Mortgage Safety Net

[ali-cat]

In the course of yesterday's highly amusing Queen's Speech/Westminstergate session, GB announced a 'government' funded 1 Billion package to defer a proportion of mortgage interest payments aimed at the middle class.

The scheme would allow those facing reposession due to changed circumstances to defer a proportion of interest repayments on mortgages up to £400,000. In explanation GB stated that the scheme was aimed at middle class families, e.g. those with two incomes, where one has lost their job.

Why?  While I have the greatest sympathy for those who lose their jobs and face losing their homes,  such events unfortunately are a fact of life and you often have top cut your cloth to suit.  Could they not downshift to say a £300,000 home?

The scheme will allow for deferred repayments for up to two years to allow those affected to find other employment.  Why?  At a time when the government continues to complain of skills shortages and hundreds of thousands of curently unfilled vacancies.

To top it all another sharp cut in the BOE base rate to help borrowers but leaving those who had the good sense to save rather than borrow facing real negative interest rates on savings.

Discuss?

Mr Cat

 

 

 

 

 

 

[chessfou]

Downshifting is not practical in times like this - unsaleability of houses, impossibility of finding a new mortgage, etc.

As for rates, do you remember the early-mid 1970s? Much the same thing - stuff the old (savers) to assist the young (trying to keep jobs going). I remember thinking that it wasn't "fair" then, even less so now that I'm on the other end but if you had to make a choice, during a fire say, of saving the life of just one family member, would you choose to save the child and let granny fry or would you save gran instead?

Governments all round the world have sat up and taken notice and are all desperately trying to do something, even if those somethings may be just "pushing on a string."

[AnOther]

Mixed feelings for me on what is a not untypical move from a government utterly out of touch with real life and desperate for survival.

I completely agree about cutting ones cloth but for many, from all strata of home owners, downshifting will more often than not be impossible.

Assuming of course that you could even sell in today's market there is a high probability that there will not be sufficient equity to cover the minimum 20-25% deposit lenders are currently demanding.

Notwithstanding that, the very fact that you were in trouble and downshifting will virtually guarantee that no lender would touch you with a barge pole anyway.

For the most part all I can see this doing is pushing people further into debt so that in 2 years time they owe even more on a further depreciated property. Compound interest, which is what this scheme is, is equally effective in increasing debt as it is savings.

The cynic in me sees it as nothing more than a political ploy to defer repossessions until beyond the next election.

[Russethouse]

 I guess the answer is that by helping these people now we avoid the tax payer having to bail them out later.

[woolybanana]

General Election in say 18 months then?

[ali-cat]

Firstly, a house will sell if the price is right.  Mortgages are available but not on comparable terms to previously.  Are we to assume that this fictitious couple had NO equity of their own in this £400,000 house;  in which case did they not take out a mortgage protection insurance; or have not received any sort of redundancy package; or have some savings to fall back on?  Over the years one or both of use has been unemployed or on lowish pay and relied on a combination of cutting back and using our savings to tide us over the bad times.  As a result it wasn't until after quite a few years that we ever felt financially 'ahead'.

While I do feel for those caught up in this - isn't negative equity just the flipside of the old dinner table conversation topic of how much profit we all made from our properties?  As I see it defaults on mortages hurts the individuals concerned;  will hurt the lenders and will undermine investment confidence in the housing sector, no doubt leading to a further fall in confidence in UK PLC and further deterioration in the value of Sterling.  Not good news.  On the other hand house prices will fall to a level where first time buyers can afford to do so and buyers generally are not saddled with unsustainable levels of debt based on ridiculous multiples of earnings.

Following Gordon's reasoning houses are not repossessed (good) but at the cost that public sector borrowing increases by 1 billion; further undermining confidence in UK PLC; falling Sterling etc.  However the inflationary house price bubble is sustained requiring ongoing borrowing over and above what most families can comfortably afford - which is what got us in this mess in the first place.  Delaying the inevitable if you ask me.

In the meantime savers foot the bill for interest rate cuts that don't appear to be feeding through to where they are needed - small businesses in my opinion - not the overconsumers.

Mr Cat

 

 

 

[andyh4]

[quote user="ali-cat"]

Firstly, a house will sell if the price is right.  Mortgages are available but not on comparable terms to previously.  Are we to assume that this fictitious couple had NO equity of their own in this £400,000 house;  in which case did they not take out a mortgage protection insurance; or have not received any sort of redundancy package; or have some savings to fall back on?  Mr Cat

 

 

 

[/quote]

So here's the scenario

House bought 15 months ago at 465k with say 100k deposit - joint salary of 75k and 5 x borrowing agreement.  Both worked in the banking sector as high flyers.  One now out of work.

 

House now "worth" 400k - just announced 14% drop in avaerage values over the last 12 months.  If they sell and after their fees their equity will be around 25k which is going to fund exactly what on a 25% deposit and 2-2,5 salary mortgage at best?

[Quillan]

[quote user="woolybanana"]General Election in say 18 months then?[/quote]

I am so glad I am not alone in my thinking WB. Tell what I bet they get back in as well.

[AnOther]

[quote user="Quillan"]Tell what I bet they get back in as well.[/quote]As grotesque as that prospect is I fear that you may well be right [:-))]

The UK electorate have very short memories and Brown will be keeping his powder dry for some sort of bribery in the run up to the election.

[Russethouse]

 I'm not sure the Tory party would even want to win.

Mr Cat, it isn't only the cost of houses, but also the availability of mortgages, with greater percentages required as deposits I can't see first time buyers queuing up to become property owners.

[Quillan]

I also bet they are glad they never won the last one.

[ali-cat]

[quote user="andyh4"][quote user="ali-cat"]

Firstly, a house will sell if the price is right.  Mortgages are available but not on comparable terms to previously.  Are we to assume that this fictitious couple had NO equity of their own in this £400,000 house;  in which case did they not take out a mortgage protection insurance; or have not received any sort of redundancy package; or have some savings to fall back on?  Mr Cat

 

 

 

[/quote]

So here's the scenario

House bought 15 months ago at 465k with say 100k deposit - joint salary of 75k and 5 x borrowing agreement.  Both worked in the banking sector as high flyers.  One now out of work.

 

House now "worth" 400k - just announced 14% drop in avaerage values over the last 12 months.  If they sell and after their fees their equity will be around 25k which is going to fund exactly what on a 25% deposit and 2-2,5 salary mortgage at best?

[/quote]

 

Good example.  Not so many years ago I thought a friend of mine was overstretched when they had a £100,000 mortgage with a joint income of circa £70,000 in public sector jobs.   However anyone who thinks the current depression will have worked itself out in two years is deluding themselves and said couple will be lucky to be any better able to afford their £375k mortgage (plus deferred interest).  Some punters believe UK house prices might halve before this slump is over but assuming they continue to fall at the current rate, when the bank foreclose in  two years time the property value will have fallen to £280,000 leaving them with NO capital and the bank £95k out of pocket.

Perhaps now is a good time to get off the property ladder, clear your massive debt and rent for a few years. Interestingly on todays BBC news propspective first time buyers were saying that they didn't want any more interest rate cuts as they were trying to save their deposits.  Changed days.

 

[mint]

Yes, saving their deposit would be a start.

In the good old days, not only did we have to save for a deposit, we used orange boxes until we had the money for furniture and we didn't expect fully fitted kitchens, caprets etc and we didn't own cars either.

The present lot don't know they're born.

Mind you, I wouldn't want any of today's youngsters to go through what we did.  They weren't so much the good old days as the BAD old days. LOL!

[AnOther]

Times were undoubtedly harder in our day but by God it taught you the value of money and you had no option but to live within your means.

I'm all for it being easier for the current generation of first time buyers but I also think that their basic expectations have have grossly overshot common sense and reality.

They seem to want the house (fully furnished of course, and no 'hand me downs'), the car (one each as often as not), the 2 weeks in Spain, the regular nights out, the plasma TV & Sky etc. etc. etc. all from day one. Up until recently the system has been there to pander to them, no longer I think which is not altogether bad.