SHORT –SELL SOLUTION?

Yesterday, on the last day of the financial year and on the eve of the latest tax cuts I was talking on 3AW about the state of the economy, the shocking year for the stock market, and the fallout here from the sub-prime mortgage crisis in the United States. I mentioned a news report out of America that I had seen over the weekend. Housing horror stories about home owners ‘selling short’.

Basically, families struggling to meet their mortgage payments were biting the bullet and offering their houses for sale for the price of the outstanding mortgage. And the mortgage holders were approving the deals. Why wouldn’t they?

It’s an expensive bullet to bite. Say your house is worth $400,000. You have a mortgage of $300,000 and nobody wants to buy your house  at your price. So. You take the burn. Walk away. You’ve avoided bankruptcy. Protected your credit rating (although the short-selling will go on your record) and you get the chance to start again.

That’s in the United States. If you don’t think it applies here then think again. Wizard Home Loans founder, Mark Bouris, is advising people to do just that.

He says people have to ‘get their heads out of the sand’ and realise that there is more trouble around the corner. Bouris says home owners already struggling with mortgage repayments need to cut their losses and sell up before it is too late.

I know from experience it is better to sell a property on your terms in your own time than being forced to sell with the bank breathing down your neck.
Bouris says inflation pressure and rates rises have made the repayments calculations people made when entering into a home loan only a few years ago now not worth the paper they were written on.

The Wizard wizard also warns that people who signed up for a fixed loan three or four years ago, - before the rates shot up, are about to get a shock.  These homeowners will soon be switched from their introductory fixed rate to a much higher loan rate and Bouris says ‘They have no idea what is about to hit them’.
And, of course, there is another elephant in the room. If you have to sell and go back to renting a place – where do you find one? And at a price you can afford. Right now it is a financial jungle out there.

© Copyright Derryn Hinch 2008