Negative equity – are the banks responsible?

Negative equity – are the banks responsible?

9:04 AM, 12th December 2018, About 5 years ago 55

Text Size

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.


Share This Article


Gwen Davies

19:55 PM, 12th December 2018, About 5 years ago

Reply to the comment left by AA at 12/12/2018 - 19:53
Me too!!


19:57 PM, 12th December 2018, About 5 years ago

Reply to the comment left by Gwen Davies at 12/12/2018 - 19:42
Yes the borrower may have taken the money - but it was not a "loan" by the legal definition, therefore the issued contract was incorrectly referenced. The judge refused to rule on it as it would bring the whole mortgage business down.

Gwen Davies

22:44 PM, 12th December 2018, About 5 years ago

Reply to the comment left by AA at 12/12/2018 - 19:57
That is the problem. You can’t win without destroying the whole economy again! Just think the lenders should treat borrowers fairly. Actually I think there’s a law that says they must. Crazy!

Michael Barnes

15:09 PM, 14th December 2018, About 5 years ago

Reply to the comment left by AA at 12/12/2018 - 19:53
Tony Hancock was a genius and I don't see what's wrong with his request.

I believe it is to do with money being fungible.


12:20 PM, 15th December 2018, About 5 years ago

Hi Gwen,
I'm sorry to say that to me this smacks of the blame culture we are in. If things go wrong it must be someone else's fault. It was entirely your choice to apply for these loans no doubt like most of us in the hope of having a profitable rental business and a secure investment for the future. When it goes wrong it must then be someone else's fault, in this case the banks and whilst it may be true to say the banks also bought into the risk I would suggest you consider:- How long have you had the properties, how much equity have you taken out over the term, how much profit have you made from the rentals and how much have you made from the rest of your portfolio? Presumably if these were made irresponsibly to you, all your loans were. Therefore, any liability on the banks part would be for your current negative equity minus all profits taken so far plus any profit sitting in the remainder of your mortgaged portfolio. If that still shows an outstanding loss, one wonders why you not only continued but expanded your business.
Good luck with your claim, Mike

Gwen Davies

14:00 PM, 15th December 2018, About 5 years ago

Reply to the comment left by Mike McDonagh at 15/12/2018 - 12:20
Hi Mike thank you for your comments you seem to be of the same opinion as everyone else on this site but can I please explain how I see the situation.
The Banking Crisis was an exceptional event.
It was brought on by the global financial crisis not anyone’s fault in this country.
However our banks in the main did not have sufficient capital to sustain what they were lending.
Mervyn King (head of Bank of England in 2007/8) said the Banking Crisis was due to reckless lending on the parts of the banks. That is they didn’t have sufficient reserve funds to sustain their business when the global crisis hit.
This situation is not likely to occur again in the future because the regulators have introduced systems to ensure that Banks hold sufficient reserves before they are allowed to operate as lenders.
These regulations have only been introduced since the Banking Crisis occurred.
So any restitution now is not likely to impact on future mortgage lending as one commentator suggested it would.
However, over a ten year period it is unprecedented that a house would remain in negative equity.
House prices do fluctuate but never in the past have they not increased to above the value placed on them 10 years previously.
This is an exceptional circumstance.
Sure I took a risk. The bank took a risk. But at the beginning of the contract we both calculated that this was a safe risk. Never over decades in the past have house prices not risen (despite fluctuations) over a ten year period.
So why has this happened now.
It is due to the exceptional circumstance of the Banking Crisis.
This was not my fault. The Banks have admitted their responsibility for the Banking Crisis and apologised for their part in it. It will also not happen again due to the new regulations.
Economics rule. And so in most areas of the UK property values have risen sufficiently to negate negative equity and even show large profits but these are mainly in cities and more affluent areas.
My houses are in a working class areas.
These areas were hit harder. Values dropped dramatically and the austerity measures introduced by the government hit these areas most. Wages were frozen businesses collapsed. Workers were asked to reduce their wages. We are recovering but at a much slower pace than the more affluent areas.
When I took the mortgages I contemplated with the mortgage company that at the end of contract there would be sufficient equity for me to refinance or sell with a profit.
The reason that this is not possible is due to the exceptional circumstances of the Banking Crisis. This was a seismic event. It impacted the whole economy.
Yes I took a calculated risk. The Bank also did after doing specialist due diligence. Clearly neither one of us would have taken this risk had we foreseen the Banking Crisis. It was unforeseeable at the formation of the contract.
I clearly had no part in the banking crisis but the banks were responsible. As such I feel they should work with me to find an agreeable solution. It feels to me as if I’m carrying the can for their recklessness. They’ve either had to stop lending or they’ve disappeared altogether and the government using taxpayers money have bailed them out. They were supported why can’t they now work with me to support me after this exceptional event.?
I wonder if you still think I’m just trying to blame it on someone else?
I suppose I am blaming the Banks. But it was a “BANKING Crisis”. It was unforseeable at the start of the contract but the effect is still being felt. All I’m asking is to be treated fairly by the “BANKS”.

Please tell me if you can see my point of view?

Luke P

14:23 PM, 15th December 2018, About 5 years ago

Reply to the comment left by Gwen Davies at 15/12/2018 - 14:00Mike’s last point was more pure logic. If you follow the thought-pathway that ‘the banks’ caused the circumstances whereby you lost money (and therefore should hold financial responsibility), then the same must be true for any profits you made. You can’t win without also losing…even if you could convince the Courts.

Gwen Davies

15:50 PM, 15th December 2018, About 5 years ago

Reply to the comment left by Luke P at 15/12/2018 - 14:23
Thank you Luke for your comments. In a famous case a ship delivered sugar late. Because of the late delivery the sugar was sold at a loss and they sued the shipping company and won. The courts said it was because the shipping company contemplated at the start of the contract that sugar prices fluctuate and it could just as easily been that they were up and then they wouldn’t have sued for loss of profit but the shipping company would not have been eligible for a portion of their gain. They were having it delivered to make a gain. This was contemplated at the beginning of the contract. The court held that it’s to do with the contemplation at the beginning of the contract. The late delivery of sugar (breached the contract) and the shipping company knew that sugar prices fluctuate so delivery time was important. The mortgage company contemplated the end of contract terms and but for “the Banking Crisis “ (they were complicit in this) the contract would have completed in the contemplated manner.
Do you see my side now?

Seething Landlord

16:55 PM, 15th December 2018, About 5 years ago

Reply to the comment left by Gwen Davies at 15/12/2018 - 15:50
Gwen, you are like a dog with a bone. How many times do you need to be told that your argument has no legal merit whatsoever?

Gwen Davies

17:04 PM, 15th December 2018, About 5 years ago

Reply to the comment left by Seething Landlord at 15/12/2018 - 16:55
I still don’t understand why! But clearly you know better than I do.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now