Friday, May 14, 2010
Sense at Last?
Daily Mail: First-Time Buyers Hit by Fresh Lending Drought
Interest only mortgages limited to £500,000 - bring on the HPC
Posted by total_injustice @ 11:48 AM (2360 views) Add Comment
20 Comments
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2. dead spider said...
£500,000 limit , not £50,000 regretably .
3. jack c said...
The Lloyds limit is a restriction above £500k (not £50K) - they will still consider but obviously want to see a repayment vehicle of some sort in place.
The problem lies with what's gone before not with lending criteria now or in future (time bomb ticking and the FSA know it !)
4. Cheekie Charlie said...
"A new charging structure also means that anybody who wants an interest-only deal will be charged a rate which is 0.2 percentage points higher than a repayment deal."
So in theory they are paying some of the capital off - for the banks!
5. 51ck-6-51x said...
"For millions of young people, an interest-only mortgage is the only way to get onto the housing ladder at a price they can afford."
Contradiction-in-terms:
An interest only mortgage does not get one "on the housing ladder" unless one pays down some of the outstanding - and if one does that one effectively has a repayment mortgage (albeit a slightly more expensive one as one must pay for the optionality), which these people "cannot afford".
6. mark wadsworth said...
What 666 says.
7. jack c said...
666 - several years ago a lot of people thought what the hell we might as well effectively rent from the lender as opposed to a private landlord/council/housing assoc etc... hence the rise of int only mortgages - now throw in a doubling (or more in certain areas) of property prices 2000 to 2007 and most feel a job well done - they are sitting on 'X' equity which they otherwise would not have had. Most lenders at the time would willing accept "borrower will sell house at end of term of mortgage" as the ultimate repayment method. As I send earlier a time bomb ticking and the FSA know it. As an aside Tom McPhail of Hargreaves Landsdowne pointed to this about 18 months or so ago and felt many using property as a pension would become unstuck - time will tell but sooner or later the bomb is going to blow.
8. techieman said...
Jack picking up on your point, do you think that if the reverse happens (i.e. negative equity) the lenders will insist on some form of repayment vehicle and/or security / guarantor, and covenants that that is in place and does not lapse?
Maybe they do that already or are doing that on new loans? Should that not be the case then should the lender be able to pull the plug, even if the repayments continue to be met?
9. mick rupert said...
Silly question, but what practical stuff can we do to help hurry the ticking timebomb explode?
10. jack c said...
techieman - generally speaking if the borrower keeps up the repayments the lender is happy (I'm referring to existing arrangements here) and even if the spectre of neg eq arises it shouldnt be a problem unless the borrower decides to move or more importantly is forced to move then they have to fund the shortfall.
In terms of new lending a tighter criteria now applies and many lenders simply will not allow int only for the main residence - others will but with insistance that a repayment vehicle is in place - the unscrupulous of course get around this by setting up a regular premium ISA and then cancel the contract after a few payments - the lenders do not tend to have a noted interest in policies anymore (storage seems a real problem on our overcrowded island - LOL)
Hope this gives a bit of insight from the coalface
11. fjcruiser said...
Shocking to know that almost one in two mortgages is an IO mortgage. This would have happened recently when most borrowers on 2 years fixed found out they could not afford the new variable rate (despite the decrease in the base rate). To my knowledge, the UK is the only country which is allowing such practices of IO mortgages.
The reality is that it is unlikely that the borrowers who switched to an IO mortgage from capital repayment will ever switch back since a capital repayment mortgage would probably double their repayments.
£500,000 is far to high a limit.A lower limit would probably substantially increase the amount or reposessions though.
12. techieman said...
"others will but with insistance that a repayment vehicle is in place.....the lenders do not tend to have a noted interest in policies anymore"...
Well they should! :-).
13. 51ck-6-51x said...
...or at least the debt holder should.
14. jack c said...
techieman - yes the lending practices of 30+ years ago had us in a far more stable and sensible position - do you think I should write to Cameron & Clegg and offer my services reagrding lending/housing policy? surely I can do a better job than Krusty
15. techieman said...
Even this Krusty http://www.youtube.com/watch?v=fMf2SZtuqPk&feature=related can do a better job than Miss A! Go for it Jack! Or should i say ha'way!
16. ontheotherhand said...
Mick rupert "Silly question, but what practical stuff can we do to help hurry the ticking timebomb explode?"
Sell your house and rent? Quick because the EU might ban that as 'greedy speculation' just like they are blaming traders for Greece's woes rather than saying, "Er, they borrowed too much money".
17. rumble said...
FTBs are spending £500K ?
(will i get in trouble for suggesting an anti-captcha 24hr strike?)
gymnasia concern
18. Sparkiedog said...
I think this is great news and the start of a trend where we will hopefully see IO disappear. People value houses on what it costs them per month in mortgage payments, the end of IO will mean that in the example quoted of a £150k mortgage where a person could pay £500 a month IO, will in the future only get a £100k (approx) mortgage, if thats the same for everyone then prices must drop 33%...
19. rumble said...
So much for all the moaning.
20. tenyearstogetmymoneyback said...
and people used to be shocked about the Japanese 100 year mortgages.
£500000 = £1666 repayments each month for 25 years (or £416 if you are in Japan)
and thats assuming you have a 0.000001% percent tracker deal
How many of the people in the U.K. on interest only could afford even the Japanese payments.