Wednesday, Oct 29, 2008
Lloyds turns on house price gamblers
The Times: Lloyds TSB blocks interest-only mortgage switch
Lloyds TSB, one of Britain’s biggest mortgage lenders, came under fire yesterday after it emerged that it was stopping borrowers switching from repayment mortgages to interest-only deals. The lower monthly repayments of interest-only mortgages are often a lifeline for hard-pressed borrowers.
Posted by quiet guy @ 07:23 AM (741 views) Add Comment
13 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. honest valuer said...
Does this prove that the banks are still short of capital even after the massive injections of government cash?
The next phase of this crash will occur when the banks finally mark to market their loan portfolios.
2. yorkshireman said...
This seems like a sensible business decision by Lloyds TSB. Other banks, I am sure, will follow suit. An interest only mortgage with no repayment vehicle, as it appears this may no longer be required, is the same as the bank renting the property to the borrower. Interest only represents a short term solution to the borrower, but a long term problem to the lender, against a backdrop of falling property values. We have all criticised irresponsible lending by banks. Maybe those days are over.
3. whostolemyendowment said...
Until I sold my house two years ago - I was stuck in the Thatcher era trap of interest only mortgage back up by a with-life policy - YEP, that's right an 'Endowment' mortgage. Once I started receiving the shortfall letters from Standard Life I knew my days were numbered so jumped ship from the 'proprety market'. There will be many thousands (if not millions) of 'homeowners' like myself - as was - who face the prospect in the coming 5 years or so time, where their home will have depreciated, with still the original capital of the loan to pay off - with a worthless or low maturity with-life policy.
Of course my original mortgage was 'only' 24K way back in 1987, which was increased with following house moves first to 36K in 1993, and 42K in 1997 - with increased endowment cover at each step. So if I hadn't jumped ship, and wanted to hang on to my house until my mortgage finished in 2013....I would probably have to find the shortfall of anything up to 50% of the capital - or remortgage....and stay in mortgage debt for ever!
4. str 2007 said...
I think at a time like this switching from repayment to IO is sensible if it keeps roofs over peoples heads. IO should be a fail safe with perhaps a max limited peiod of 3 years.
Just because people have a mortgage doesn't mean they've over extended. Circumstances do occur beyond peoples control. This recession for example.
If people had only been allowed repayment mortgages, IO would have been a good safety net.
To change the rules now is to me outrageous.
If someone had a repayment mortgage they could afford and had IO option as their safety net I would not call that irresponsible.
5. jack c said...
I'm away from my office all day today and wont have internet access - LTSB wont get away with this - I'll post a more detailed explanation as to why tonight
6. Rimmer said...
STR 2007
Sorry i have to disagree, if you cant meet the repayments in the short term you should extend the term as a temporary measure, if you cant meet the repayments long term you cant afford what your doing, i have a friend paying IO only on his flat, if it runs full term he has 23 years to go and will then have £220000 to find, if he doesnt on that day the building society own the flat, he brought it IO as it was all he could afford and doesnt have any other plan to cover the capital sum, currently the flats worth maybe 150k
If you cant afford a repayment mortgage then really you cant afford it and should be renting - sorry but the sad truth.
I hope IO is permanently removed, to be honest shared ownership would be better.
Better still imagine the UK with 3 x Mortgages repayment only, if that were law house prices would be 1/2 what they are now and the future for our children a lot better, as it is it cheap credit and allowing things like IO that have led to the stupidity we are currently in.
7. Rimmer said...
Jack
I see no reason why they wont, they can offer and with draw what ever products and deals they want, they have a duty as i feel all lenders do to look at short term problems holders may have, however as i posted before if you cant meet the repayments ( and lets be honest rates are historically Very Very low - Gordon told us ) then you really cant afford it.
I still hold with what i posted i hope they ban IO as a mortgage vehicle it makes people think they are buying where as really they are renting.
8. Luckyjim said...
I think I'm right in saying that they cannot legally repossess a property if the borrower is keeping up with interest payments ie the debt is not growing. That was the law a few years ago anyway. It's a similar story with bankruptcy - you are not bankrupt if you can still meet the interest payments on your debts.
LTSB would need to offer an interest only option to customers in arears but I suppose that is a personal arrangement rather than a product on general offer.
The concern is that banks are no longer trying to delay repossessions. If they think somebody is going to default eventually it is in the banks' interest to take possession of the asset as soon as possible - before it losses further value.
More forced sales will accelerate the price falls but, even though I am likely to benefit, I can't say I feel good about it.
9. inbreda said...
It's a good idea. If someone goes from a repayment to IO it means they are in trouble. It means they over extended themselves or their income has dropped. Basically it is a very good indicator that they are a bad credit risk. Lloyds as a commercial organisation has a responsibility to get rid of bad debtors and keep good debtors, so cutting the IO option is a good idea - it means that high risk customers will be more likely to look elsewhere for a deal - thereby badly affecting lloyds competitors. It is just sensible risk management.
...which is all part of the race to the bottom.
10. timmy t said...
I think IO mortgages could become a thing of the past quite soon. And I don't think that is a bad thing. I think there is quite a strong argument to say that if you can't afford a repayment mortgage for a house, then you can't afford the house.
11. Kruador said...
hv@1: yes. As markets continue to fall, mark-to-market requires banks to continue marking down the loan values and destroying their capital. The injections were quite large to allow for where we are now and a little bit of future, but I don't think they were big enough for a complete wind-out of the entire market as we could well see.
Not yet sure if yesterday was just another dead-cat bounce. This cat is bouncing a lot on its way down the stairs.
12. malct said...
we are brain dead - how can we hope to have stable house prices when we ignore issues like this?
what chance is there of a sound economy when we turn a blind eye to oppression?
sorry terribly terribly politcally incorrect and off topic - ?
The US has once again “targeted foreign fighters” as part of its so-called war on terror. But these “fighters” were all Syrian civilians, including four youngsters. Another five individuals have been hospitalized after being shot by US Special Forces.
Washington has admitted perpetrating this tragic incident but insists the victims were terrorists just as it does when its fighter jets illegally cross the Afghanistan-Pakistan border and end up wiping out entire families. Syria describes the adult victims as construction workers.
Even the pro-American Afghan leader Hamid Karzai is fed up with the Pentagon’s trigger-happy policies that exact such a terrible toll on innocent civilian life. The problem is there is no international oversight on US military activities. There is no investigation into these murders and the world is expected to take every utterance from the US military as gospel.
13. jack c said...
Going back to my original post earlier today (which was primarily in respect of C&G/LTSB mortgages that are already in place - not new borrowers) - if a borrower runs into financial difficulty one of the standard options would be for the lender to allow a switch to interest only payments and possibly to extend the term of the mortgage thus reducing monthly payments. Prior to attempting to take posession of a property all lenders must demonstrate that all reasonable steps have been taken to avoid evicting the borrower which is always seen as a last resort. If LTSB fail to allow the IO option in such circumstances it will very likely be thrown out by the judge at the court proceedings stage.
As for IO with no repayment vehicle at all from outset - should never ever have been allowed and was always going to end in disaster for all concerned.