Mortgage madness

[dale#1 1]

Just some tales from the world as it was. How long before it will get back there?

 

I know someone who is close to doing something silly with the absurd mortgage he has to pay now on the house he 'bought' when things were much brighter for him. Lost his job now, can't find another and having to pay back way more than he can afford. Almost hopeless story it is.

 

Whats the mortgage situation like in Japan?

 

>>

 

1) The "Together" mortgage

 

The notorious Together deal from Northern Rock and other deals like it, which allowed homeowners to borrow up to 125 per cent of the value of their home, have at times been blamed for the entire negative equity epidemic facing British homeowners.

 

The deals were a combination of a secured mortgage worth 95 per cent of the property's value and a unsecured personal loan for the final 30 per cent. The loan was at the same cheap rate as the mortgage.

 

Mortgage experts argue that at the end of the 1990s, 125 per cent deals made sense in certain cases. The value of homes doubled in value in the space of a decade and a 125 per cent deal quickly represented only 60 or ever 50 per cent of the property's sale price. However, thousands of homeowners have been caught out. Those who took out these loans at the peak of the housing boom, between 2004 and 2007, now have mortgages which greatly excesd the value of their homes and no other bank, including Northern Rock, will lend to them.

 

Northern Rock certainly wasn't the only lender who offered 125 per cent deals. Another big provider of the loans was Bradford & Bingely. In the last year both lenders have been nationalised, and 125 per cent deals have disappeared.

 

2) Eight to ten times your salary

 

In the midst of the credit boom lenders were happy to lend 8 or 10 times salary. And in some cases, this could include expected bonuses.

 

Morgan Stanely, the investment bank bought to its knees by toxic sub-prime mortgage-backed securities, was offering 8-times-salary deals though its Advantage brand in the UK. Meanwhile, GE Home Lending, owned by General Electric, the monolithic US enterprise, offered 10 times salary through its First National brand.

 

3) Foreign currency mortgages

 

Last year nearly 90 per cent of new loans in Hungary were in a foreign currency, mostly Euros or Swiss Francs. The exchange rate meant that these loans were much cheaper than mortgages in forints, the Hungarian currency.

 

However, the problem with foreign currency loans is that as your home currency declines relative to the foreign currency, the cost of making your loan payments rises considerably.

 

The bad news for Hungarian homeowners has been that as the economic crisis ripples across the continent, currencies have been fluctuating wildly. The Euro has soared against the Hungarian forint, reaching a peak of 286 forints last week compared to a low of 229 last July, adding vast sums to the cost of mortgage and loan repayments for ordinary Hungarians who were not warned of the hidden risks behind their low cost loans.

 

4) Libor mortgages

 

Borrowers with less than perfect credit histories, known as sub-prime, have always faced prohibitively high interest rates because lenders insist on pricing in the risk that they slip into arrears.

 

In recent years a number of lenders specialising in sub-prime have bumped borrowers who have come to the end of their fixed rate deals onto a variable rate that is tagged to three-month libor, an interbank money market rate which has soared in recent months as the financial crisis knocked the confidence of institutions in the City.

 

As Aaron Strutt, of Chase de Vere Mortgage Management, a broker, explains: "Thousands of borrowers who have been coming to the end of their mortgage deals are unwittingly reverting to a margin above libor, which could be as much as 10 per cent".

 

Libor has been falling in recent weeks, much to the relief of these homeowners, but it is still over a 1.3 percentage points higher than the base rate.

 

5) The Rover 200 mortgage

 

A good mortgage deal will sell itself, as lenders have found to their dismay in recent months as a pole position in the best-buy tables results in a deluge of enquires.

 

But a bad deal? Well, a bad deal requires something more. In the case of West Bromwich Building Society it required a free Rover 200. The deal was partly inspired by geographical logistics, as the ill-fated Longbridge plant which made the car was sited near West Brom's head office.

 

However, the 200 was more of a curse than a blessing for over-excited homeowners. The model was dogged by problems with reliability from the start. To matters worse, there was scarcely a profit to be made from flogging it, as heavy depreciation and a glut of cars on the second hand market made it difficult to sell on.

 

And the mortgage itself? Homeowners would have been better off opting for a best-buy mortgage with the most competitive rate and buying a new, more reliable car with the savings.

[Mantas 3]

Have they been dropping interest rates in the UK yet?

We have dropped another 0.75% today.

That's nearly 2% in as many months.

[HelperElfMissy 42]

Originally Posted By: Mantas

Have they been dropping interest rates in the UK yet?
We have dropped another 0.75% today.
That's nearly 2% in as many months.

Makes you wonder if KRudd and the Reserve actually knew what they were doing when they put the brakes on and rose them in the first place doesn't it?

I recall the days when a 20% deposit was the expectation.
Can't say as it sounds all that silly now either = especially upon reflection.

Problem is expectations... people just gotta get used to starting off with a 'starter home' one within thier budget. Pay that off (at least in part) before selling and using the proceeds to upgrade. No more instant McMansions for newlyweds (unless you got access to Daddy's Trust fund!)

[Rag-Doll 0]

Originally Posted By: Mamabear

Originally Posted By: Mantas

Have they been dropping interest rates in the UK yet?
We have dropped another 0.75% today.
That's nearly 2% in as many months.

Makes you wonder if KRudd and the Reserve actually knew what they were doing when they put the brakes on and rose them in the first place doesn't it?

I recall the days when a 20% deposit was the expectation.
Can't say as it sounds all that silly now either = especially upon reflection.

Problem is expectations... people just gotta get used to starting off with a 'starter home' one within thier budget. Pay that off (at least in part) before selling and using the proceeds to upgrade. No more instant McMansions for newlyweds (unless you got access to Daddy's Trust fund!)

Oh those cruel and greedy banks, offering money to people who can't afford it! As you say Mama, maybe if people took some personal responsibility they wouldn't find themselves in quite the difficulties they do now.

In answer to your initial question Dale, mortgage rates in Japan are really low, like 1-2% pa (if that) so not quite the same kettle of fish faced in other places. Plus the general approach for a long time for the banks is not to regard the value of the property as any kind of security - house/land price depreciation has been the norm in Japan for decades. That was part of the cause of the angst surrounding Niseko's boom - the local banks just couldn't come at the idea of the properties on the open market actually being worth anywhere near the sale price. It is a whole diffrent valuation methodology.

[indosnm 0]

Originally Posted By: Mamabear

Makes you wonder if KRudd and the Reserve actually knew what they were doing when they put the brakes on and rose them in the first place doesn't it?

Most of the rate rises were under JH. under Rudd has been the first tie they have gone down.

Must be hard for someone in Pert to find a decently priced affordable house for a 1st buy. It is here in NSW, especially where houses are in shortage.

[bobby12 0]

I feel sorry for people who bought in 2004-2007. I was tempted too a few times but my wife reeled me in, thank god for that. I'm 30 so I know a few people who bought first homes in that period, some of them pricey ones in london.

[HelperElfMissy 42]

Indo - houses are in very short supply here.

 

The urban sprawl is ridiculous as well...but we have had a massive influx of people due to the mining boom. Will they still be here in a year or two....?

 

Basically population is growing quicker than the approvals process to open new land.

 

Better use of land/infill building and higher occupation rates (less 1 person in a 4 bedroom home) would go some way to solve the problems.

[scouser 4]

Quote:

I feel sorry for people who bought in 2004-2007

Friend of mine is in that situation. He's sweating it out right now.

[Tubby Beaver 209]

Originally Posted By: Mantas

Have they been dropping interest rates in the UK yet?
We have dropped another 0.75% today.
That's nearly 2% in as many months.

Bank of England announced a drop of 1.5% in interest rates