Oct 23, 2008

Media Missing Point

The Press today reports that 130,000 homeowners are now in a negative equity situation.

This is a major crisis, but is this portrayed as such? No. What does one of the home owners say?

However, McKay said he was in the property market for the long haul and expected prices to bounce back eventually.
"I don't think in the long term it's probably going to affect the price of the property too much," he said.

But what about the short term Mr McKay? Are you on a fixed or floating mortgage? What happens when the fixed rate mortgage comes up for review? Do you expect the bank to roll this over in full even though the property securing the mortgage is worth less than the mortgage? No way.

The bank is going to want a new valuation and it is going to only be prepared to lend you a proportion of that value.

Mr McKay's house was purchased for $293,000.

Lets say it is now worth 10% less. It is now worth $263,700

And let us say that the bank is only prepared to lend 90% of that - $237,300.

What happens to the $55,700 difference?

The house belongs to the bank. Do you think that the bank is going to gift it to Mr McKay? No way.

If Mr McKay wants to stay in the bank's house he and his co-owners are going to have to pay the bank $55,700. Do Mr McKay and fellow owners have $55,700 sitting around? We hope so.

There is a major crisis coming the way of 130,000 homeowners. Why is the media not explaining it?