Negative equity

georgiasmum

This was being discussed at work yesterday and whilst I understand that it is a bad thing is it really so bad if you are making the mortgage payments comfortably and have no intentions of moving in the forseeable future? I'm fortunate that I'm not in this position but am curious. Sorry if this is a dumb question.....:rolleyes: :rolleyes: :rolleyes: :rolleyes:

roswell

negattive equity isnt a problem if you can keep up payments and hold out till prices riase again, the problem comes if you NEED to move eg no local employment / change in circumstances / divorce / growing family.

if you dont need to move / sell its not a problem unless you panic and try to offload your depreciating house because everyone else is.

PoorDave

The problem tends to be that when house prices go down, it's because interest rates have gone up. This means that often once you find yourself in a negative equity position, you also find your monthly payments have rocketed due to the extra interest.

People may say they are on fixed rates, but what happens when they run out? If you go to remortgage then, you aren't going to get the same fixed rate you just finished, not in today's rate climate.

EdInvestor

Most people who got badly affected by negative equity in the early 1990s were people who had a separate problem which meant they really needed to sell their home - eg, lost job, relationship broke down, divorce, serious illness.

But later the lenders realised the problem and got more flexible, allowing people to transfer and increase their old mortgage to take account of the price drop and move.

Also, the idea of BTL was born, as people let out their house in desperation because they were forced to move and couldn't sell.Later the law on letting was improved and this blossomed into the new market we see today.

Nowadays the market is much more flexible, and people have much more equity in the homes to start with, so the likelihood of negative equity becoming a problem again is low.

lynzpower

I also read on here that if you are in negative equity, you are unlikely to be offered other finance, eg personal loans

Must be a nightmare if your house needs immieidate work, or your car karks it

Can anyone elaborate on this?

lynzpower

Nowadays the market is much more flexible, and people have much more equity in the homes to start with, so the likelihood of negative equity becoming a problem again is low

Do they? I know im not the only one who has NO equity in my home as I got an interest only mortgage

(Dont berate me im selling up )

PoorDave

EdInvestor wrote:

people have much more equity in the homes to start with, so the likelihood of negative equity becoming a problem again is low.

How do you work that one out? Have people stopped buying houses with massive mortgages and tiny deposits recently?

sm9ai

lynzpower wrote:

I also read on here that if you are in negative equity, you are unlikely to be offered other finance, eg personal loans

Must be a nightmare if your house needs immieidate work, or your car karks it

Can anyone elaborate on this?

Yes, you will still get a loan but the interest rate will be significantly higher.

sm9ai

georgiasmum wrote:

This was being discussed at work yesterday and whilst I understand that it is a bad thing is it really so bad if you are making the mortgage payments comfortably and have no intentions of moving in the forseeable future? I'm fortunate that I'm not in this position but am curious. Sorry if this is a dumb question.....:rolleyes: :rolleyes: :rolleyes: :rolleyes:

Negative Equity means no more favourable interest rates as you would be a higher risk. So your mortgage interest rate would go up 2 or 3% probably giving you anywhere between 30-50% higher mortgage repayments.

Of course if you can still afford that then there will be no problems.

lynzpower

sm9ai wrote:

Negative Equity means no more favourable interest rates as you would be a higher risk. So your mortgage interest rate would go up 2 or 3% probably giving you anywhere between 30-50% higher mortgage repayments.

Of course if you can still afford that then there will be no problems.

but I presume lots of people, particularly those in significant unsecured ( or worse secured :eek: debt) would not be able to service those, and voila they need to sell up- except they cant if they are in neg equity.

Do I have that right?

meanmachine_2

EdInvestor wrote:

Most people who got badly affected by negative equity in the early 1990s were people who had a separate problem which meant they really needed to sell their home - eg, lost job, relationship broke down, divorce, serious illness.

But later the lenders realised the problem and got more flexible, allowing people to transfer and increase their old mortgage to take account of the price drop and move.

Also, the idea of BTL was born, as people let out their house in desperation because they were forced to move and couldn't sell.Later the law on letting was improved and this blossomed into the new market we see today.

Nowadays the market is much more flexible, and people have much more equity in the homes to start with, so the likelihood of negative equity becoming a problem again is low.

Aah, what a rosy picture you paint, of homeowners and bank managers gamboling through the fields giggling together.

HOGWASH!

In the event of systemic negative equity watch that "flexibility" vanish in a puff of credit tightening.

Man, I can't believe how complacent people have become. No wonder we are locked into a boom bust cycle, people never learn!!!