Trading down with negative equity

Apologies if this is a bit of a basic question but can people in negative equity move house if they downsize?

Could somebody who bought a four-bed house in a middle-class area in 2007 for €500k sell it now for €300k and trade down to a €200k three-bed in a less salubrious neighbourhood? It wouldn’t solve the problem but it could knock a slice off the negative equity and reduce their mortgage repayments.

What irks me about the idea of writing down chunks of people’s mortages is the idea that people are entitled to aspire to - and get - a family home in or around the area where they grew up, regardless of their actual income. Their parents did well enough to buy in Malahide or Ranelagh or whatever, so they must live in the style to which they have become accustomed.

The status quo need not be maintained. Of course there are people ‘stuck’ in homes that they think are too small or that are located in an area from which they had intended to move after five or ten years. But there are people born in disadvantaged areas who feel stuck too and they have little chance of getting out.

The people whose houses are now unsuitable for their growing families are one thing, but the ones who bought big regardless of their actual circumstances just don’t deserve to have their lifestyle buttressed by the rest.

It’s like when the music stops everyone gets to keep what they have. So the guy who grew up in an inner city flat stays there (with poor job prospects and declining social support); the chap from Terenure who bought within his means in Drimnagh in 2007 ends up staying where he is; and the guy he went to school with who borrowed twice as much gets to keep his four-bed in Templeogue.

I’d like if the guy who over-stretched himself could trade down to Drimnagh (no offence Drimnagh; it’s just cheaper than Templeogue so it serves the example) and the sensible guy can now trade up given that the gap between his two-bed in Drimnagh and the house he wants in Templeogue is narrowing.

Meanwhile, the guy from the flats is barely much better off but at least the pot of money the government has to spend on public hospitals and schools is not being raided to bail out (a specific subgroup of) the middle classes.

A bit of downward mobility for those who were unwise, and upward mobility for those who acted responsibly, is in order.

People who acted ‘responsibly’ as you put it have upward mobility at the moment. If you have equity in your house (or think you have) sell it and trade up.

Why the quotation marks on ‘responsiblly’? I don’t think it’s subjective to say that people who bought houses they can afford to pay for were acting responsibly.

I don’t own anything - I’m not the guy in the example. Prices will be artificially supported if there’s a bailout of people who can’t meet their repayments. So the person who bought within their means would be in a better position to trade up if people in negative equity could sell their houses for what they are currently worth and buy something that is within their means. Right now if the guy in Drimnagh wants to buy a bigger house in a more expensive area, there are fewer homes to choose from so prices are not falling as fast as they might.

My main point, and I accept that it has been made well and repeatedly here, is that any intervention comes with positive and negative consequences. It’s not just a case of saying people in difficulty need help so helping them is the right thing to do - one man’s gain is another man’s loss. If a major mortgage write-off scheme means raising taxes, cutting social services, and propping up property prices in order to protect middle class entitlement culture then I’m against it.

The upper classes have had their bailout already. Think of it as trickle-down economics. Don’t worry though – there’s nothing left to trickle to the middle classes, let alone the people on the hospital trolleys.

It would be trickle down, trickle up, and trickle side-ways!

Anyway, what’s the story with trading down with neg eq? Is it possible? If so, could it be a solution for some people?

I think you make a very valid point - we can’t protect all family residences from repossession. People who lost the run of themselves are not “entitled” to stay in extravagant homes. However I see more and more “celtic tiger-esque” blingy homes coming on the market, so clearly some people are being forced to sell now, presumably to rent or trade down. But our system works very slowly (compared to the US) and our out-dated bankruptcy laws make it worse. I know of a couple who had a string of buy to lets - they are unable to pay now and were about to file for bankruptcy and sell the lot… but then one party applied for separation and the whole thing is halted - family proceedings take precedence over commercial. Those properties won’t now come on the market for another year or two while the separation/divorce plays out… Plenty of that about, so no wonder our crash is slow and painful…

I am one of the people with modest borrowings you consider ‘responsible’. But I’m not smug enough to attribute my situation to any responsibility on my part - just to luck.

I was lucky enough to be at the getting married/ house buying age before the boom, I wanted to buy a house at a time when they were cheap. It wasn’t the result of any great judgement on my part, just luck. I was also lucky enough to choose a profession which hasn’t suffered much in the bust. But this was also just dumb luck. I thought about studying architecture but wasn’t good enough at maths so I dropped the idea. If I hadn’t I’d be on the dole with the other 15 per cent of the population who can’t get a job and pay their mortgage.