Now There’s Even a House Prices Crash Calculator

After years of talking up the property boom and the ‘you can’t lose with property’ articles in the media, the newspapers are now full of doom and gloom about the future of UK house prices.

The reality may be that a housing market depression may be caused by nothing more than the fact that we all start to believe that house prices will fall, we don’t put our houses on the market and we don’t try to move home.

This means that house prices will fall and those affected most will not be those who can ride out the storm and stay put in their homes, but those who are facing repossession.

This Is Money the website arm of the London Evening Standard have even published a price crash calculator so that if you aren’t scared enough already, you can truly frighten yourself into worrying about what your house will be worth if prices fall the same way they did in 1992!

The threat of negative equity however is now a very real one and millions of people will find it impossible to refinance their mortgages and will be forced onto their lenders’ top standard variable rates.

Stop Repossessions Org UK Sees Rise in Negative Equity Repossessions

As 2008 marches on and the global and economic situation looks ever more bleak, so are the tales we are hearing from UK homeowners facing repossession.

Back in 2007 a rough estimate would be that 70% of those people who contacted us by phone or email had some difficulties with their mortgage repayments, were in arrears but were also in a position to:

a) Repay the arrears over a given period either by direct agreement with their mortgage lenders or by a court judgement.

b) Remortgage with a new lender in order to get a fresh start with a new payment record appearing on their credit score

Fast forward and now it is rare that we are hearing from people who have enough extra monthly income to repay their arrears over time and many lenders (especially the sub prime) are refusing to accept repayment plans to pay off morgage arrears.

The majority of people contacting us are now also at the start of the negative equity trap.

The true and actual cost of their borrowings, (which consists not just of the amount borrowed but also the huge penalties, legal and court fees and Early Redemption Penalties), have risen dramatically, whilst the value of their homes is in many cases starting to stagnate, if not fall.

A homeowner who previously remortgaged their £200,000 home with a 90% mortgage (£180,000) and who has either added a secured loan (say £10,000 – new total £190,000) or had a County Court Judgement for unpaid credit card bills of a similar amount, and who has an early redemption penalty of say £7,000, may be mortgaged to £197,000.

One missed mortgage payment and not only can the interest rate rise dramatically so that monthly costs are hugely increased, but legal fees and punishing penalty fees will be also be added.

Suddenly we could be looking at redemption costs of over £200,000.

Sell the house?

Not always possible.

Estate agents will charge a minimum of 1%, more if you go with multiple agents. That’s at lease £2000. Legal fees and the Government’s ridiculous HIPs pack will add another £1500.

It’s now going to cost £3,500 to sell the home and get nothing in return.

But it doesn’t stop there.

If you remortgaged before the Northern Rock crisis hit in September 2007, then the chances are that your lender was giving signals to surveyors to over value properties.

The market is always rising so why not let them over value your home and then lend you more money in return for more profit?

By the time you may be in trouble house prices should have risen by enough to bring down your mortgage level to less than 100% – just in case they need to repossess.

But the reality is that homes are now only selling if the price is right.

Now it’s a buyer’s market again.

Houses which comfortably sold for £200,000 back in 2007 are now sticking in agent’s windows at £189,000.

Suddenly it could cost you as much as £10-20,000 to buy your way out of repossession.

But who is going to lend you the money to pay the costs?

It is not going to happen.

If you do have equity in your home then you do have options to avoid repossession find out here

Does Alistair Darling Want You To Be Repossessed?

Maybe the Government, along with the usual middle class do gooders at the Citizens Advice Bureau (CAB) and Shelter actually want you to be repossessed and lose your home?

Surely, that can’t be right?

Yet the Scottish newspaper the Sunday Herald Reports today the following:

“Prompted by concerns raised by Citizens Advice, Shelter and the Council of Mortgage Lenders, chancellor Alistair Darling announced last week that he has asked the Office of Fair Trading to investigate potential consumer detriment in the sale-and-leaseback market.

A spokeswoman for the Council of Mortgage Lenders said: “While we welcome the review, it is disappointing that no immediate action will be taken to regulate sale-and-leaseback schemes.

“Homeowners in difficulty may currently be considering selling their property through these schemes at a discounted value, without an independent valuation of their home, and with no real security of tenure.”

Whilst it is true that there are some rogue rent back traders out there (especially those offering to pay 100% of market value who in reality keep at least 40% back for many years), this Government is expert in knee jerk politics.

So many of the laws that have been passed since Labour came into power seem to be a reaction to scare stories in the tabloids.

The reality of the sell and rent back scenario is that it gives homeowners a last resort to keep their homes when all else has failed.

If the Government legislate against that last resort because a powerful lobby of middle class people feel that that they need to legislate against other people having the right to sell their homes for less than market value in order to stay in them, the outcome (like that of many of their policies) will be exactly the opposite.

CAB and Shelter may talk the talk but they won’t offer you a home when you are repossessed and evicted.

As for the CML (Council of Mortgage Lenders) – well who do you think supplies the financing and re-mortgaging for sell and rent back companies?

Is Alistair Darling (or any other of the wealthy Islington-ite Labour Government) going to provide you with a nice Council House or put you to the top of the housing list when you are repossessed?

I think we all know the answer to that one.

If you are thinking of selling and renting back make sure that you do the research and ask for references from other sellers when dealing with a rent back buyer.

Is Sell and Rent Back The Right Option For Me

When Sell and Rent Back is not an option

One of the questions we get asked most is ‘Is Sell and Rent Back and Option For Me’?

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The answer really depends on a number of circumstances and every situation is different, but generally speaking sell and rent back options are not feasible for those whose properties are worth £300,000 or more.

We have seen a massive rise in those seeking help to stop repossession whose properties are valued at over £300k.

For sell and rent back options to work, the buyer must be able to charge a rent that covers the cost of financing their mortgage.

With interest rates currently at around 6% for Buy to Let mortgages, this means that for every £100,000 that the buyer needs to mortgage, he or she must pay £600 pcm in mortgage interest. For a property over £200,000 this already equates to a rental figure of over £1200pcm.

Even if you might be prepared to pay £1200pcm now (and it may seem attractive if you are currently paying a lot more in servicing your debts), but the problem is that market rents in most areas of the UK are nothing like that amount. The average UK 3 bed semi may be worth £200k on the open market, but rental averages are probably more like £650 pcm.

This means that market rents are out of sync with property values. No investor can afford to buy a property and rent it back to the previous owner unless the rent covers the cost of their buy to let mortgage. No lender will lend against a property for a buy to let mortgage unless it believes the rent will cover the cost of the buyer’s interest payments comfortably.

For most lenders this means 125% coverage. For example is the interest was £1000pcm, the market rent must be at least £1250pcm otherwise they will not lend against the property.

For those who are facing financial difficulties with properties over £300k the obvious option is to sell on the open market and realise the best price.

Sometimes it might be possible to enter into a sell and rent back option providing the seller has enough equity in the property to allow a sale at a much lower figure, with an option to buy it back at a discount at a later stage.