Post by Papa C. on Feb 27, 2009 10:07:51 GMT
What is Negative Equity?
You buy a house for €300,000 and in time the value of the house drops to €250,000 or €200,000. This means that if you want to sell the house, because you got a mortgage or €300,000 (based on a 100% mortgage) or €270,000 (based on a 90% mortgage), you will end up owing the bank the rest of the mortgage which could be up to €100,000 depending on how much the value of the house drops.
So if you bought the house for €300,000 and got a mortgage for the full value of the house/ 100% mortgage (which is €300,000), then sold it for €250,000, you would have to pay the bank the difference of €50,000.
This happened in Britain during the 90s and working class as well as those those widely regarded as 'middle class' people (doctors, solicitors, accountants) suffered mainly because they were the ones who were losing their jobs. They couldn't pay the mortgage and couldn't afford to sell. As usual the only ones who benefited from this were the Banks and the Government. Because the Government are always going to get their tax revenue and the banks have already sold the mortgages which still have to be paid one way or the other, even if it means homelessness and poverty for most.
Another thing about Negative Equity is that even if houses drop down 10 fold and people are buying houses for €150,000 you are still paying the mortgage you got from the bank which could be €1,500 - €2,200 per month depending on the rate of interest/ interest rate. It is the interest which kills most home owners as 5.5% interest can almost double the mortgage each year. So whatever the price of the house I think home owners would benefit most from an interest rate drop, provided of course, that they are on a 'variable rate' of interest which means the interest goes up and down with the interest rates. If you are on a fixed rate of interest you will stay on the interest rate that was set when you got the mortgage.
Some of this may be quite hard to understand especially if you're not good at maths like me.
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5 million homeowners could face negative equity
Up to five million homeowners could be in negative equity by the end of this year if house prices keep falling, experts have warned.
Negative equity warning issued
New research suggests nearly four million people already owe more on their mortgage than their home is worth, or are close to that.
More could find themselves in the same boat if property values drop between 10 and 20 per cent.
Andy Thwaites, director of insight at GfK Financial, said: "The shift to negative equity has the potential to be a mammoth welfare disaster for the nation, particularly when so much of the population has recently relied on the capital appreciation in their home to supplement their lifestyle, consolidate debts and fund retirement.
"The reality is that if there are further job cuts, the problem will become significantly worse."
The research, which was based on responses from 60,000 people, also found that only one in ten potential first-time buyers had a deposit of at least 10 per cent that is currently needed to get on to the property ladder.
It said only 12 per cent of people aged under 40 who did not currently own their own home had £16,000 or more in savings - 10 per cent of the average property price of £160,000.
At the same time only one in 10 of these people would consider taking out a mortgage during 2009.
Mr Thwaites said: "While property prices are at more affordable levels than before the credit crunch, the challenge facing first-time buyers is to obtain a suitable level of deposit, before they can even consider trying to secure an appropriate loan from the shrinking pool of products available to borrowers.
"Our research shows that even among the small number of potential borrowers that could afford to step onto the property ladder, there is very little intention of them actually doing so in 2009."
You buy a house for €300,000 and in time the value of the house drops to €250,000 or €200,000. This means that if you want to sell the house, because you got a mortgage or €300,000 (based on a 100% mortgage) or €270,000 (based on a 90% mortgage), you will end up owing the bank the rest of the mortgage which could be up to €100,000 depending on how much the value of the house drops.
So if you bought the house for €300,000 and got a mortgage for the full value of the house/ 100% mortgage (which is €300,000), then sold it for €250,000, you would have to pay the bank the difference of €50,000.
This happened in Britain during the 90s and working class as well as those those widely regarded as 'middle class' people (doctors, solicitors, accountants) suffered mainly because they were the ones who were losing their jobs. They couldn't pay the mortgage and couldn't afford to sell. As usual the only ones who benefited from this were the Banks and the Government. Because the Government are always going to get their tax revenue and the banks have already sold the mortgages which still have to be paid one way or the other, even if it means homelessness and poverty for most.
Another thing about Negative Equity is that even if houses drop down 10 fold and people are buying houses for €150,000 you are still paying the mortgage you got from the bank which could be €1,500 - €2,200 per month depending on the rate of interest/ interest rate. It is the interest which kills most home owners as 5.5% interest can almost double the mortgage each year. So whatever the price of the house I think home owners would benefit most from an interest rate drop, provided of course, that they are on a 'variable rate' of interest which means the interest goes up and down with the interest rates. If you are on a fixed rate of interest you will stay on the interest rate that was set when you got the mortgage.
Some of this may be quite hard to understand especially if you're not good at maths like me.
-----------------------------------------------------------------
5 million homeowners could face negative equity
Up to five million homeowners could be in negative equity by the end of this year if house prices keep falling, experts have warned.
Negative equity warning issued
New research suggests nearly four million people already owe more on their mortgage than their home is worth, or are close to that.
More could find themselves in the same boat if property values drop between 10 and 20 per cent.
Andy Thwaites, director of insight at GfK Financial, said: "The shift to negative equity has the potential to be a mammoth welfare disaster for the nation, particularly when so much of the population has recently relied on the capital appreciation in their home to supplement their lifestyle, consolidate debts and fund retirement.
"The reality is that if there are further job cuts, the problem will become significantly worse."
The research, which was based on responses from 60,000 people, also found that only one in ten potential first-time buyers had a deposit of at least 10 per cent that is currently needed to get on to the property ladder.
It said only 12 per cent of people aged under 40 who did not currently own their own home had £16,000 or more in savings - 10 per cent of the average property price of £160,000.
At the same time only one in 10 of these people would consider taking out a mortgage during 2009.
Mr Thwaites said: "While property prices are at more affordable levels than before the credit crunch, the challenge facing first-time buyers is to obtain a suitable level of deposit, before they can even consider trying to secure an appropriate loan from the shrinking pool of products available to borrowers.
"Our research shows that even among the small number of potential borrowers that could afford to step onto the property ladder, there is very little intention of them actually doing so in 2009."
