All the signs of negative equity are arriving

eurows

I read this today on the Times website. Doesn't this tell you something.....

Home comfort for jittery buyers



A HOME loan that offers borrowers protection against negative equity is to be unveiled next week.
John Charcol, the broker, has designed a mortgage to prevent homeowners owing their lender more than their property is worth. The protection against negative equity will kick in when borrowers are unable to keep up their mortgage repayments because of sickness or unemployment, but do not want to sell their property because it is worth less than the original loan.

Millions of homeowners found themselves in negative equity at the beginning of the 1990s as house prices plummeted and interest rates soared.

bridiej

Depends how you read it.

You could say that this is because house prices are going to plummet which is why it's being offered.

I'm more inclined to think it's playing on home owner's insecurities and is a nice little earner for the broker.

EdInvestor

Kind of a replacement for mortgage payment protection insurance you mean?

meanmachine_2

That policy gives you NO protection from negative equity as far as I can see, and as others have pointed out, is just a tricksy way of getting you to cough up for mortgage protection.

The only real defence against neg eq is to put down a sizeable deposit. fact.

dougk_2

It could also be argured that insurers don't take risks therefore they don't feel that negative equity is going to be a major issue. If they were going to loose a hefty amount they wouldn't offer such policies.

garysletters

So this insurance is designed to help people stay in their house if they cant affort repayments and their house is worth less than the mortgage.
Its not the negative equity that is the problem if people want to stay where they are, it's the mortgage repayments.
It's not quite a mortgage payment protection scheme as I guess its designed more for if rates go sky high so people couldn't afford them rather than for if you lose your job or are incapacitated..

It mearly seems to be a "sky high interest rate protection" scheme.
We all will have differing views on interest rates, but I personally cant see them going "sky high", especially with next week as a starting point. If you are getting a mortgage so big from next week, and are fearful of massive interest rate rises, then get a longer term fixed rate???? Solves the problem, and no need for insurance premiums! (which even if not charged seperately will still just be built in to the rate you pay, thus making higher rates more likely anyway, and so your inability to pay more likely!!!!

GDB2222

meanmachine wrote:

The only real defence against neg eq is to put down a sizeable deposit. fact.

Or buy when house prices are an average of 2 or 3 times earnings, not 7 or 8 as at present.

GDB2222

dougk wrote:

It could also be argured that insurers don't take risks therefore they don't feel that negative equity is going to be a major issue. If they were going to loose a hefty amount they wouldn't offer such policies.

Insurers pool risks - that's the nature of insurance. They take a lot of risks on, so the outcome for their pool is close to the average.

This is, in any case, just a redundancy/sickness insurance. The insurer is not taking a view about house prices, they are just taking a view about the likelihood of people going sick etc.

meanmachine_2

GDB2222 wrote:

Or buy when house prices are an average of 2 or 3 times earnings, not 7 or 8 as at present.

Quite. Which is why I won't be buying until we as a nation - and indeed a planet, looking at the markets in the US and Aus - return to the historical trend. Doing anything else is tantamount to doolally-ness.