[interestrateripoff]

http://www.independe...al-7593378.html

Quote

New interest-only mortgages taken out by Royal Bank of Scotland (RBS) and NatWest customers will be restricted to people earning at least £50,000 under fresh rules announced today.

The new requirements will help deal with market volatility and are part of RBS and its sister brand NatWest showing "responsible" lending by ensuring the mortgage is affordable to the consumer, the Royal Bank of Scotland group said.

The announcement follows general concerns of an interest-only mortgage "ticking time bomb" across the market, with worries previously raised that some borrowers currently on interest-only deals with lenders may find themselves unable to remortgage.

If more lenders follow suite lots of BTL could be locked out of refinancing unless they move to repayment.

[winkie]

interestrateripoff, on 27 March 2012 - 06:56 PM, said:

http://www.independe...al-7593378.html



If more lenders follow suite lots of BTL could be locked out of refinancing unless they move to repayment.

I didn't think you needed an income, the size of the deposit is the income...the rent is the income that pays the interest, up until the deposit still exists.

[shindigger]

interestrateripoff, on 27 March 2012 - 06:56 PM, said:

http://www.independe...al-7593378.html



If more lenders follow suite lots of BTL could be locked out of refinancing unless they move to repayment.

Rents up!!
Then down..
Then right down.
Then down a bit more.

[winkie]

shindigger, on 27 March 2012 - 07:22 PM, said:

Rents up!!
Then down..
Then right down.
Then down a bit more.

[Ascii]

I can't make any sense of that to be fair. To arbitrarily set a minimum income of £50k is slightly odd.

I suppose they're basing it on people leveraging heavily but I would have thought that restricting by deposit size would achieve that adequately, after all if you have 50k deposit and a 50k mortgage neither repayment nor interest payments should present a problem for most. Of course 100k wouldn't buy you much now.

I think I would have to draw from that a tacit implication that a jump in interest rates is expected, ie we expect to you be able to cover the interest if much larger than it is now, and the larger deposit will mean we still have an asset to repay the outstanding loan when interest rates jump and we have to foreclose.

[winkie]

Ascii, on 27 March 2012 - 07:36 PM, said:

I can't make any sense of that to be fair. To arbitrarily set a minimum income of £50k is slightly odd.

I suppose they're basing it on people leveraging heavily but I would have thought that restricting by deposit size would achieve that adequately, after all if you have 50k deposit and a 50k mortgage neither repayment nor interest payments should present a problem for most. Of course 100k wouldn't buy you much now.

I think I would have to draw from that a tacit implication that a jump in interest rates is expected, ie we expect to you be able to cover the interest if much larger than it is now, and the larger deposit will mean we still have an asset to repay the outstanding loan when interest rates jump and we have to foreclose.

I think the logic of many is that if they have £1m deposit and want to borrow £1m they think they can afford the repayments when they only earn £20k.....

[ccc]

As many have said time and time again. Patience is key. And I have to say - recently just about EVERYTHING points to serious large falls in property prices in nearly all of the UK in the next few years. IMO anyway.

[georgia o'keeffe]

ccc, on 27 March 2012 - 07:43 PM, said:

As many have said time and time again. Patience is key. And I have to say - recently just about EVERYTHING points to serious large falls in property prices in nearly all of the UK* in the next few years. IMO anyway.

*maidstone excluded

Fixed

[winkie]

Georgia O, on 27 March 2012 - 07:45 PM, said:

Fixed

...you are sibley and I claim my £5.

[ccc]

Georgia O, on 27 March 2012 - 07:45 PM, said:

Fixed

Fair call. IMMUNE !!

[Ascii]

winkie, on 27 March 2012 - 07:42 PM, said:

I think the logic of many is that if they have £1m deposit and want to borrow £1m they think they can afford the repayments when they only earn £20k.....

Kind of my point. It only makes sense to apply an arbitrary £50k minimum when you are borrowing say £250k+. Interest as it stands on that in simple terms at 5% is only £12.5k or a little over a grand a month would would be unaffordable on your arbitrary £20k pa. The same logic doesn't apply if you are borrowing a modest multiple hence why a sensible minimum for IO would be very similar to the 2.5x to 3.5 salary we see touted around so much

I have to confess I have a vested interest as I have an IO mortgage albeit at about 0.7x salary in a good year or 3x salary in a bad year. It's currently offset by over the amount lent (one of those "One" type mortgages) and I have a repayment vehicle that will cover about half of the value in 8 years (mortgage term itself is about 25 years from now). I've been (I think) duly diligent and only borrowed what I think I can afford on my salary (not counting the missus' salary as that's beer money). So in real terms I'm paying no interest and have a healthy amount I can draw down for whatever I see fit (business ideas really).

Anyway, I digress. IO mortgages have there place but I would have thought that a modest one is no more of a risk than a modest repayment vehicle. The problem isn't IO lending itself (or for that matter repayment mortgages), the problem is risky lending; the clue itself being the the "r" word.

As long as multiples are sensible in either case (which of course hasn't been the case in recent history) and sensible deposits are taken (in my case deposit now represents about 65% of the property value) I don't see a need for an arbitrary £50k minimum; it makes no sense but for a possible hidden agenda.

[shindigger]

Ascii, on 27 March 2012 - 08:22 PM, said:

Kind of my point. It only makes sense to apply an arbitrary £50k minimum when you are borrowing say £250k+. Interest as it stands on that in simple terms at 5% is only £12.5k or a little over a grand a month would would be unaffordable on your arbitrary £20k pa. The same logic doesn't apply if you are borrowing a modest multiple hence why a sensible minimum for IO would be very similar to the 2.5x to 3.5 salary we see touted around so much

I have to confess I have a vested interest as I have an IO mortgage albeit at about 0.7x salary in a good year or 3x salary in a bad year. It's currently offset by over the amount lent (one of those "One" type mortgages) and I have a repayment vehicle that will cover about half of the value in 8 years (mortgage term itself is about 25 years from now). I've been (I think) duly diligent and only borrowed what I think I can afford on my salary (not counting the missus' salary as that's beer money). So in real terms I'm paying no interest and have a healthy amount I can draw down for whatever I see fit (business ideas really).

Anyway, I digress. IO mortgages have there place but I would have thought that a modest one is no more of a risk than a modest repayment vehicle. The problem isn't IO lending itself (or for that matter repayment mortgages), the problem is risky lending; the clue itself being the the "r" word.

As long as multiples are sensible in either case (which of course hasn't been the case in recent history) and sensible deposits are taken (in my case deposit now represents about 65% of the property value) I don't see a need for an arbitrary £50k minimum; it makes no sense but for a possible hidden agenda.

Oh yes it is. Even if people chose not to lie through their teeth on the application form, and actually did have a "vehicle" in place.
That vehicle if taken out in the last 10/15 years is upside down and on fire with its legs in the air right now.
I ditched my endowment in 2000 when after various telecoms and dot com booms, my "fund" still wasn't worth what i'd paid in.
I took L&G to the Ombudsman and got my money back with interest. This was my original HPC epiphany. years before coming on here.
That system is bust. So IO is a HUGE problem my friend. Huge. What do you think all these buyers since the early Noughties have been saying on their forms? One of my best friends bullshitted an RBS IO loan.
He borrowed £145k with a £7k deposit. His flat is now at least £20k under water, and hes not cleared a penny. Hes ******ed.
And its not flahsing red on ANY RBS terminal anywhere yet. They will never see the money back. His plan ( im not sure he even had a plan) of capital growth to clear the loan has failed. As it will with thousands, maybe millions, of others, in time.
I'd say this applies to a sizeable chunk of loans since 2004/5.

Tick tock.

This post has been edited by shindigger: 27 March 2012 - 08:47 PM

[Monkey]

Ascii, on 27 March 2012 - 08:22 PM, said:

The problem isn't IO lending itself (or for that matter repayment mortgages), the problem is risky lending; the clue itself being the the "r" word.

but isnt that what had been warned over the year, massive over reaction by the Banks/authorities etc and causing more pain to the responsible few to try and get a "grip" on the recklesness of the last decade.

[kenzdawg]

Article doesn`t mention BTL. This is for residential I/O loans, surely?

[Ascii]

shindigger, on 27 March 2012 - 08:46 PM, said:

Oh yes it is. Even if people chose not to lie through their teeth on the application form, and actually did have a "vehicle" in place.

Not checking facts would of course be a risky investment.

shindigger, on 27 March 2012 - 08:46 PM, said:

So IO is a HUGE problem my friend. Huge. What do you think all these buyers since the early Noughties have been saying on their forms?

No idea - but if the banks haven't checked then that would be a fairly clear indication of negligence which of course opens up a very clear path to the risk that you won't recover your loan.

shindigger, on 27 March 2012 - 08:46 PM, said:

One of my best friends bullshitted an RBS IO loan.
He borrowed £145k with a £7k deposit. His flat is now at least £20k under water, and hes not cleared a penny. Hes ******ed.
And its not flahsing red on ANY RBS terminal anywhere yet. They will never see the money back. His plan ( im not sure he even had a plan) of capital growth to clear the loan has failed. As it will with thousands, maybe millions, of others, in time.
I'd say this applies to a sizeable chunk of loans since 2004/5.

Tick tock.

Very probably so,but again that's clearly negligent lending and also fraudulent borrowing. If both lender and borrower are sensible IO has its place and is both a viable lending mechanism and one which can suit both lender and borrower. A 50k minimum earning limit makes no sense as is just a knee jerk reaction. You may as well say that there is a 75k minimum salary for a repayment mortgage (allowing an extra 50% for capital repayment element).

Do you think a 75k minimum salary for raising a repayment mortgage is a good thing? That's clearly a logical next step. Even if you don't apply an increase in respect of the capital element and set it at the same £50k minimum for repayment that would leave the vast majority of the country unable to raise any kind of mortgage irrespective of deposit (of course though that would have a downward effect on pricing - which is I think what we all want).

The problem isn't IO, its irresponsible lending (and borrowing). That applies to both IO and repayment. 50k makes no sense.