What happens if you default on your mortgage?

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#600840 27-Mar-2012 17:08

Theres also things in the US with the overdue property tax being attached to the house not the person, which is why those "$1" houses at auctions are not actually worth buying since the overdue taxes and peneltys are more than it would be worth, and the only way to zero it is basically by leveling it or something.

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mattwnz

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#600848 27-Mar-2012 17:40

richms: Theres also things in the US with the overdue property tax being attached to the house not the person, which is why those "$1" houses at auctions are not actually worth buying since the overdue taxes and peneltys are more than it would be worth, and the only way to zero it is basically by leveling it or something.

Perhaps some of these property laws from the NZ could be introduced to NZ to bring down the very high prices, where many young people can't afford to buy one.

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#600875 27-Mar-2012 18:17

In the US, one potential consequence of walking away from a house that is "under water" is that the amount of loan written off by the bank would normally be subject to income tax.

Except that the Federal Government suspended that requirement as part of their response to the GFC - thereby creating even stronger incentives to walk away, and hence making the situation worse.

Ragnor

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#600888 27-Mar-2012 18:35

mattwnz:
richms: Theres also things in the US with the overdue property tax being attached to the house not the person, which is why those "$1" houses at auctions are not actually worth buying since the overdue taxes and peneltys are more than it would be worth, and the only way to zero it is basically by leveling it or something.

Perhaps some of these property laws from the NZ could be introduced to NZ to bring down the very high prices, where many young people can't afford to buy one.

A land or capital gains tax would be a far better way of taking the heat out of the property bubble in NZ, rather than bringing in some of the backwards laws from the US..

/imo

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#600916 27-Mar-2012 19:07

Ragnor:

A land or capital gains tax would be a far better way of taking the heat out of the property bubble in NZ, rather than bringing in some of the backwards laws from the US..

/imo

I agree... from personal experience. We attempted to sell our house in Australia right at the time that the NSW introduced tax on investment properties. At the time our house was worth around AUD $300K. It took around two years to sell it, and we eventually sold it for AUD $230K.

We did come close to selling it for AUD $284K much earlier on, but that offer was withdrawn after the buyer found a more suitable property later that day.

mudguard

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#600965 27-Mar-2012 20:32

Wouldn't 80% max lending on purchasing residential property be an easier way to cool things down? IE cash deposit of 20% for every purchase. Sure if you were at 60% on your existing property you could do it that way, but that would cool things in a big hurry.

mattwnz

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#601004 27-Mar-2012 21:33

mudguard: Wouldn't 80% max lending on purchasing residential property be an easier way to cool things down? IE cash deposit of 20% for every purchase. Sure if you were at 60% on your existing property you could do it that way, but that would cool things in a big hurry.

Or require the banks to keep a higher percentage of cash' on hand. That would achieve the same sort of thing, becuase then they wouldn't be able to lend out more than a certain percentage.

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#601046 27-Mar-2012 22:41

Some distant family friends did this about 18 months ago in the Hawkes Bay. Business went down the toilet in the GFC and they couldn't pay the mortgage any more.

They sold everything unsecured, moved to Australia dropping the keys off to the bank manager on the way to the airport.

As far as I know, the bank still hasn't gotten around to putting it on the market to this day and it sits vacant.

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crackrdbycracku

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#601133 28-Mar-2012 10:58

I think one of the dangers of what happens in the US is a very short term view of property purchase.

The guy you mentioned will get his credit rating back to 'normal' in under five years. Mortgage terms can be up to 30 years, say 15 to 20 at reasonable.

But if you can walk away why would you stick around for 20 years?

Over that time you can also reasonably expect the value of the property to change, you would expect it to go up over a 20 year span but there are also likely be ups and downs. During that time you would also probably expect to add value to the property.

This sounds more like 'renting from the bank' the more I think about it. As I am looking to buy a house I am glad there are serious consequences for 'walking away' here. Makes people take the whole thing seriously.

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Ragnor

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#601147 28-Mar-2012 11:32

mudguard: Wouldn't 80% max lending on purchasing residential property be an easier way to cool things down? IE cash deposit of 20% for every purchase. Sure if you were at 60% on your existing property you could do it that way, but that would cool things in a big hurry.

mattwnz:

Or require the banks to keep a higher percentage of cash' on hand. That would achieve the same sort of thing, becuase then they wouldn't be able to lend out more than a certain percentage.

Problem is both of those punish the first home buyers more than the owners of houses as investment properties.

Property in NZ currently is just too easy/attractive to the detriment of investment in businesses.

crackrdbycracku

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#601149 28-Mar-2012 11:35

Yeah, and the problem with changing that is that it makes the people who have investment properties unhappy.

People who think investment properties are their retirement income, people who vote.

I think the proposed capital gains tax was a very brave policy. I hope Labour keep it.

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#601181 28-Mar-2012 12:20

crackrdbycracku: Yeah, and the problem with changing that is that it makes the people who have investment properties unhappy.

People who think investment properties are their retirement income, people who vote.

I think the proposed capital gains tax was a very brave policy. I hope Labour keep it.

and let's not forget that (in very broad ,general terms at least) every privately owned house that is rented out is one less house that the government has to provide.

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#601197 28-Mar-2012 12:45

National and most business leaders are fairy keen on that as well. The idea is that it would channel more investment into the productive sector.

mattwnz

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#601236 28-Mar-2012 13:23

Ragnor:
mudguard: Wouldn't 80% max lending on purchasing residential property be an easier way to cool things down? IE cash deposit of 20% for every purchase. Sure if you were at 60% on your existing property you could do it that way, but that would cool things in a big hurry.

mattwnz:?

Or require the banks to keep a higher percentage of cash' on hand. That would achieve the same sort of thing, becuase then they wouldn't be able to lend out more than a certain percentage.
?

Problem is both of those punish the first home buyers more than the owners of houses as investment?properties.

Property in NZ currently is just too easy/attractive to the detriment of investment in businesses.

I don't know if I agree that it punishes 1st home buyers. In fact I think it helps them in a number of ways. Firstly they need a larger deposit to buy, which teaches them to save before hand. If they can't save before getting a mortgage, and get into the habit of putting money aside, they have not hope for when they get a mortgage, and the rates rise. Currently they are low, but in the fuure they could be getting up to 10%. They were up to 20% in the 80's
Secondly it should slow down house price prises, so they don't need to get as large a mortgage. Also saving more before hand, means that the mortgage doesn't need to be as large.
However banks wouldn't like this, because they make their money by lending out as much as they can.
I think the reserve bank has already required banks to keep more cash ih the past, but I had read they could be looking at it again.

mudguard

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#601440 28-Mar-2012 17:44

Oh the banks wouldn't like it. I'm glad they changed LAQC's though. LTC's seem reasonably similar but it's still annoy's me a little. As far as I understand it, under an LAQC you could claim the losses against your individual income tax?
So in theory
If Cain owned 5 houses, all interest only repayments and earned 50k per year as teacher, he could offset a good portion of his personal income tax against his LAQC?
And yet Able, owns no houses, earns 50k as a teacher, and pays his full whack of tax?

I like Gareth Morgan's idea of tax, tax wealth, not income.
IE Beryl lives in Devonport in a 5 bedroom villa and is retired and receives super.
Mavis lives in Invercargill in a 5 bedroom villa and is retired and receives super.

Both get taxed exactly the same. Sure Beryl will pay more in rates, but yet their income is taxed exactly the same, yet who is wealthier?

I also liked his 4% tax on capital. IE you own a home and have no mortgage, you have to pay 4% of it's value annually. Obviously this is offset against mortgage payments if you're still making them. His book is worth a read. The logic being, you pay a mortgage off quicker, you're in a better position to contribute to the tax take. and it frees up housing owned by Beryl for those than need, or can afford it I guess.

(NB I think it was 4%, may have 6% I can't remember)

I think the whole premise of the book is you have to accept that those that can afford to pay more an tax, should. If you lean the other way then you don't need to read it!

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