The negative equity trap in the UK
 

Not about Spain but I know a lot of members on here have bought and sold houses either as landlords or for themselves.
I have friends in the UK who are desperate to move to a bigger house but their house is now worth 30,000 less than their mortgage. So if they sell it their savings of around a similar amount would be swallowed up leaving nothing for a deposit.
They're told to buy a second house they'd have to get the second one buy -to-let as the first one has no equity. Buy to let needs a large deposit which they haven't got.
What would you do?

Re: The negative equity trap in the UK
 

They should stay where they are. Which area is it? We have just sold a house in the South East for a nice profit over 3 years. Chuffed actually:)

Re: The negative equity trap in the UK
 

According to this article from the Wall Street Journal, UK Real Estate is overvalued by 30% (50% in London). A correction is overdue, but who knows, maybe the BoE QE programme will sort it all out painlessly?

( article makes for pretty grim reading - you have been warned)

http://blogs.wsj.com/source/2012/06/15/the-bank-of-englands-zombie-economy/

Re: The negative equity trap in the UK
 

This is likely to be what they have to do. It's in the north and is a low value house. Nice to hear some positive news for a change though. Enjoy your profit:)

Re: The negative equity trap in the UK
 

Yes. It's the grim truth. I always knew about the link between income and house prices was overstretched But when it's someone you know and care about. You kind of hope for a chink of light for them. The problem is. When their house is worth more. So will anything they want to up-scale to be.

Re: The negative equity trap in the UK
 

I remember back in early 2008 the housing market in my area of the US was still at it's peak, even though most of the country had already collapsed. Many believed local conditions and rules (growth planning) protected us. Wishful thinking, we caught up with reality.

Re: The negative equity trap in the UK
 

living on the edge of the fens, a decent 3 bed semi, proper front and back gardens, would set you back no more than £125k.

one of the problems is that so many people are not saving for the deposit. back in the days our first property was £7,500 and we needed 10% deposit with an interest rate of 8%, all on a salary of £40wk. but we made it.

too often the papers are stuffed full of sad stories of a 24yo who has been to uni and cannot afford to buy a house. of course not, they havent been working long enough to save a deposit.
mind you, got the latest iPhone, 42" tv, all the other gizmo's, good holidays, etc etc. Their priorities are all wrong ! !

Yes it is back luck for people in the negative equity trap, I was exactly the same 20yrs ago. It will take time to resolve, you just have to have patience and prepare to jump the next time around.

rgds

Re: The negative equity trap in the UK
 

Exactly, prioritize. Buy a house you can afford, stay in it for 10 or 20 years, and you will be OK:)

Re: The negative equity trap in the UK
 

Still not easy when you graduate from uni with a loan of £40K outstanding, before you even start work.

Re: The negative equity trap in the UK
 

well it was good enough for us,
in some cases it was good enough for our parents

but the kids of today have different priorities, they just want a card that will give them everything, no worries about paying it off, after all the government has the same attitude.

Re: The negative equity trap in the UK
 

Hmmm I am sure if their house is worth less the new house should be worth less unless they are moving up market. They should wait and ride out the storm or sell less and buy less, it's all relative.

Re: The negative equity trap in the UK
 

yes good point, didn't think of that:)

Re: The negative equity trap in the UK
 

The point is they are moving up from a v small house to a family home....or wish they were!

Re: The negative equity trap in the UK
 

You make some good points except that for us university education was fee.
As you say, The thing we're teaching them giving them loans that they can't pay off is very bad education!

Re: The negative equity trap in the UK
 

Why can't they pay them off? AFAIK, they only have to start repaying once they start earning a certain wage, £21k?? And then it's only a few pounds a week. If they don't earn, they don't have to pay.

Re: The negative equity trap in the UK
 

It seems to me that for some this will be disincentive to earn more than this lower threshold. In the same way as (for some) incapacity benefits were a disincentive to get well and benefits a disincentive to work. I'm not saying these benefits are not needed. Not at all. Just that we should look carefully at what messages we're giving. It's all very easy for our greedy generation (who had it all) to make judgements about who should pay for education. We spent our parent's money, our own money and now we're spending our kids and grand-kids money. Also don't suppose for a moment student loans aren't another of the 'equity bundles' that this sinking ship is built on! Sorry. That was a bit of a rant. Nothing personal :D

Re: The negative equity trap in the UK
 

I'd be surprised if it works out the way you suggest.
You're virtually comparing apples and pairs, ambitious young ppl who have worked their way up through the education system to achieve as much as they possibly can with their lives and careers, in total contrast to those on benefits many of whom, (not all), see little future other than to milk the system best they can.

Re: The negative equity trap in the UK
 

Correct, I cant imagine many grads turning down a good job offer with a salary above the threshold of 21k just so they dont have to pay back their uni loans.

That would defeat the object of going to uni in the first place, ie bettering ones job prospects.

Professional benefit claimants are another matter.

Re: The negative equity trap in the UK
 

who very rarely have a university education !

Re: The negative equity trap in the UK
 

Meaning what ?

I wonder how many of them were ambitious enough in their outlook to truly want a one, whilst it doesn't necessarily preclude those who have enough desire and ambition to make something of themselves, wether through uni or other avenues open to them.

Re: The negative equity trap in the UK
 

you've lost me Dick, sri.

Re: The negative equity trap in the UK
 

The only moral way out of the negative equity trap in the UK is to sit it out until houses prices go up again. In the less hurtful recession of the early nineties, that took around four to five years. Sending the keys back is a less moral way to deal with the situation, but lots of people did it.

Negative equity in Spain, at this time, is quite another matter, and a lot of expats who bought at the height of the madness five or six years ago may not be able to sit this one out, there seems no end to it this time and the property figures are in terminal decline.

Whether you send the keys back, or just go back home doesn't really matter if you genuinely cannot pay back what you owe.

I know of many examples where expats paid 180K for a home with a 140K mortgage, which was quite normal. Their properties are now worth 90K and prices are still falling rapidly.

The proper advice is to speak to your lender, he may extend the term and reduce payments, but you'll still be in deep trouble for many. many years. Not a nice way to live.

Re: The negative equity trap in the UK
 

All 'Sending the keys back' does is remove your control of the house and its sale. They will sell it for what they can get, you still owe them the rest.

Re: The negative equity trap in the UK
 

True, but it might ease the mind of the poor person having to take such a desperate step. And if the lenders receive an explanatory letter along with the keys, it makes their repossession task easier. (And cheaper).

Re: The negative equity trap in the UK
 

it is a big step to "give the ring back" when a marriage breaks down exactly the same as "giving the keys back" when that other mill stone around the neck is impeding progress.

neither is a nice thing to do, but if its the only way to move on and keep one's sanity and pride then it has to be done.

Re: The negative equity trap in the UK
 

That's some analogy, comparing the loss of a house to the loss of a wife.

Can a wife ever turn into negative equity?

No, I'm not going down that road, it's too late at night and I'm hoarse from the football.

Re: The negative equity trap in the UK
 

A wife with a few credit cards in her purse can make negative equity look like small change. ;)

Re: The negative equity trap in the UK
 

hope the throat is better in the morning H, I am sure you have plenty of amber liquid to sooth it.

I am sure from your experience you can say a wife can become a negative asset, not much different to equity.
All that time, effort, money and maintenance you have spent over the years, and its the same for the wife, or is it just women who have a ditch and start again attitude.

there are other things such as cars that are lemons that have to be returned and just get the hell out of the relationship, you made the wrong choice.

Re: The negative equity trap in the UK
 

A couple of years ago I was unable to drive for a while, and my wife, who's frightened to drive in Spain (we've got a beast of a car), got a friend of hers to drive her for our weekly shopping trips, which involved drawing out money from the cash point.

I did think about it at the time, but then gave her the pin number for, first one, and then for both of my credit cards. That's what you should do in a marriage, shouldn't you?

I'm a bit lax in checking my accounts, but didn't really notice anything unusual, until a couple of weeks ago. It appears I've paid for five flights to Florida. I know that her daughter (from a previous marriage) and her husband and three children went to Florida at that time.

It's not a big problem, if she had asked me I would have agreed anyway, it's all family, isn't it?

(It's an English card and I can't see the option to change the pin number when using it in Spain).

(And maybe she did ask me and I forgot).

Re: The negative equity trap in the UK
 

Wow. Five flights and you didn't notice!:blink: Spare any change boss ! :lol:

Re: The negative equity trap in the UK
 

I was the first generation of students to have to pay fees

The rule for us was you have to pay 9% of everything you earn over £15k. This effectively increases tax rates by 9%. Would you be happy doing this? We keep being told that the millionaires would leave the country if they got even a slight tax increase

I would advise UK students to learn a second language and go and study in Europe where its cheaper.

Re: The negative equity trap in the UK
 

My children were lucky, came out with £0 debts. They had support from us but in fareness both worked part time, both still came out with honours degree's. Friends of theirs who lived free at home still came out owing thousands, a lot depends on the student.

Too many useless degree's on offer these days, media studies et al, they should be cut back in my opinion.

I would say no need for another language, move the Canada, NZ or Australia, I'm pushing my two to do just that.

Re: The negative equity trap in the UK
 

I hope they enjoyed their holiday :eek:

Re: The negative equity trap in the UK
 

The only way to get out of the negative equity trap is to pay a bit more every month. I know this is not possible in many cases but even a few £ will help.
Good luck