Just doing my bit to keep the resurgence in property threads we have enjoyed recently going. A nice summary from Motley Fool about the difficulties the retards who mortgaged themselves to the hilt when base rates were at 3.5% are finding themselves in. I've got my cheque book ready, have you?
Your Home Could Become A Prison!
I watched a very gloomy programme on ITV1 last night, entitled Repossession, Repossession, Repossession (a title we suggested in this article). The show featured real-life tales from homeowners who had been turned out of their homes after getting into difficulty with debt or mortgage repayments. Here are the warnings and lessons that I took away from this show:
1. Be prepared for shocks, both major and minor
Several of the homeowners featured on the show lost their home following the breakdown of their relationship. For example, one lady's marriage broke up and, to make matters worse, she lost her job. In no time at all, her mortgage lender began possession proceedings, even though she tried to negotiate with it.
According to White Horse Mortgage Services, the leading provider of mortgage-arrears counselling, these are the main reasons for people falling behind on their repayments:
* Reduced income (e.g. loss of overtime or bonuses): 26%
* Financial mismanagement: 25%
* Redundancy and unemployment: 14%
* Accident, sickness or injury: 12%
* Relationship breakdown: 7%
* Over-indebtedness: 5%
* Others: 11%
2. Open your bills, even if you're scared!
If your financial problems are so great that you're frightened to open letters from your mortgage lender or bank, then you're living very dangerously indeed. Which would be worse: opening the threatening letters and trying to negotiate with your creditors, or having bailiffs turn up at your door to remove goods? I know which option I'd prefer!
3. House prices will not rise forever!
As the value of homes soared, many families increased their mortgage to release money, chiefly to splurge or pay off other debts. This is known as mortgage equity withdrawal, and it pumped almost £150 billion into our pockets in the three years to the end of 2004. However, as I showed in The Dangers Of Rolling Up Your Debts, nine times out of ten, consolidating your debts doesn't work!
Sadly, one couple on the show remortgaged three times to roll up existing debts and did so once more for a final time - even though they knew that they couldn't afford the repayments. All they gained from this churning process was a larger mortgage and yet more unsecured debts. Indeed, when losing their home became a certainty, they and their four children were evicted. Even worse, mum's elderly parents, who had lived in an adjacent granny flat, had to beg for a bed at a homeless hostel. Oh no!
4. Negative equity has returned!
Even some wealthier homeowners are finding things tough. Of the five thousand or so new flats built in London's exclusive Docklands area in recent years, only around a third are owner-occupied. Another third have been sold to property investors, but most of these flats lie empty, while the remaining third remain unsold. This glut of unsold property has lowered property prices in the area, leaving many people with mortgages greater than the value of their homes, known as negative equity.
5.'Payment shock' is hitting hard!
Many homeowners overstretched themselves by borrowing to the hilt to buy when interest rates were low. The Bank of England's base rate hit a 48-year low of 3.5% in 2003, but now stands at 4.5% a year after a 0.25% cut last month. Borrowers taking out short-term home loans a few years back are now facing 'payment shock' as their mortgage repayments leap, even doubling in some cases.
Indeed, according to the Council of Mortgage Lenders, over 100,000 borrowers are three or more months in arrears with their mortgage repayments. Although this amounts to only 1 in 115 mortgage borrowers, the number of borrowers in arrears has been rising for eighteen months and will go a lot higher.
6. Beware of second mortgages and secured loans!
One lady's husband left her while she was pregnant with their second child, leaving her with two small children and a £925-a-month mortgage repayment. What's more, they had a second loan secured against their home, which just added insult to injury. Both lenders issued possession orders and, at the end of the show, she was packing her belongings, ready to move out.
The house which they'd bought for £110,000 in 2002 will probably be sold for far less than its current market value - perhaps to a property investor who specialise in snapping up 'repos' from mortgage lenders. Some people would call these entrepreneurs vultures, but all they are doing is buying low, doing some renovation, and then selling to the highest bidder. Still, you wouldn't want to lose your home to one, would you?
7. Bailiffs and auction houses are booming!
One auctioneer, who specialised in selling personal and business goods seized by bailiffs, reckoned that his trade had increased by 'thousands of percent' in the last two years. A growing stream of personal belongings, cars and so were going under the hammer, making his business even more profitable. As this chap warned, if you earn £15,000 a year and spend £10,000 on your credit card, just how do you expect to pay it back?
The bailiffs themselves were doing well too, especially when a £40 fine turns into £450 or more after Court costs, bailiff's fees and VAT. So, don't ignore parking fines, because your local authority will set its dogs on you, who will chase you to the ends of the earth for payment!
8. Lost your home? Go to the back of the housing queue!
If you lose your home and throw yourself on the mercy of your local council's housing office, don't expect to be ushered straight into local-authority accommodation. If you're not a priority case, you will join the back of the queue for social housing, and may be asked to find your own private-rented housing.
9. We DON'T owe a trillion pounds!
One thing that bothered me about this programme was the mention that UK personal debt totals a trillion pounds. No, no, no - this is the figure for June 2004! As at July 2005, our total debt stands at £1,114 billion, which means that we've borrowed another £114 billion in just thirteen months. Hence, our debt is still growing by a tenth (10%) each year, and our borrowing binge has a lot further to run!
I watched a very gloomy programme on ITV1 last night, entitled Repossession, Repossession, Repossession (a title we suggested in this article). The show featured real-life tales from homeowners who had been turned out of their homes after getting into difficulty with debt or mortgage repayments. Here are the warnings and lessons that I took away from this show:
1. Be prepared for shocks, both major and minor
Several of the homeowners featured on the show lost their home following the breakdown of their relationship. For example, one lady's marriage broke up and, to make matters worse, she lost her job. In no time at all, her mortgage lender began possession proceedings, even though she tried to negotiate with it.
According to White Horse Mortgage Services, the leading provider of mortgage-arrears counselling, these are the main reasons for people falling behind on their repayments:
* Reduced income (e.g. loss of overtime or bonuses): 26%
* Financial mismanagement: 25%
* Redundancy and unemployment: 14%
* Accident, sickness or injury: 12%
* Relationship breakdown: 7%
* Over-indebtedness: 5%
* Others: 11%
2. Open your bills, even if you're scared!
If your financial problems are so great that you're frightened to open letters from your mortgage lender or bank, then you're living very dangerously indeed. Which would be worse: opening the threatening letters and trying to negotiate with your creditors, or having bailiffs turn up at your door to remove goods? I know which option I'd prefer!
3. House prices will not rise forever!
As the value of homes soared, many families increased their mortgage to release money, chiefly to splurge or pay off other debts. This is known as mortgage equity withdrawal, and it pumped almost £150 billion into our pockets in the three years to the end of 2004. However, as I showed in The Dangers Of Rolling Up Your Debts, nine times out of ten, consolidating your debts doesn't work!
Sadly, one couple on the show remortgaged three times to roll up existing debts and did so once more for a final time - even though they knew that they couldn't afford the repayments. All they gained from this churning process was a larger mortgage and yet more unsecured debts. Indeed, when losing their home became a certainty, they and their four children were evicted. Even worse, mum's elderly parents, who had lived in an adjacent granny flat, had to beg for a bed at a homeless hostel. Oh no!
4. Negative equity has returned!
Even some wealthier homeowners are finding things tough. Of the five thousand or so new flats built in London's exclusive Docklands area in recent years, only around a third are owner-occupied. Another third have been sold to property investors, but most of these flats lie empty, while the remaining third remain unsold. This glut of unsold property has lowered property prices in the area, leaving many people with mortgages greater than the value of their homes, known as negative equity.
5.'Payment shock' is hitting hard!
Many homeowners overstretched themselves by borrowing to the hilt to buy when interest rates were low. The Bank of England's base rate hit a 48-year low of 3.5% in 2003, but now stands at 4.5% a year after a 0.25% cut last month. Borrowers taking out short-term home loans a few years back are now facing 'payment shock' as their mortgage repayments leap, even doubling in some cases.
Indeed, according to the Council of Mortgage Lenders, over 100,000 borrowers are three or more months in arrears with their mortgage repayments. Although this amounts to only 1 in 115 mortgage borrowers, the number of borrowers in arrears has been rising for eighteen months and will go a lot higher.
6. Beware of second mortgages and secured loans!
One lady's husband left her while she was pregnant with their second child, leaving her with two small children and a £925-a-month mortgage repayment. What's more, they had a second loan secured against their home, which just added insult to injury. Both lenders issued possession orders and, at the end of the show, she was packing her belongings, ready to move out.
The house which they'd bought for £110,000 in 2002 will probably be sold for far less than its current market value - perhaps to a property investor who specialise in snapping up 'repos' from mortgage lenders. Some people would call these entrepreneurs vultures, but all they are doing is buying low, doing some renovation, and then selling to the highest bidder. Still, you wouldn't want to lose your home to one, would you?
7. Bailiffs and auction houses are booming!
One auctioneer, who specialised in selling personal and business goods seized by bailiffs, reckoned that his trade had increased by 'thousands of percent' in the last two years. A growing stream of personal belongings, cars and so were going under the hammer, making his business even more profitable. As this chap warned, if you earn £15,000 a year and spend £10,000 on your credit card, just how do you expect to pay it back?
The bailiffs themselves were doing well too, especially when a £40 fine turns into £450 or more after Court costs, bailiff's fees and VAT. So, don't ignore parking fines, because your local authority will set its dogs on you, who will chase you to the ends of the earth for payment!
8. Lost your home? Go to the back of the housing queue!
If you lose your home and throw yourself on the mercy of your local council's housing office, don't expect to be ushered straight into local-authority accommodation. If you're not a priority case, you will join the back of the queue for social housing, and may be asked to find your own private-rented housing.
9. We DON'T owe a trillion pounds!
One thing that bothered me about this programme was the mention that UK personal debt totals a trillion pounds. No, no, no - this is the figure for June 2004! As at July 2005, our total debt stands at £1,114 billion, which means that we've borrowed another £114 billion in just thirteen months. Hence, our debt is still growing by a tenth (10%) each year, and our borrowing binge has a lot further to run!
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