Negative equity – are the banks responsible?

Negative equity – are the banks responsible?

9:04 AM, 12th December 2018, About 3 years ago 55

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A few of my houses are coming to their end of term and the lenders want their money back.

They knew my exit strategy was refinance or sale, but now they don’t seem to recognise any responsibility for the negative equity.

When the banking crisis occurred it followed naturally that house prices dropped dramatically as lenders either folded (albeit bailed out by the government) or sold their book to others. (Not necessarily even lenders).

The banking crisis was caused by reckless lending and the banks ran out of money and were unable to continue their business. The bankers have apologised unreservedly for their error of judgement. Great! But now when some areas are still struggling with negative equity they should (in my opinion) extend the mortgage for a lifetime. Or if they want to recoup their capital reduce the amount owing to an amount that would enable refinancing.

The FCA do not regulate buy to let mortgages, however, the mortgage is a contract. In contract “every contract has an implied contract term that the lender will perform the contract with care and skill”. Surely lending recklessly and being unable to sustain your business, which then has the knock on effect of destroying the value of my investment, is lacking in the performance of care and skill?

There is so much more I can add to this argument but would like to hear a reasonable response that says I’m wrong. I just cannot see it any other way.

But would appreciate your comments.

Gwen



Comments

by Ian Narbeth

11:52 AM, 12th December 2018, About 3 years ago

Reply to the comment left by Gwen Davies at 12/12/2018 - 11:12
Gwen
Where is the authority for your statement that “the lender must perform the contract with care and skill”? Even if that applied to the decision to lend initially, circumstances have changed. The lender is not obliged to keep lending. At the end of a fixed term it can either ask for repayment or move you onto an uncompetitive SVR.

Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350 is a case about remoteness of contractual damages. What has it to do with your case?

Even if you could show that the banking crisis caused the drop in the market, why does that mean that your lender has to keep lending to you on favourable terms?

by Binks

12:26 PM, 12th December 2018, About 3 years ago

Reply to the comment left by Gwen Davies at 12/12/2018 - 11:26
No, I do not agree. And neither have I missed your point. I simply don’t believe you have a point.

by Gwen Davies

13:14 PM, 12th December 2018, About 3 years ago

Reply to the comment left by Rob Crawford at 12/12/2018 - 11:45
Hi Rob I have spoken to lenders but only the ones I have mortgages with. I’m still in the process .
I still don’t understand why nobody sees my point.
If I had known that the Banking Crisis was about to occur and I was signing a mortgage with one of the banks who was complicit in the banking crisis I would never have taken the risk. Any reasonable man or officious bystander would have said it should be assumed that banks were stable and not about to have to stop lending. Surely this means that the implied term that the lender will perform with care and skill is something a reasonable person would assume to be the case? By the way this comes from “the consumer credit act 2015 section 49”. And it says EVERY contract.
Sorry Rob I digressed from your question but think I answered it at the beginning. Thank you

by Gwen Davies

13:23 PM, 12th December 2018, About 3 years ago

Reply to the comment left by Ian Narbeth at 12/12/2018 - 11:52
Hi Ian it’s to do with the contemplation at the outset of the contract. The mortgage company and I contemplated that the house would exceed the value over a ten year period. In fact they would have had expert statisticians doing due diligence. I relied on their due diligence. If they had thought that this would not be a safe risk but lent anyway that would be irresponsible lending. They didn’t think this was unsafe. But the banking crisis during the contract term destroyed the value of my property. That loss would be easy enough to document. Clearly time coupled with inflation will reduce this loss.

by Kevyn Jones

13:31 PM, 12th December 2018, About 3 years ago

I am not an expert, but I think you would have to prove that the banks did not perform your particular contracts with care and skill. It would seem that, at the time, they had acted reasonably to lend you the money on the agreed terms. Obviously, if your bank, your financial adviser or you had foreseen what would happen, the loans would not have gone ahead.

Another point is that the average property price is now well above the peak just before the banking crash, therefore it could be argued that there are other specific reasons why your properties have negative equity apart from the crash.

by Rob Thomas

13:32 PM, 12th December 2018, About 3 years ago

Hi Gwen

The contract term that the lender "must perform the contract with care and skill” refers to the administration of the mortgage not the lending decision itself. The bank lent you the sum you wanted to borrow - neither you nor they have a crystal ball and sometimes you and the bank will loss money because house prices fall or some other reason. That's just ordinary business risk.

by Seething Landlord

13:57 PM, 12th December 2018, About 3 years ago

Gwen, you are barking up the wrong tree. The Act covers contracts for the supply of goods or services and in any event S49 only protects "consumers" as defined - see below.
Consumer Rights Act 2015
S2 (3) "Consumer” means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.
S48 (1)This Chapter applies to a contract for a trader to supply a service to a consumer
S49 (1)Every contract to supply a service is to be treated as including a term that the trader must perform the service with reasonable care and skill.

by Michael Barnes

14:01 PM, 12th December 2018, About 3 years ago

Do you have any evidence that your bank took part in reckless lending?
Or are they just a victim, like you?

by Ian Narbeth

14:19 PM, 12th December 2018, About 3 years ago

Reply to the comment left by Gwen Davies at 12/12/2018 - 13:23
Hi Gwen
Sorry if we all seem unsympathetic but as Seething Landlord writes you are barking up the wrong tree.

You write: "If I had known that the Banking Crisis was about to occur and I was signing a mortgage with one of the banks who was complicit in the banking crisis I would never have taken the risk." I will grant that you would not have taken the risk, but whether the lender "was complicit" is beside the point.

"Any reasonable man or officious bystander would have said it should be assumed that banks were stable and not about to have to stop lending". Whether your lender has decided to stop or is unable to continue lending is completely irrelevant. The questions are: Do they have to continue lending to you? Answer No. Can they call in the loan? Answer Yes.

In reply to me you wrote:
"The mortgage company and I contemplated that the house would exceed the value over a ten year period. In fact they would have had expert statisticians doing due diligence. I relied on their due diligence."

With the greatest respect, that doesn't wash. First, even if you both contemplated it, so what? Facts change. Markets go down. That's life. Second, whether or not they had statisticians doing due diligence is irrelevant. They will have received a valuation for the property which is a snapshot, not a forecast and not a guarantee that the value can never go down. They lent you a percentage of that valuation. Third, you did not rely on their due diligence in any meaningful sense. Fourth, even if you did, the bank will have excluded any duty of care to you so legally you have no redress.

Your line of argument boils down to: Because the bank lent me money, what I invested in ought to have been a sure-fire thing because otherwise a big clever bank wouldn't have lent. It wasn't a good deal and I want the bank to help me out.

Gwen, seriously, get some professional help and speak to an IVA if you are unable to repay your debts.

by Gwen Davies

14:36 PM, 12th December 2018, About 3 years ago

Reply to the comment left by Ian Narbeth at 12/12/2018 - 14:19
Thank you for your reply but I still want to argue that property by it’s very nature fluctuates in value. So yes, there was a risk. But, in this scenario the banks did not perform with care and skill. They nearly bankrupt the whole economy. Their lack of care and skill caused the banking crisis which in turn caused the dramatic drop in property values. My contract was with them. And they did not perform with care and skill. If an outside influences had caused the drop in value I wouldn’t be arguing the point. But it was the bank (the one I have the contract with) who caused the banking crisis. Do you think the banks performed with care and skill? They have actually admitted that they caused the banking crisis. So how can they then say they performed with care and skill? In what other way would they perform a contract with care and skill?


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