What's the equivalent of foreclosure in the UK?

kevinqq

Was watching a lot of stuff about the 2008 housing crash recently and I find it all quite interesting. It kinda passed me by at the time I was in my 20s and also didn't own a home or anything and basically I wasn't interested :-). 

Is the jist of a foreclosure simply that the lender gets the house back, sells it, then takes the difference of what you owe?     

Does what you have paid so far get returned to you?  

thanks

MWT

Repossession is the equivalent, but it does take longer to get to that point over here.

In the context of the USA and 2008, a lot of those were on properties in negative equity, and the sales process was designed to get a quick sale, not to get the best price so it was not uncommon to find that there was still money owing even after the property had been sold so the lender might still come after the borrower for the balance even after the sale.

No, what you have paid so far is not returned as the aim of the repossession is to get the remaining funds owed, but if there is a surplus after covering what is owed + legal fees + costs of sale, then that residue is returned to the borrower. 

kevinqq

MWT said:

Repossession is the equivalent, but it does take longer to get to that point over here.

In the context of the USA and 2008, a lot of those were on properties in negative equity, and the sales process was designed to get a quick sale, not to get the best price so it was not uncommon to find that there was still money owing even after the property had been sold so the lender might still come after the borrower for the balance even after the sale.

No, what you have paid so far is not returned as the aim of the repossession is to get the remaining funds owed, but if there is a surplus after covering what is owed + legal fees + costs of sale, then that residue is returned to the borrower. 

Thank you.  So if you've paid 50% of your mortgage and then default, you will have thrown away money equating to half the value of the house and will now have nowhere to live. 

molerat

kevinqq said:

MWT said:

Repossession is the equivalent, but it does take longer to get to that point over here.

In the context of the USA and 2008, a lot of those were on properties in negative equity, and the sales process was designed to get a quick sale, not to get the best price so it was not uncommon to find that there was still money owing even after the property had been sold so the lender might still come after the borrower for the balance even after the sale.

No, what you have paid so far is not returned as the aim of the repossession is to get the remaining funds owed, but if there is a surplus after covering what is owed + legal fees + costs of sale, then that residue is returned to the borrower. 

Thank you.  So if you've paid 50% of your mortgage and then default, you will have thrown away money equating to half the value of the house and will now have nowhere to live. 

Only if the house sale does not cover the outstanding mortgage plus costs & fees.  The big problem in 2008 was that property values tanked and were worth less than the outstanding mortgage and those losses were exacerbated by being given mortgages in excess of the property value when originally purchased.

ACG

If your house is valued at £100k on the open market and you owe say £60k. 
The lender will repossess and they may sell through an estate agent or at auction.  In those cases they may only get say £90k. 

Chances are you wont be paying the mortgage or any interest from the point of repossession to the point it sells. Interest will be added to the balance, it will go up faster due to the effects of compounding. 

In addition there will be legal costs added to the £60k and estate agents/auction fees. 

Once all is said and done, the debt might end up being £75k. in which case, the bank gets £75k, you get £15k. 

If the person who had the house repossessed had sold the house before it got to that stage, they might have got the full £100k or at least closer to it. They would not have had the legal fees added and they would likely have sold it a whole lot quicker. In which case they might have walked away with £30-35k. 

I was interviewed by a paper last week funnily enough and this came up in conversation. I dont think what happened in 2008 will happen here now. After 2008, the FCA (or maybe the FSA as it was) brough in income caps of 4.5x income. That meant people were unable to stretch themselves as much and so the chances of ending up with a mortgage that they cant afford is slimmer. Even in 2023 with the mini budget these changes I think protected a lot of people from being hit too badly. 

Unfortunately the govt and FCA and rolling back on these income multiples to make it easier to get larger mortgages. So down the line you could find 2008 happens again as govt does not learn. But if 2008 was to happen tomorrow or next year, I think most of the market would be able to weather it. 

MyRealNameToo

kevinqq said:

Was watching a lot of stuff about the 2008 housing crash recently and I find it all quite interesting. It kinda passed me by at the time I was in my 20s and also didn't own a home or anything and basically I wasn't interested :-). 

Is the jist of a foreclosure simply that the lender gets the house back, sells it, then takes the difference of what you owe?     

Does what you have paid so far get returned to you?  

No, the property is being sold to settle your debt. Ideally the house sells for more than what your debt was and the cost of sale and the surplus is returned to you. 

That doesnt always happen though, sometimes the debts are more than what the property sells for in which case you still owe the bank money after the sale happens. 

In the US you had had a spell of sub-prime mortgages being sold which could be up to 120% of the value of the property. With so much credit being available it inevitably pushed up the values of properties as people could bid up knowing they could get the mortgage still. So day 1 of the mortgage you already owed more than the property was worth. The receivable of these mortgages were then packaged up and sold as other financial instruments and this is where everything came crashing down. With mortgages drying up, property prices corrected, many people had mortgages that were bigger than their property value 

user1977

kevinqq said:

MWT said:

Repossession is the equivalent, but it does take longer to get to that point over here.

In the context of the USA and 2008, a lot of those were on properties in negative equity, and the sales process was designed to get a quick sale, not to get the best price so it was not uncommon to find that there was still money owing even after the property had been sold so the lender might still come after the borrower for the balance even after the sale.

No, what you have paid so far is not returned as the aim of the repossession is to get the remaining funds owed, but if there is a surplus after covering what is owed + legal fees + costs of sale, then that residue is returned to the borrower. 

Thank you.  So if you've paid 50% of your mortgage and then default, you will have thrown away money equating to half the value of the house and will now have nowhere to live. 

No, you don't "throw away" anything. You get the benefit of whatever equity you had in the property, and you pay the interest for the privilege of having borrowed the loan funds.

kevinqq

user1977 said:

kevinqq said:

MWT said:

Repossession is the equivalent, but it does take longer to get to that point over here.

In the context of the USA and 2008, a lot of those were on properties in negative equity, and the sales process was designed to get a quick sale, not to get the best price so it was not uncommon to find that there was still money owing even after the property had been sold so the lender might still come after the borrower for the balance even after the sale.

No, what you have paid so far is not returned as the aim of the repossession is to get the remaining funds owed, but if there is a surplus after covering what is owed + legal fees + costs of sale, then that residue is returned to the borrower. 

Thank you.  So if you've paid 50% of your mortgage and then default, you will have thrown away money equating to half the value of the house and will now have nowhere to live. 

No, you don't "throw away" anything. You get the benefit of whatever equity you had in the property, and you pay the interest for the privilege of having borrowed the loan funds.

thank you that's nicely explained. 

kevinqq

The Crisis of Credit Visualized - HD

This video is so clear, i've watched it several times years apart.   The video tells a 1000 words and even a simpleton like me can understand it haha

Find it amazing what happened and I really hope no one is thinking of repeating it.  Bubble education needed, and sub prime warnings to be heeded. 

jimjames

kevinqq said:

Find it amazing what happened and I really hope no one is thinking of repeating it.  Bubble education needed, and sub prime warnings to be heeded. 

History does repeat itself although slight differences each time "It will be different this time" doesn't always work out.

You've mentioned 2008 as I guess it's closer to your memory but 1989-1990 was a far worse situation. Negative equity was a problem for at least a decade after that.

kevinqq

jimjames said:

kevinqq said:

Find it amazing what happened and I really hope no one is thinking of repeating it.  Bubble education needed, and sub prime warnings to be heeded. 

History does repeat itself although slight differences each time "It will be different this time" doesn't always work out.

You've mentioned 2008 as I guess it's closer to your memory but 1989-1990 was a far worse situation. Negative equity was a problem for at least a decade after that.

But the sub prime thing sounds worse because they actively encouraged it and "kicked the !!!!!!"out of it right till the end.  NINJ  no income no job loans...bahh you can always re-mortgage and people were flipping houses.