Public could not give a tulip about house price falls

[Bagpuss]

http://news.bbc.co.uk/1/hi/business/7072382.stm

The majority of the British public say a major decline in house prices will not change their spending patterns, a BBC survey has suggested.
Of more than 1,000 people asked, 88% said that a price fall of 10% or more would make no difference to spending on everyday items such as groceries.

The findings appear to question whether a downturn in the housing market would actually damage the UK economy.

Boomed! Doomed! it makes no difference. Just keep borrowing and spending.
Amen.

So if house prices drop people will still want to buy food, hmm, revelation that. Also they are quite willing to borrow money that won't be offered,at cheap rates that won't be offered. Amazing

[gingerjedi]

No, but the bank lent to you in good faith at a market valuation. If house values fall, the bank has lent you more than the value of the asset the loan is secured on.

The small print of modern mortgages have a clause that says they can demand the difference at any time in writing.

Example. You borrow £500K for a damp ex-council flat in Hackney over the kebab shop. Next year, it is valued at £400K. The bank can send you a letter saying "Please send £100K in the next 7 days or get out, the house is now ours".

HTH

I had no idea, In practice I guess they're protecting themselves against customers turning into squatters.

Going back to the original story… I don't spend twice as much in Sainsbury's just because my house has doubled in value so why would I spend less if it went back down again?

[shaunbhoy]

No, but the bank lent to you in good faith

Those altruistic philanthropists!!

The small print of modern mortgages have a clause that says they can demand the difference at any time in writing.

Example. You borrow £500K for a damp ex-council flat in Hackney over the kebab shop. Next year, it is valued at £400K. The bank can send you a letter saying "Please send £100K in the next 7 days or get out, the house is now ours".

HTH

Not the wisest of stratagems to enforce however unless they want a welter of overvalued properties on their hands. Besides, hardly going to be a problem because as everybody knows, the value of houses in NL-Utopia only ever goes up!!

[DimPrawn]

Eh? Is it illegal to live in negative equity then? Shirley the only time the value of your house matters is when you are buying, selling or securing something against it, the rest of the time you just live there and the value is irrelevant.

No, but the bank lent to you in good faith at a market valuation. If house values fall, the bank has lent you more than the value of the asset the loan is secured on.

The small print of modern mortgages have a clause that says they can demand the difference at any time in writing.

Example. You borrow £500K for a damp ex-council flat in Hackney over the kebab shop. Next year, it is valued at £400K. The bank can send you a letter saying "Please send £100K in the next 7 days or get out, the house is now ours".

HTH

[shaunbhoy]

3) not sure whether it actually works like this, but it seems logical for lenders to consider people who have got negative equity (and thus not enough money for bank to recover if they default) as higher risk and thus increase rates

Logical to you perhaps. However, it does not, never has, and indeed never will work like that, and a good thing too.

HTH

[AtW]

If you have negative equity you can't (without taking big hit that most people won't handle):

1) move house and therefore get job elsewhere (or commute way too far using expensive fuel)
2) remorgage house and get new "introductory" rate - so you have to pay current rates that will raise
3) not sure whether it actually works like this, but it seems logical for lenders to consider people who have got negative equity (and thus not enough money for bank to recover if they default) as higher risk and thus increase rates

[gingerjedi]

However if Mr "Man in the street" (or Mrs "Woman") was aware of the small print in the mortgage agreement that he has to stump up 10's of thousands of pounds to make up the capital shortfall in the case of a house price drop, he may have answered differently.

Eh? Is it illegal to live in negative equity then? Shirley the only time the value of your house matters is when you are buying, selling or securing something against it, the rest of the time you just live there and the value is irrelevant.

[BlasterBates]

However if Mr "Man in the street" (or Mrs "Woman") was aware of the small print in the mortgage agreement that he has to stump up 10's of thousands of pounds to make up the capital shortfall in the case of a house price drop, he may have answered differently.

[Bod]

What's all this 'tulip' malarkey ?

[Moscow Mule]

Boomed! Doomed! it makes no difference. Just keep borrowing and spending.

This will keep me in business, and the economy afloat - hurrah!

[DimPrawn]

http://news.bbc.co.uk/1/hi/business/7072382.stm

The majority of the British public say a major decline in house prices will not change their spending patterns, a BBC survey has suggested.
Of more than 1,000 people asked, 88% said that a price fall of 10% or more would make no difference to spending on everyday items such as groceries.

The findings appear to question whether a downturn in the housing market would actually damage the UK economy.

Boomed! Doomed! it makes no difference. Just keep borrowing and spending.
Amen.