Entries Tagged 'mortgages' ↓

The term mortgage implosion refers to the dramatic decline in the number of mortgage approvals in the UK and other countries affected by the housing downturn.

Upto June 2007, the mortgage lending market was very competitive and lenders eager to attract customers through offering non traditional mortgages such as interest only, low deposit mortgages and mortgages with high loan to income ratios.

However, beginning in the US, there have been many problems in the mortgage industry worldwide.

The US mortgage industry made many inappropriate loans to people, especially in the subprime (bad credit sector). In 2003, US interest rates were very low, so these mortgages were temporarily affordable. However, as US interest rates increased to 4.5% many homeowners suddenly found themselves with unaffordable mortgage payments and so they failed to meet their mortgage payments. This led to a rise in foreclosures (mortgage defaults) and many mortgage companies lost their money.

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Falling house prices can lead to a loss of confidence in the housing market; but, in the short term your mortgage is unlikely to be directly affected.

If you bought a house costing £160,000 with a 90% mortgage. Your mortgage would be £144,000. A fall in house prices would still leave you with a £144,000 mortgage. It is just that the % of the house that is covered by a mortgage will increase. Your mortgage repayments will only change if there is a change in interest rates.

1. Negative Equity.

If you bought your house recently then falling house prices could put you into negative equity. This means that your mortgage debt will be higher than the value of your house. This is particularly a problem if your mortgage is close to 100% of the total house price. Negative equity, in itself, is not a problem. If you continue to live in the house and make your monthly mortgage payments your situation will not be affected. Negative equity is only a problem if you need to sell your house. For example, if you could no longer meet your monthly repayments, and the house was repossessed, then you would still owe money to the mortgage lender. This is a particularly painful position to be in.

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