/3 with a 10% deposit who borrowed enough money to get a loft conversion/substantial extension done in 2006/7 would be in negative equity if/when prices fall by 30%.

Also if prices fall by 30% across the board on average, flats and newbuilds will in reality fall much further. What sort of people bought these sorts of properties from 2000 onwards? FTBS. What sort of deposits did the majority put down? 5% 10% or nothing.

When I bought my flat (newbuild) in 2002 I ended up paying the asking price because another couple had offered over the asking price. I was favoured because I had an 80k deposit whereas they were getting a 100% mortgage. When I sold my flat in 2006 I only made 11k - the service charges had gone up to £100 per month which meant a lot of people couldn't afford it. I wouldn't like to be trying to sell it now. So you see if those people had bought that flat they would probably be in negative equity already never mind waiting for the market to drop 30%.

I just think the headline's a bit sensational that's all.