Those of you that remember the Dot.Com debacle will remember that the crash was preceeded by claims of a 'New Economy', a 'New Paradigm', 'things are different now', etc... All bullsh*t. The current asset bubble is no different than the tulip craze in 17th century Holland.Originally Posted by Anorakphobia
akrasia wrote
''My brother bought a house 'to get on the ladder' at the very peak of the bubble last September (I warned him not to). He's now effectively trapped there in a small village with no services for the foreseeable future and with rising interest payments, he and his girlfriend are left with only €200 a week to pay bills and live off. (when the interests rise again, they'll be screwed''
a danger I see there is that people like your brother will do their calculations if interest rates go up and prices go down and may come to the conclusion they would be better off debt free and renting even if they get a bad credit report by walking away from the property and saddling the bank with the problem.
I have heard of this happening before during the last bust in London property prices.
Who wants to be a mortgage slave for forty years eating tins of beans and never going out when you can just leave the keys in the door,walk away and start again as a bankrupt.
Except that the whole "post the keys back to the bank and walk away" is a myth. The banks did pursue those people. Even many years later up to the late 90s I knew of people suddenly getting solicitors letters from the banks looking for their money back. The banks don't forget. They will get their pound of flesh, eventually.
And it's very difficult to "declare yourself bankrupt" in the Irish system, and even if you manage it it doesn't necessarily mean you can simply forget about your debts.
What is it with housing bubbles and myths anyway? On the way up or on the way down, it's all bullsh1t. I despair.
Je suis un loo-lah
to sidewinder
thats interesting,obviously it was a myth but the fact still seems to be that people did walk away anyway so it will probably happen again regardless of the consequences.
Oh, you can walk away all right, and if you leave the country for good you might get away with it. But the UK banks were relentless. I know one couple from Coleraine, walked away from the house in London in the big crash, stayed away from the banks by doing cash jobs and renting for the next while. Moved around England a few times, eventually moved back home to Coleraine, this was about 1998/9? Thought they were safe at this stage, opened a bank account. Bam. The next week, letter arrives - "That'll be £85K, thank you very much".
People will do it alright, but they shouldn't be suprised when it doesn't actually work. And then we'll have all the people screaming for the Government to plug their negative equity for them, and the banks pleading poverty and begging for subsidies, and building firms trying to blackmail government to stay open a bit longer with some more taxpayer cash, while all the civil servants want 15% pay rises every year...
This is going to get ugly. Very, very ugly.
Je suis un loo-lah
You can't just walk away from your debts... It's not that easy. Anybody who does that pretty much forfeits any future possibility of getting credit on owning assets.Except that the whole "post the keys back to the bank and walk away" is a myth. The banks did pursue those people. Even many years later up to the late 90s I knew of people suddenly getting solicitors letters from the banks looking for their money back. The banks don't forget. They will get their pound of flesh, eventually.
And it's very difficult to "declare yourself bankrupt" in the Irish system, and even if you manage it it doesn't necessarily mean you can simply forget about your debts.
Anybody who bought a property recently (with little or no equity to put into it) is faced with a very difficult choice. My own opinion is that they should attempt to sell immediately (after the election) and take the loss, but no recent buyer is going to do that...
It'd be even harder to walk away these days as debt collection has become a very professional and profitable business. Banks will sell their bad debts to these collectors as collatorised debt, and the collectors will do the chasing. As far as the bank is concerned, they have recovered some money and no longer care about the creditor.
I had a flat in london for 6 years from 88 till 94 and then lost it through repossesion through no fault of my own but I was still liable for the debt.Oh, you can walk away all right, and if you leave the country for good you might get away with it. But the UK banks were relentless. I know one couple from Coleraine, walked away from the house in London in the big crash, stayed away from the banks by doing cash jobs and renting for the next while. Moved around England a few times, eventually moved back home to Coleraine, this was about 1998/9? Thought they were safe at this stage, opened a bank account. Bam. The next week, letter arrives - "That'll be £85K, thank you very much".
People will do it alright, but they shouldn't be suprised when it doesn't actually work. And then we'll have all the people screaming for the Government to plug their negative equity for them, and the banks pleading poverty and begging for subsidies, and building firms trying to blackmail government to stay open a bit longer with some more taxpayer cash, while all the civil servants want 15% pay rises every year...
This is going to get ugly. Very, very ugly.
I have not lived in england since but as I understand it you take out endeminity insurance when you take out your mortgage and this pays of the debt to the bank and then the indeminty company comes after you.
I have never heard anything since.
If you go bankrupt in england I think you are automatically discharged from bankruptsy after 3 years, I thnik it used to be six.
During 1993 when i still owned my flat i rented it out and worked in America for a while and the amount of people I met in New York who had lived in London and bought a house and then lefdt the keys in the letterbox when the crash came was eye opening.
All the points raised in this thread are just as I envisaged after living through the recession in London. The boom in london in the 80.s was a unique boom in that people for the first time had 100 per cent mortgages and easy credit which which resulted in a bigger boom than previoulsy possible and it also resulted in a very severe recession. The Boom in ireland is a unique boom in that it is has lasted so long and hit such heights and in the same way it will be a very severe recession.
The same things were being said by the estate agents and their cheerleaders, it cant happen in london etc but it did.
The builders of the towers in canary wharf, The reichman brothers were even caught out. These were two canadian brothers who apparantely at the time were the biggest commercial property owners in new york city and yet they lost money in london at the time. In an article in one of the english papers a few years later they were asked how they caught by the downturn in london with all their experience and the answer was simple.
we did not see it coming.
Ireland, an industrial estate on the edge of europe. No irish need apply.
With house prices falling what would people here do in this situation:
You have a house worth 400K, but falling. You still owe 150k on the mortgage. Are you better off selling now, banking the money (250k) and renting until the market bottoms out and you can buy an equivalent for maybe 25/30% less than they are going at present?
I know a few people thinking of doing this at the moment. Any views?
Not a good idea if you've a family, I'd say.
There's hardly any chance of ending up in negative equity if there's only €150K left outstanding on the mortgage, Ireland still has rubbish tenancy laws, and I don't think people appreciate just how drawn-out this process could be. With luck, real prices will bottom out in 4-6 years. Not before. Japan's property slump led to real price declines for 15 years running. Of course, if yer talking about "investment" properties and not PPRs, then take the money (if you can find a buyer) and run.
Playing the market in a bubble crash scenario is highly dodgy and very risky. Just because I was better than most at reading the (numerous, and out in plain sight) signals last year and saying the crash was imminent doesn't mean I'd try a manoveur like that.
On the other hand, if you bought in the last 3 years, it's probably already too late, but you can still try to get out without losing too much. Unless you want to stay where you are for 20 years, better to take the pain now. Well, twould have been better to get the house on the market last August, but anyway...
Anyone trying to cash out and rent now though, would be well advised to actually read up on investment fundamentals first this time round. Otherwise they'll end up sticking the €250K in the first mad snake-charmer Get Rich Quick scam that comes along and losing the lot.
Finally: residential property only has value as a home. It is not a money-making machine, it is not an investment vehicle, it is not your pension. This whole mess started because people started thinking of housing as a way to get rich and play the market without doing any real work. As long as such thoughts are entertained, property bubbles and crashes and misery and wealth destruction will result. If nothing else, I hope the crash finally drives this truth into the skulls of the Irish people.
Je suis un loo-lah
LinkBack URL
About LinkBacks
Reply With Quote