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Home owners in trouble
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By Leo Olivero
With World finances in complete disarray, when even governments do not know how to sort-out the global economic misery, spare a thought for the ordinary man on the street particularly when he/she also gets into financial difficulty, most probably caused as a result of the inept handling of world economies.
This in fact is the position here in Gibraltar, because just like many other places where people who are up to their necks in debt, and who have no idea how to get out or even alleviate the situation of their financial hell hole are in financial despair!
Over the past 15 to 20 years, Gibraltar has been riding the crest of our very own home ownership housing boom, we’ve practically become a nation of homeowners. However there is a question people are asking...is home ownership all that it is really cracked up to be?
One financial expert told me “Homeownership in today’s shaky world of money is certainly not for everyone. It can become a black hole for income that could otherwise be redirected into investments with more stable, proven returns. There's a cliché about eggs and baskets that's rather appropriate here. In most cases, investors would shudder at the thought of pumping a majority of their capital into a single stock, no matter how good it is. But that's exactly what most homeowners are doing. And it can have devastating long-term consequences given the unpredictable, fluctuating nature of the housing market. Just ask the thousands of near-retirees everywhere who've been forced to hold off on retirement because of the one-two punch of diminished stock portfolios and plummeting home values, Spain is a classic example of this”
Home Owners in Trouble!
As there are no official figures available, some well positioned sources have informed me that many people who launched themselves into Gibraltar’s home ownership world have encountered major financial difficulties, particularly over the last 6 or 8 years. These problems stem from a variety of reasons where home owners have ended up pressed against the financial wall not being able to meet the various financial liabilities that come with owning your home. These people lost out, lost money and sadly lost their dream and have had no alternative but to join the governments housing waiting list.
These are distressing stories really, although I’ve often said in Panorama “did these people before signing their financial lives away seek or get the proper advice”
Although Some people I’ve spoken with have said that overall, advice on home buying is approximately sound and that buying a house is generally is a good idea for most people, especially just now. Of Course these are arguments that are no less sound for being obvious, e.g. prices are reasonabalish and mortgage rates are low.
Is Owning Your Home Good for Your Health and Life?
But is property a good financial investment anyway? Is it even a healthy one? Especially when you think it is eating away for at least 25 at all your weekly or monthly income, at a period for many when money is required on tap to help bring up and feed families. Although at the same time when things start to turn soar, home ownership in fact is doing little good to your health or your family relationships because for some lack of funds turn into irreversible domestic issues!
It is disturbing for many reasons to hear of the many families in Gibraltar who have had their dreams of owning their home shattered by financial problems that has also ravaged many thousands of people elsewhere in similar situations. Yet having spoken to some of these unfortunate people they have said they did not know what they were getting themselves into, and do not think that financially they were properly advised!
I must admit being a homeowner myself for a number of years now, and having been fortunate that I have been able to keep up with all the financial burdens that come with buying your own property. But I will say that thinking back and going through all the financial side of the buying process before actually getting the front door key to my own home “my financial advice at the time was in my opinion poor”
Information and Advice for Borrowers From the EU
But this is set to change, because proposed new EU rules to ensure that house buyers are properly informed before taking on a mortgage were recently approved by the European Parliament’s Economic and Monetary Affairs Committee.
The rules should also ensure that buyers are offered mortgages that are tailored to their needs and that their credit-worthiness is properly assessed. Buyers who fail to repay a loan would be better protected against seizure of their assets and to curb irresponsible lending, mortgage sellers would be better supervised.
In fact MEP’s have strengthened the requirements proposed by the EU Commission on information to be provided before the borrower signs a mortgage and inserted rules regarding the borrower’s “financial education”.
The text says that any financial advice given to borrowers should be impartial, and enable them to understand the long-term financial consequences of taking out the loan. Anyone taking on a mortgage should receive comparable information about the products available, and be informed whether there is any financial incentive that might lead the adviser to recommend a particular product.
It adds that the credit terms offered to borrowers must be compatible with their present financial situation and their prospects. The rules aim to protect borrowers not only from irresponsible lending, but also from their own misjudgments and also ensure that mortgages are only provided to people who can afford them.
To better protect borrowers, MEP’s have added a new rule stipulating that the return of collateral such as the property will be sufficient to repay the loan, provided that the lender and borrower expressly agree to this in the contract.
Where a borrower defaults on a loan, MEP’s want arrangements to ensure that the lender makes every reasonable effort to resolve the problem before initiating foreclosure proceedings. They also aim to ensure that arrangements for settling the debt outstanding after the property has been sold are reasonable with regard to the borrower’s circumstances, e.g. family situation. These arrangements could include limiting the seizure of wages, retirement pensions, etc., to ensure that the borrower retains a minimum household income.
Greater flexibility
Borrowers would also have a 14-day cooling off and reflection period after signing the mortgage agreement, during which they can withdraw from it.
Most home loans are long-term, yet both lenders and borrowers need flexibility during the life of the product to manage risk and changing circumstances for both. MEP’s therefore inserted flexibility provisions, including the right for the borrower to repay the loan early and the right for the lender to receive fair compensation for such early repayment. However, obliging borrowers to pay penalties for early repayment would be prohibited.
Proposed rules for loans denominated in a foreign currency would allow the borrower, on certain conditions, to change the currency of the loan, while the lender would be entitled to be compensated for this change. MEP’s also decided that, where expressly agreed by both parties to the mortgage deal, borrowers should be able to transfer the mortgage from one residential property to another when moving house. However, to make this possible, member states would have to develop means to ascertain whether the borrower has a clear legal title to the property.
My understanding is that under the new legislation, the national authorities responsible for supervising credit entities, information exchange and dispute resolution would be united under the auspices of a European Banking Authority.
I often think why do people or why did I, want to purchase my own home (consciously or not) there are many reason and circumstances why this is, from land/property ownership, which uniquely confers permanence, freedom, and power of self-determination on the owner and many other reasons.
Yet throughout history, humanity has fought and died for control of land (just look at the Spain with their on-going ‘Get Gibraltar Crusade’ but they want our land and water) what did every Roman soldier want to receive upon discharge? A parcel of land…
If Life Was That Simple Today!
28-06-12
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