Central Bank look set to approve "Negative Equity Mortgages"

More here:
independent.ie/business/pers … 19832.html

I heard Charlie Weston on Newstalk this morning admitting it could end up being a disaster. Ivan Yates didn’t hide his view on it, he seemed to think it was a mental idea.

I wouldn’t rule it out in certain cases and as per above.

If you had a small amount of neg equity it could work. If a large amount it’s madness.

And the whole mad idea is based on the notion that the Negative equity won’t get any larger, i.e. that your old house will stop dropping in value.

So house prices dropped by >1% every month last year, but the CB is now sure that they’ll stop falling now. 8DD XX

If people move down the “ladder” and end up with lower payments it could work well.

However this is Ireland, and the Cannys will take full advantage where possible

I don’t see the problem. Negative equity only becomes realised upon selling.

If someone wants to move up to a bigger house, they will end up with a substantially smaller loan than if they had moved up during the boom.

ie. Current house bought for 300K in 2006, say. Sell in 2012 for 150K. Realise 150K in negative equity. Then buy bigger house for 500K.

They would subsequently be carrying much less NE than say the guy who bought the same house in 2006 and paid 1000K.

If they are in a secure job and can service the loan, why not. (Same goes for all mortgage holders.)

If I have it wrong, any enlightenment appreciated.

EDIT I thought that this was fair enough - viewtopic.php?f=10&t=43200 ie. that the bank ask you to pay off at least a chunk of your NE.

I’d add too that it should be a good thing for the market. ie. Once the banks are back to sustainable mortgage lending that is not at the instigation of the state, it is doubtful they will be offering anything over 2.5 times one salary. This is a level that has been demonstrated historically to constitute a safe level of lending over the typical mortgage lifespan (in view of business and credit cycles, interest rates etc.). At the moment, frustrated do-or-die cash buyers are still distorting the market. The sooner we can get back to sustainable levels, the better.

Yay! Young professionals! Remember them? Fuck me, back in 2006, couldn’t move for the fuckers. Been missing the last few years, but here they are again. They haven’t gone away you know!

What a pathetic sentence. What the fuck is “some form of nightmare”? A little bit scary, but not really? It’s like Weston just had to get the word “nightmare” in there, but realised half way through that he was getting hyperbolic and had to temper it with the “some form of…” bit. There’s wilful nonsense afoot here.

“Kick start”? Really? How? The number of people who will be able to afford to carry 5 and 6 figure sums of debt on top of a more expensive new mortgage will be minimal. That won’t kick-start dick. Besides which, even if there were loads of them, and they all put their NE properties on the market, they would mutually cannibalise each others’ equity, leading to more debt carry-over and thus fewer successful applicants. That’s whatever the opposite of a circle-jerk is. A circle blue-ball maybe.

“Were”? Thank God that fear is in the past! Phew! Never mind that the CB themselves - who have just approved this scheme!!! - are predicting significant further price drops. Fuck me.

No they’re not. They couldn’t give a fuck because it won’t do a thing for their bottom line.

Oh. But they’re “watching closely” anyway? Right Ted.

Huh? €200,000 is the price of the new, more expensive home?? Very informative example Charlie. Form an orderly queue now.

Finally, I’m more than happy that my taxes will help underpin the resultant funding hits at PTSB and the bit of BoI we own. Whoopidy fuckin’ dooo.

Hopefully the idea will be predicated on the notion that people’s salaries can increase: for instance, one senior house doctor can, in the passage of time, become a consultant and marry another consultant, in which they’re laughing all the way to the b…

OK, extremes, I know, but these things can happen and the structures should be there to accomodate them.

By any chance, does this ‘new’ mortgage entail moving from a tracker to a variable rate ?

Nice to see we’re all so un-cynical this morning!

What does that matter, really? Forget the NE. They’ve demonstrated that they can pay the loan. And that they can continue to into the future. And I take it that the banks will offer this facility mostly in cases where there has at least been a substantial amount paid off and/or deposit put forward, to mitigate as much as possible against worst-case eventualities. There will always be some risk, but isn’t their job to try and lessen it? :angry: Personally I would count it as an important factor of risk the motivation someone has that comes about as a function of their current ‘circumstances’ and where they are living… and that is reflected in their employability. ie. What’s the point in trying your best at work to live in a 2 up, down in Lucan. I’d give it up myself. But in somewhere better, you’d go, ah, what the hell, let’s give this my best shot. Hope. Etc.

According to Mr Weston, yes it does.

If you move house you will lose your tracker. End of.

They will allow you to take 25% of the new purchse price as neg equity from your previous house.

So if new house is 300K and you have neg equity of 75K on current house, they will give you a mortgage (subject to meeting criteria) of 375K.

Discussed on Morning ireland, 2nd hour podcast, about 25 mins in

rte.ie/radio1/podcast/podcas … reland.xml

Mr. Weston’s comment that more people able to move will kick start the market may well be true. But I’d guess not as he’d hope. More people placing their NE homes on the market increases the supply and could put further downward pressure on prices. Now that the bank has a way of extracting more money from mortgage holder they will not hamper a sale for whatever the house can get at the time as they’re getting them locked into another mortgage anyway with a arguably bigger house as security. (Especially if the client has the means to pay).

Personally I think I’d consider the mortgage default route (live rent free under the moratorium and save up a wedge), then rent if I get evicted, before I’d avail of this scheme. I’m not condoning this action but if it were me I’d give it some serious thought.

As a leading economist I welcome this move like a wasp sandwich.

As a misleading economist I say grab this offer while you can … quick, get your foot on the property ladder … errr … ‘other’ property ladder before it’s too late.

Lets reinflate the thing that caused the negative equity in the first place! What a super fucking idea chums! Pay raises all round.

The Central Bank are nothing more than mediators of nonsense.

**Central Bank says HIGHER HOUSE PRICES = GOOD

Using this logic its clear to see who is actually going to pay for it. :unamused:

Downside to this is that people who have not been able to compete for family homes due to their apartments being in negative equity may now be entering an already competitive market for family homes in nice areas of the major cities.

I suppose it could also free such homes, but this seems to be specifically aimed at people trading up rather than trading down - due to the 25% of the price of the new property maximum cap on NE.

It’s a new mortgage, so why would you expect to be able to avail of a type of mortgage that isn’t on offer any more??