Negative Equity

[WordsAndWorlds]

If no deal really does happen. & it's been predicted that to do so could result in as much as a 35% fall in house prices...am I right in thinking that a humongous proportion of the country would be plunged into negative equity? Because of the climate of maxxed out mortgages in the UK, particularly in the South, a 35% fall would have a massive impact on so many people - would everybody lose their homes? Or just be forced to stay put and pray they could meet their mortgage payments because they certainly couldn't move elsewhere? Otherwise how is the UK going to cope with mass homelessness and what would become of all the repossessed homes?

End of fixed term/ remortgage valuations are always lower than market /selling pricevthough (or more realistic ) - we are coming to the end of fixed term and can remember last time we switched deals the house value was way lower on the mortgage than on zoopla etc so hopefully won't affect those as much as it seems to be a more modest valuation

Tanith
The world economy is pretty much fully globalised now.
The only continent with a growing population due to birth rates is Africa.
Most economic growth is being driven out of China.
Europe (both EU and non EU) is very heavily indebted and economically in decline. Let alone US debt.
Populations in Europe, north America and much of Asia will start to actively decline within the next 30 years
so there are no inflationary drivers on the UK that could push rates up.

Would say though that is slightly naive to think interest rates in one country won't go up just because they are not rising elsewhere.

You're quite right, since interest rates are largely currency specific. This is one of the biggest structural weaknesses in the EU. With a shared currency the Greeks and the Italians can borrow at similar rates to the Germans, despite the vastly different fundamental soundness of their economies.

Talkinpeece I see; that makes sense. Thank you for taking the time to explain.

The problem with NE is that it slows consumer spending, people may not be worse off but feel it as their house is worth less, confidence drops.

Why can't interest rates go up? if the £ falls through the floor, the only think the BoE can do is increase rates, lower sterling means import costs, esp oil, go up and that means higher inflation too.

They may not go to 8 or 10% but they don't have too, a base rate of 3 or 4% would wreck many people's finances.

No one predict what can happen over the next 10 months let alone 10 years.

Populations in Europe, north America and much of Asia will start to actively decline within the next 30 years

I don't know about Europe or Asia, but the US population is expected to see steady growth through at least 2060.

Population projections for the United States from 2015 to 2060

MissConduct
That projection is just one of several.
Much population growth in the US is down to ageing and immigration
as the birth rate is well below replacement
and if the sender countries have birth rate drops carrying on as they are, then world peak population could be a lot sooner and lower than some projections say
www.theguardian.com/world/2019/jan/27/what-goes-up-population-crisis-wrong-fertility-rates-decline

jasjas
Why can't interest rates go up? if the £ falls through the floor, the only think the BoE can do is increase rates
But with the level of corporate debt, that would bankrupt thousands of UK companies
so no UK government can take that risk

Another thing with NE - if someone had paid off, oh I don't know, 40% of their mortgage so that was a decent size chunk of their house they 'owned'. But then the value of their house crashed by 35%....they could end up essentially owning none of it (or very little) and being right back at the start again. And any savings they'd ploughed into deposit/ overpayment would just be gone in an instant. Is that correct?

Much population growth in the US is down to ageing and immigration as the birth rate is well below replacement

From the 2018 US Census Bureau projections:

www.census.gov/content/dam/Census/library/publications/2018/demo/P25_1144.pdf

Beyond 2030, the U.S. population is projected to grow slowly, to age considerably, and to become more racially and ethnically diverse. Despite slowing population growth, particularly after 2030, the U.S. population is still expected to grow by 78 million people by 2060, crossing the 400-million threshold in 2058. This continued growth sets the United States apart from other developed countries, whose populations are expected to barely increase or actually contract in coming decades.

Since colonial days immigration has been a major source of population growth in the US.

Talkinpeace. Jasjas is correct, a significant drop in sterling could easily cause inflation as oil, gold, many commodities are priced in us$. Interest rates would need to rise to keep inflation at BofE target (2%). Levels of corporate debt won't stop the IR rises but could exacerbate the problem. Higher IR, property values declining, job losses create a vicious circle.
If you hold $ assets or are an overseas buyer it does ofcourse create a big opportunity to benefit at others expense

That would depend on how far the £ sunk........the BOE has modelled for a upper rate rise to 4%, a rise to 3% would add £300 per month to an avg uk mortgage.
3% is historically a very low base rate.

Corporate debt/bonds are a big problem regardless.

Look, all i am saying is that these things are not possible to predict.

Daddybe
Well I'll stick with the data set I use of 45 year loans available at fixed rates of under 3% as a guide to the future

and yes, the vultures will descend and stop the pound falling too far
as there is so much dirty money in the UK property market

Thanks to everyone for explaining

About a third of homes in the uk are owned outright with no mortgage anyway, and a lot of those with mortgages have very small ones or coming near to the end of term. So not everyone will be affected by any interest rate rise (in the unlikely event there will be one)

If house prices fall by 35% it will be as part of a significant economic decline. People will lose their houses because they will lose their jobs because a massive recession is happening. No, it won’t happen to everyone. But it will happen to some.

Talkinpeace. I would rather look at the variable rates offered by building societies if/when IR rise. As fixed terms (e.g 2 or 3 year) expire borrowers go up to the higher rate. They can move their mortgage but if IR have risen, any deals will likely be worse or more unaffordable.
The government can't do anything if it's worried about corporate (or household) debt as monetary policy (I.e. IR's) are set by an independent BofE

Negative equity only affects you when you sell or remortgage. I'm actually hoping for a fall as we want to move to a more expensive area, the difference will be less if all prices drop!

Consequences of negative equity will have a knock on impact to the economy, house moves will dramatically fall, so less stamp duty tax into govt coffers, impact to those employed in the industry from estate agents to solicitors to decorators, removals etc. loss of consumer confidence and spending means loss of jobs, salary stagnation, job losses etc

Banks will likely cut back on credit do making mortgages more difficult to obtain etc

Eve
But negative equity only affects a small part of the housing market.
It does not affect those of us with no mortgages
It does not affect those moving out of rented
It does not affect new build
but a massive drop in prices will allow people like me to be able to consider moving

Talinpeace - you are not accounting for the loss of confidence that will result from consumers and financial institutions that negative equity will cause.

Google says:

There are 11.1 million mortgages in the UK. The UK mortgage market is worth more than £1.3 trillion. The UK is the largest in Europe in terms of amount lent and total value of outstanding loans. Over £245 billion was borrowed in 2016 for mortgages alone.

Impact those figures by 35% and the ripples will be felt by everyone.

Anniehm. It may not be so straightforward to trade up. If there is a significant economic decline, a number of unintended consequences could rear their heads. Job losses is the obvious one, as is corporate bankruptcies. If these prove too significant tax receipts fall, and the UK is already approaching 2 trillion in debt, so taxes may rise on those with the broadest shoulders, credit may dry up overnight, a run on a bank is not out of the question (although they are in better shape than 2007). The property market may fall for maybe 5 years (e.g. 1988-1993) and banks may have stricter lending, affordability criteria etc.
If you navigate all of these potential hazards as well as keeping your health, and market-time well, then you may do Ok, but chances are that a lot if people are going to be significantly poorer

About a third of homes in the uk are owned outright with no mortgage anyway
But does that include, for example, very wealthy people or landlords who own several houses? It's not the same as a third of people owning their houses outright, is it?

What’s your point Jorge? I’m sure you can do your own googling.

NE is almost always associated with slow growth or a recession, as i and others have said, confidence to spend is v important for the UK economy, whether that's a good thing or not is for another thread.

Talking.....you may find moving equally hard as there are fewer buyers, no one wants to buy if they think the same house will be cheaper in a few months.