Negative Equity is NOT a problem

[MilkTrayMan]

...That is, unless the homeowner has to move, or cannot afford to pay their mortgage...

BBC NEWS | Business | Thousands facing negative equity


...

[Bona]

I heard that to in our case in the ninties we used it to stop repossession arguing that as long as the arreas didnt rise from what they were when we went to court every one would benifit to wait for the house market to rise it worked then as the mortgage company was reluctant to make further lossess

[MrShed]

If you want a scary statistic - in the 90s, with all of the repossessions and subsequent homeless, it would have cost the councils SUBSTANTIALLY less to just make the mortgage payments for the people concerned, rather than rehomeing them....

[Bookworm]

I can believe that, my mortgage payments are far less than renting private and about the same as renting council, so when you add all the other associated costs, it does make sense...

With all those buy to rent back schemes going on and the dearth of council properties, wouldn't it make sense for the council to buy back some properties and rent them back to previous owner? Or is that too simplistic a view?

[MrShed]

It would make a lot of sense BW. However, there is legislation preventing it. In particular, I'm sure HA's would love to get their hands on these properties, but it cannot be done....

[MilkTrayMan]

Originally Posted by Bookworm

...With all those buy to rent back schemes going on and the dearth of council properties, wouldn't it make sense for the council to buy back some properties and rent them back to previous owner? Or is that too simplistic a view?

YES!!!
...Although SOME HA's do operate such schemes, it is the exception, rather than the rule.

Methinks the problems faced by so many peeps today, began when Councils were forced to sell their social housing stock under Mrs T's administration.
Many peeps who were privileged enough to buy their Council Houses/Flats at a vastly reduced price, tended to remove the 'better quality' ones from out of the general social housing pool.
This left an underclass 'trapped' in the least 'desirable' social housing properties, with NO hope of being able to obtain a transfer to 'nicer' areas/properties etc when their circumstances warranted it.

For a Council to be able to afford to raise enough capital to buy housing at current market values, it would require radical reforms to Council Tax.
The amount of monies needed to be set aside would be astronomical + beyond the means of the common peeps.
The 'Poll Tax Riots' would appear to have been a 'teddy bears picnic' IMHO.

Methinks that the 'profit' that some peeps made when they then went on to re-sell their former Council property has directly fuelled increased housing prices since the 1980's.
What we are now witnessing is similar to the 'South Sea Bubble'/'Dot.Com' phenomenon, when realisation sets into the market.

Further to this, the rise in 'Buy-to-Let' has also depleted the availability of 'Starter Homes' in the housing ladder + artificially boosted house prices beyond the affordability of your average first time buyer, unless they were to try to obtain a Mortgage on LESS favourable terms with a 'Sub-Prime' Lender.

This current 'dis-enfranchisement' has created a division within the traditional working class peeps + has managed to ensure that for those that are perceived to have 'missed-the-boat', they have NO choice but to rent housing from those peeps that have become part of this NEW '2nd Property Owning Class'.
...Thus perpetuating + widening the gap between the 'haves + have nots'.
BBC NEWS | Business | 'Strong demand' for homes to rent


...

[Bookworm]

Originally Posted by MilkTrayMan

YES!!!

Allright, allright, no need to be quite so emphatic, thank you!

Many peeps who were privileged enough to buy their Council Houses/Flats at a vastly reduced price, tended to remove the 'better quality' ones from out of the general social housing pool.

I'm not sure I agree with this statement. People who qualified for buying their flat/house could only buy the place where they were living, and such is the British lifestyle, where buying your property is a top priority, that people were buying their homes regardless as to whether it was a "better quality" one or not. for instance, the house in which I am was council/HA when it was built in 1968, was bought in the 80s, but it by no means better quality, being as it is in the biggest council estate in the UK, and in the less well-heeled part of it at that, end of terrace etc... Yet, most of the houses around are also privately owned, despite the fact that this is very much a deprived area. The same applied to when I lived in Inverness, the houses that were being bought off the council were far from being either the best or in the better areas. I think that where people could buy, they did, regardless of the desirability of the house in question.

This left an underclass 'trapped' in the least 'desirable' social housing properties, with NO hope of being able to obtain a transfer to 'nicer' areas/properties etc when their circumstances warranted it.

As above.

For a Council to be able to afford to raise enough capital to buy housing at current market values, it would require radical reforms to Council Tax.
The amount of monies needed to be set aside would be astronomical + beyond the means of the common peeps.
The 'Poll Tax Riots' would appear to have been a 'teddy bears picnic' IMHO.

That's why I was asking, I know little of the inner working of the local authority. Considering how much they have to spend on new housing, though, and how much it costs in rehousing the homeless and whatnot, it just seems stupid to have someone losing their home, which could then sit empty for months waiting for a buyer at a loss to the previous owner whilst the council spends a fortune rehousing those people elsewhere, so much money being wasted...

Methinks that the 'profit' that some peeps made when they then went on to re-sell their former Council property has directly fuelled increased housing prices since the 1980's
What we are now witnessing is similar to the 'South Sea Bubble'/'Dot.Com' phenomenon, when realisation sets into the market.

The law of offer and demand is nothing new, but I am not sure that I agree with you. If the vast amount of council stock hadn't been available, there would be even less houses for sale on the market, and the demand being as it is, the price of the available houses would rocket even higher. British people want to be homeowners, they are not forced into buying because of the paucity of rental properties.

What we are now witnessing is the effect of something happening in the US, people with no income, no chance to pay the mortgage being given mortgages and their debt sold wholepiece and that, I agree and have used the same expression myself, is the South Sea Bubble syndrome.

Further to this, the rise in 'Buy-to-Let' has also depleted the availability of 'Starter Homes' in the housing ladder + artificially boosted house prices beyond the affordability of your average first time buyer, unless they were to try to obtain a Mortgage on LESS favourable terms with a 'Sub-Prime' Lender.

This current 'dis-enfranchisement' has created a division within the traditional working class peeps + has managed to ensure that for those that are perceived to have 'missed-the-boat', they have NO choice but to rent housing from those peeps that have become part of this NEW '2nd Property Owning Class'.
...Thus perpetuating + widening the gap between the 'haves + have nots'.
BBC NEWS | Business | 'Strong demand' for homes to rent
...

Whilst I don't entirely disagree with that analysis, I'd argue that it is not as simple as that. There's always been "entrepreneurs" (spivs, carpetbaggers, opportunists, name them what you will) who will have plenty of ready cash to make money of other people's misery. When the Thatcher house of cards collapsed, leaving the poorest picking themselves out of the debris, there were plenty of people who bought repossessed homes at rock bottom prices and re-lent them back, so I'd say the current buy-to-let is hardly a new thing, which is how it is being presented in the media.

Furthermore, economy works on a circular, not linear basis, and soon enough , we are going to see a replay of the 80s situation, this time sailing over from across the Atlantic and sadly, there will be plenty of empty homes going for a song yet again, whilst the queues outside the council offices of people having lost their homes and in need of housing increases.

I see square holes, I see square pegs. Forgive me for thinking that somewhere in there, there's a logical solution.

[jody123]

MTM -
The following was written when in a strop, which I then put to one side so I could calm down and may now have been overtaken by comments by bookworm - I just daren't look at it again for fear of giving myself an apoplectic fit!

I agree with some if not all of your comments, although you would be hard pushed to find anyone who doesn't strive to own their own house, as the step change in cutural perception, brought about through Thatcher's "Right to Buy" policies which actively sought to increase home ownership, means people who rent are somehow seen as "2nd class citizens". Whilst I myself see renting as "dead money", I sometimes wonder why I bother to strive for property ownership - at the end of the day the lenders and government are the only winners....interest on loans, which they pay tax on, tax on building land, stamp duty on buying, Inheritance tax when you die....do not be surprised if we have to start paying capital gains taxes on the "profit" realised from an increase in the value of your main home when the market recovers....

Taking away responsibility for housing stock from the councils (often selling off housing to the HAs for as little as £1), whilst leaving them legally responsible for housing was a nightmare in the making and the Housing Associations become yet another layer of bureaucracy (and salaries) answerable to central government (albeit through The Housing Corporation) rather than local government. Thus creating a divisive element with the Council's not being in control, yet legally responsible. Volume house builders have to either offer affordable housing on their new developments or pay a planning "fine" through section 106 agreements - which often result in a cash payment that is not ring fenced for housing - why - because the council's don't build houses anymore - rather than more affordable housing - with a NIMBY approach or a worry that "affordable housing" on the same development reduces the sale prices and impacts on desirability. Just examples of short term goals over long term planning winning out.

And whoever approved the shared equity schemes wants their heads looking at....I first came across this back in the early 90s whilst living in London - the amount paid in rent on the portion that you didn't buy was often more than the equivalent mortgage payment - imo trapping people in a vicious circle because even though the value of the property would rise, as property always does eventually, the only way of making it work in terms of the increased property value providing a downpayment for a full mortgage meant that:

a. this could only be achieved by buying in a cheaper area - thus destroying communities;

b. the "shared ownership" properties were now out of the reach of the people originally intended to benefit

c. for some of the schemes there was no requirement to sell at a "below the market value" to enable people on low incomes to step onto the ladder.

The governments both past and present have a lot to answer for in terms of their social housing and residential planning policies over the last 40 years....from someone looking in on the outside it would appear that their policies have done everything in their power to destroy communities (think high rise blocks of the 60s), create a social underclass (those in rented accommodation) and activiely increase the value of land through Prescott's minimum number of properties per acre - which rather than decreasing the cost of housing, only served to raise the value of the land as previsouly a council could deny planning permission for large scale development - until Prescott stuck his nose in!

I have been to the council with a friend who was made homeless, she had 3 kids in tow aged 2 to 15 and the council treated her like dirt - they did not believe her story (spousal abuse) and kept her waiting ALL day to eventually give her a room in a hostel in the end she begged and borrowed enough to find her own deposit and then went into privately rented accommodation because there was a six month waiting list for a council controlled house - ok, this was 10 years ago, but the memory still smarts.

And one final point....how the government could shore up the banks with their latest "loan" without making them agree to certain conditions, such as lowering rates, not increasing costs for borrowers or more lenient conditions for those in arrears is beyond me....a fund to which home owners in dire circumstances could turn to in return for a buy backable (sorry not sure if this is a real word) percentage in their home, or guaranteed deductions from wages would have been preferable...Maybe I am idealistic...I will be monitoring the investors dividends very closely!!

Apologies to all.....rant over.

Jody

[MrShed]

Originally Posted by jody123

And whoever approved the shared equity schemes wants their heads looking at....I first came across this back in the early 90s whilst living in London - the amount paid in rent on the portion that you didn't buy was often more than the equivalent mortgage payment - imo trapping people in a vicious circle because even though the value of the property would rise, as property always does eventually, the only way of making it work in terms of the increased property value providing a downpayment for a full mortgage meant that:

Going to give a full answer later(at work, and as you may or may not have noticed, housing associations is my sector) but felt this should be corrected - you are talking about shared OWNERSHIP.

Shared equity schemes(which are few and far between), you do not pay rent, but sometimes pay a small fee(and it is small) on the half you do not own. Shared equity schemes are AMAZING deals for buyers, and hence they are usually snapped up long before there is even a showhome available for them.

I agree that Shared Ownership rent levels need to be assessed.

[MrShed]

BW btw, I'm afraid you are wrong on the "buying whatever property they have" score - it can be shown(I can give a few examples if you want ) that tenants in the poor areas tended not to utilise their RTB. Hence, the LA stock generally became more skewed towards poorer areas. This is exagerrated tenfold in any kind of tower block, where RTB has barely been used at all.

[jody123]

hi MrShed,

you are of course right - part of my word dyslexia - the thread was on equity hence the typo - and why point b mentions shared ownership.

Jody

[jody123]

...hit the wrong button...

[jody123]

MrShed,

People live in 'poor areas" because they have to, not because they want to - and the fact that they hardly tended to utilise their RTB is not surprising....they can barely afford the rent let alone a mortgage. The fact that LA stock became skewed towards poorer areas is therefore to be expected - and historically the LAs answer to this was to knock down the existing housing stock and in the 60s build tower blocks - which disintegrated communities - and when these were pulled down they built large estates, which quickly turned into rat runs/sink estates where police wouldn't go, the vast majority of tenants were frightened and no-one had any sense of ownership - now we have "phased regeneration" where the houses are given new windows, new colour schemes on the outside which they can have a say and gardens all fenced in to give a sense of "ownership"....whilst on the inside there isn't enough money left to replace the 30 year old kitchens or bathrooms, but hey it looks nice and neat on the outside...and still nothing is done about the gangs of youths that gather and intimidate residents, or the dope dealer that the police are aware of, but are too busy chasing people they know are going to pay their fines for parking or whatever because they are law abiding citizens....the whole bloody country is in a mess, our social policies, our laws and their enforcement, our education system - it all needs a good shake up because we have become too politically correct and as a consequence too liberal and there is no such thing as respect anymore

As an aside and whilst I'm ranting ...my partner had his jaw broken in two places by a 19 year old yob who decided to jump up and down on the bonnet of my car...for this, beating his girlfriend and intimidating witnesses he was given 12 months...he was out in 2 because the prison was too full. Where's the deterrant, where's the justice?

A little kid threw rocks over the wall at our car, smashing our windscreen- he came back the next day to finish the job smashing the side windows - when we got hold of him and called the police (who the previous day had told us to detain him until they could get there) his cousin came around smashed my partner in the jaw (thankfully the titanium plate from the previous incident hurt him more than my partner) and told us he was going to come back with a gun and blow us all away...we let the kid go only to find his mother kicking on our front door, screaming and f'ing and blinding at the top of her voice two hours later complaining about getting her child into trouble. The police, well, they turned up the next day and when I asked why no one had come there and then as I was on the phone relaying everything that was said and done to the police they could only apologise - I asked whether that apology would have been good enough to my parents if the guy had come around and fulfilled his promise, or me if he had shot my son....when I asked what would be done with the child....nothing....he's not old enough to be prosecuted....who would pay for the replacement windscreen - his mother? No she is not legally responsible for him either until he's 10 years old.

Its not just the housing policy, its not just the crime, its not just social policy its a combination of many things that have been allowed to escalate and deteriorate over the last 30 years....with no interdepartmental communications on how different policies will impact on other areas - the government all over - short term and lack of long term planning, rushed in to appease the nation when really the nation would be far better if somebody looked at the whole picture instead of guarding their back and their current position.

MTM mentions the poll tax riots - I loved the idea of poll tax - it was one of the fairest taxes that has been brought in - it failed not because it wasn't any good - but because it was rushed in and ill-explained....

and now I need to stop ranting and get on with some work!

Jody