Are you a "Recession virgin"?

adr0ck

re !!!!!!

Dithering_Dad wrote: »

I suspect the antagonism in your anti-ED posts are more related to her "Don't be fooled by doomster nonsense from speculators with a vested interest in a house price crash." comment. Perhaps this struck a little close to home?

think you've hit the nail on the head there with !!!!!!? Gates as he is also known

WTF?_2

Dithering_Dad wrote: »

I've been following the debate as closely, if not closer than yourself. The original premise was a discussion about recessions, but now you've focussed exclusively onto negative equity as being the major issue. It's not. As long as you have a job and no pressing need to move house, then being in negative equity is no biggie. Lots of people in the 80s/90s were in negative equity - they're now the ones who have seen +150% increases in their property prices and are sitting pretty.

* Negative equity not a problem - until it is a problem. Got it

* People who bought into 20 years ago now doing OK with respect to equity in their house today (two decades later, close to the peak of a massive property bubble). Thanks for that startling insight.

Unfortunately with the startling bubble in house prices, many people who bought in recent times (and we are discussing the current market period) will find that negative equity is a very real problem for them as they struggle to repay the whopping loans they took out on 2-year fixes that seemed oh-so-affordable at the time but now are rocketing up.

They won't have the luxury of hanging in there until prices recover, maybe a decade later.

Still, you have enough cash to overpay your mortgage so good for you, eh? Many buyers will be struggling just to meet payments on theirs.

By the way, if you are made bankrupt, having negative equity can make you better off because you often get to keep the house, rather than having to sell up and give the equity away to your creditors.

Classic - disregard the dangers of negative equity because it might save your house for you when you go bankrupt. Technically correct but probably not really the sort of advice that's compatible with running sound finances and probably not something that a recent or would be buyer wants to plan to do. :think:

p.s. where did ED say anything about remortgaging? or is this something else she "must have mentioned on another thread"?

Post #10:
Those who are on repayment mortgages could also switch to interest only for a while to reduce outgoings, or extend the mortgage term if necessary.

Sounds a lot like remortgaging to me. At any rate, Edinvestor seems to assume it's somehow going to be possible to change the terms of any given existing mortgage to something that makes currently unaffordable monthly payments, affordable. Unless the mortgage agreement specifically contains provision for that then it's going to mean a remortgage/ refinance/ whatever you want to call it.

That means a juicy fee for the provider. And going to interest-only isn't going to make an awful lot of difference for recent buyers as most of their monthly payments are interest anyway.

Dithering_Dad

lol, I give in. I may as well talk to the fireplace.

You have failed to see that the real issue is recession (where people lose their jobs and even with the best wil in the world cannot pay back their mortgages, whether in negative equity or not) rathaer than owing more on the mortgage than someone is prepared (at that moment in time) to pay.

The "startling insight" that you missed, is that the last time we had negative equity in the 80's/90's, the ones who did well were not the ones who sold up and ran like hell as you advised but were the ones who stayed put,paid down their mortgages and waited for the usual upturn in property prices.

If you don't any opposing views then it'll be a pretty poor discussion. If that's what you want then please put a caveat on your initial post "PLEASE ONLY POST ON HERE IF YOU AGREE WITH ME OR I WILL BE FORCED TO GET SARCASTIC AND PERSONAL WITH YOU TO DEFEND MY ILLCONCEIVED VIEWS".

Dithering_Dad

!!!!!!? wrote: »

The message I'm getting across is that now is a rotten time to be buying into housing.

Just to jump on your sarcasm bandwagon a moment...

No !!!!!! sherlock. What an amazing financial insight!

WTF?_2

Dithering_Dad wrote: »

lol, I give in. I may as well talk to the fireplace.

You have failed to see that the real issue is recession (where people lose their jobs and even with the best wil in the world cannot pay back their mortgages, whether in negative equity or not) rathaer than owing more on the mortgage than someone is prepared (at that moment in time) to pay.

Given that I started this thread I am indeed quite aware that recession is an issue :rolleyes:

And negative equity is going to be a hot issue precisely because of that. It's all very well saying that you can tough it out but a recession can leave you in the position where you can not sit out negative equity.

So far from being a non-issue as you have being trying to paint it, in the teeth of a recession negative equity is indeed quite a big issue.

If you've got equity in your house, lose your job and can't pay the mortgage you just sell up and rent.
If you haven't got equity you are shafted - you lose the house and end up in debt too.

A bit of a difference there, hence I feel quite justified in saying that negative equity is somewhat of an issue to be aware of as the economy worsens.

The "startling insight" that you missed, is that the last time we had negative equity in the 80's/90's, the ones who did well were not the ones who sold up and ran like hell as you advised but were the ones who stayed put,paid down their mortgages and waited for the usual upturn in property prices.

Anyone who can hold on to their house for two decades is most certainly going to end up ahead to some degre. That's not really at issue. It's the people in negative equity who can't hang in there that are an issue.

And there are going to be lots of people in negative equity quite soon.

Negative equity + recession = very bad news for those afflicted.

I really can't see why you don't accept that negative equity is an important issue here and are apparently so blase about it?

Just because you have enough of a surplus to overpay your mortgage - as you have pointed out - doesn't mean that there aren't lots of people out there in very marginal situations when it comes to just making the repayments even now.

Throw in fixed rates coming to an end, with sizeable 'arrangement fees' for new deals as well as worse deals than they have at the moment and a house worth less than the outstanding debt on it and you have a recipe for major trouble ... even without recession.

If you don't any opposing views then it'll be a pretty poor discussion. If that's what you want then please put a caveat on your initial post "PLEASE ONLY POST ON HERE IF YOU AGREE WITH ME OR I WILL BE FORCED TO GET SARCASTIC AND PERSONAL WITH YOU TO DEFEND MY ILLCONCEIVED VIEWS".

Wow. Calm down. No need to make it personal.

baileysbattlebus

Negative equity is a pretty big deal, we were lucky in the last crash to actually come out of it pretty well and were able to afford a bigger house in a better area (still in it BTW). We coped with mortgage payments doubling for a while, etc.

Friends of ours weren't so lucky, they are from the North East, which at the time had very high unemployment, so did as Mr Tebbit advised, got on their bikes, got jobs and moved to Berkshire, bought a house the same as ours, at the peak for £136k on a 95% mortgage, a few years later the house was worth £80k.

They couldn't remortgage, couldn't possibly sell the house as they didn't have enough of their own money to make up £50k+ shortfall. They were stuck there for a long time, in fact they are still there. On the other hand the house was more than big enough for them and they could afford to pay the mortgage. They were lucky they didn't lose their jobs too, or split up.

Lots of other people just handed over the keys to BS and walked away and were in serious financial trouble.

Some people won't be alright. If they fall into negative equity and can't remortgage at the end of their fixed rate deals they will have to go on their lenders SVR, which in itself is not the end of the world, - as interest rates, like houses can go down as well as up.

They will still have a mortgage, it's not as if the rug is being pulled from existing mortgage holders on their current mortgages and they will still have a roof over their heads.

If it turns into a recession like the last one, it will be rough for a lot of people especially those who are just surviving now. If there are job cut or substantial interest rate rises in the near future, it will very rough for a lot of people.

Personally I hope it doesn't happen, I wouldn't wish it on anyone.

Some people may already be in a negative equity situation and won't be able to remortgage or sell, they will have to hang on in there.

All I would say to them is, it will pass, it might take a while and it might seem like the end of the world at the moment, but it isn't.

Dithering_Dad

!!!!!!? wrote: »

If you've got equity in your house, lose your job and can't pay the mortgage you just sell up and rent.

Agreed, though in reality it's not as simple as this, especially if everyone else is in the same boat. But eventually you can sell up and rent - using the remaining equity to cover your rent payments until you can claim benefits.

!!!!!!? wrote: »

If you haven't got equity you are shafted - you lose the house and end up in debt too.

In this scenario you assume that the 'test case' has no savings to make up the equity shortfall. In this case their liabilities exceed their assets and as they have no income they have no way of repaying the debt so the 'test case' goes bankrupt and walks away from the property and into rental accomodation.

Of course things are not this black and white in the real world.

p.s. and as far as the "20 years to get rid of negative equity" thing you seem fixated with. I'm not saying you have to stick in your property for 20 years, I'm saying that the last time this happened (20 years ago), the people who refused to panic came out of it OK. Many of them were only in Neg Equ for a couple of years or so. Naturally, you know that this is what I meant and are merely mispresenting me to try to prove your argument.

WTF?_2

Dithering_Dad wrote: »

In this scenario you assume that the 'test case' has no savings to make up the equity shortfall. In this case their liabilities exceed their assets and as they have no income they have no way of repaying the debt so the 'test case' goes bankrupt and walks away from the property and into rental accomodation.

Of course things are not this black and white in the real world.

I think that even the possibility of going bankrupt is going to put the wind up most people.

And personally I wouldn't want to be selling my various long term assets to make the mortgage payments against the background of looking for a new job in a really cruddy economic environment.

People in risk should lay in some cash savings specifically to deal with this eventuality now, whilst times are still good and their mortgage is still on a low fixed rate. Six month's worth of expenses would be a good target to save for.

Dithering_Dad

Agreed. Plus a period of mortgage capital overpayments to improve Loan to Value rates would not go amiss either. And before anyone carps on about how people can barely afford to meet their mortgage payments as it is.. have a look at the MFi3 thread on the MFW board. Plenty of people on there are on low incomes but by credit card stooging, matched betting or simply reducing their outgoings by giving up smoking, drinking or getting better deals from their utility & insurance providers they manage to make overpayments each month.

It doesn't take long to make a significant impact on your mortgage debt even with small overpayments. Plus if you have any difficulties, many providers will allow you to have payment holidays up to the value of your overpayments. I reckon I could have a holiday for over 12 months with the overpayments I've made this year.

WTF?_2

Dithering_Dad wrote: »

Agreed. Plus a period of mortgage capital overpayments to improve Loan to Value rates would not go amiss either. And before anyone carps on about how people can barely afford to meet their mortgage payments as it is.. have a look at the MFi3 thread on the MFW board. Plenty of people on there are on low incomes but by credit card stooging, matched betting or simply reducing their outgoings by giving up smoking, drinking or getting better deals from their utility & insurance providers they manage to make overpayments each month.

It doesn't take long to make a significant impact on your mortgage debt even with small overpayments. Plus if you have any difficulties, many providers will allow you to have payment holidays up to the value of your overpayments. I reckon I could have a holiday for over 12 months with the overpayments I've made this year.

I'm all for overpaying mortgages. In fact, my goal is to buy without one and that might just be possible for me in about 18-24 month's time, assuming I don't end up a victim of the recession in the meantime. Otherwise I'll be looking to minimise the size and get a product that allows max overpayment.

However, such is the sheer craziness of the market in the last years that many buyers are lucky if they can even meet payments on the two-year fixed rate teaser. It's simply not an option to overpay and their only hope of being able to keep up with payments longer term is that they either take on another two year fix (with arrangement fee rolled into the loan) or can remortgage at a more favourable rate due to increased equity.

Neither options look viable at this point in time. If there is to be a recession, I would not want to be in their positions.