Building Societies Screaming Mad At F S A Over I O Loan Restrictions

[Realistbear]

http://www.bloomberg.com/news/2010-09-29/u-k-building-societies-attack-fsa-plans-to-limit-interest-only-mortgages.html

U.K. Building Societies in Frenzied Attack FSA Interest-Only Mortgage Plan

By Andrew MacAskill - Sep 30, 2010 12:01 AM GMT+0100

The Building Societies Association, which represents the U.K.’s 49 customer-owned lenders, urged the Financial Services Authority to rethink plans to restrict interest-only mortgages saying they risk stifling the market.

Forcing lenders to make regular checks on borrowers’ ability to pay will push up borrowing costs and limit choice for consumers, the Building Society Association said

in a statement today in response to proposals the U.K. regulator made in July. The tightening of the rules may lead many lenders to withdraw from the market, the London-based BSA said.

“Interest-only mortgages are not in themselves inherently bad or high-risk

and the industry has been attentive about restricting their availability to suitable customers,” said Paul Broadhead, the head of mortgage policy at the Building Society Association in the statement.

Do I detect a tinge of anger among some HPCers reading this?

[the flying pig]

how about a cap that says, e.g., interest only mortgages won't account for more than [say] 5-10% of a BS's new lending? let the lenders work out who IO is best for.

rather than getting into a ridiculous situation where a third of all mortgages are IO.

i had a troubling conversation with my young cousin and his wife recently, they're pregnant & have planned it so that she will go back to full time work 3 months after giving birth, their first line was that her work wouldn't countenance any longer, when i challenged this they admitted it was because their ability to meet mortgage payments was predicated on them both working full time, when i suggested that they perhaps consider trying to switch to IO for a while they looked at me as if this was an insane suggestion since why would anyone not be on IO already?

[RufflesTheGuineaPig]

That is simply not possible as you wrote this before anyone could see it.

+1

[General Melchett]

when i suggested that they perhaps consider trying to switch to IO for a while they looked at me as if this was an insane suggestion since why would anyone not be on IO already?

http://www.youtube.com/watch?v=o76WQzVJ434

[billybong]

UK movie makers couldn't even afford horses for their actors in those days and the UK's gone downhill even more since then.

[Traktion]

http://www.youtube.com/watch?v=o76WQzVJ434

That's a great clip - got to love a bit of Monty Python!

Strangely, Dennis reminded me of Injin!

Edited September 30, 2010 by Traktion

[THE BALD MAN]

http://www.bloomberg.com/news/2010-09-29/u-k-building-societies-attack-fsa-plans-to-limit-interest-only-mortgages.html

U.K. Building Societies in Frenzied Attack FSA Interest-Only Mortgage Plan

By Andrew MacAskill - Sep 30, 2010 12:01 AM GMT+0100

The Building Societies Association, which represents the U.K.’s 49 customer-owned lenders, urged the Financial Services Authority to rethink plans to restrict interest-only mortgages saying they risk stifling the market.

Forcing lenders to make regular checks on borrowers’ ability to pay will push up borrowing costs and limit choice for consumers, the Building Society Association said

in a statement today in response to proposals the U.K. regulator made in July. The tightening of the rules may lead many lenders to withdraw from the market, the London-based BSA said.

“Interest-only mortgages are not in themselves inherently bad or high-risk

and the industry has been attentive about restricting their availability to suitable customers,” said Paul Broadhead, the head of mortgage policy at the Building Society Association in the statement.

Did the PR man from Northern Rock write this??

Do I detect a tinge of anger among some HPCers reading this?

[lulu]

how about a cap that says, e.g., interest only mortgages won't account for more than [say] 5-10% of a BS's new lending? let the lenders work out who IO is best for.

rather than getting into a ridiculous situation where a third of all mortgages are IO.

i had a troubling conversation with my young cousin and his wife recently, they're pregnant & have planned it so that she will go back to full time work 3 months after giving birth, their first line was that her work wouldn't countenance any longer, when i challenged this they admitted it was because their ability to meet mortgage payments was predicated on them both working full time, when i suggested that they perhaps consider trying to switch to IO for a while they looked at me as if this was an insane suggestion since why would anyone not be on IO already?

Indeed I know a number of people who have bought on an IO (and probably liar loan) basis 'because it is cheaper'. They have given no thought to ever repaying the capital. I predict a huge misselling scandal in a few years time in a similar vein to the endowment mortgage situation. The number if people who have failed to understand that 'Interest Only' means just that will be quite frightening in the years to come.

[billybong]

....and the industry has been attentive about restricting their availability to suitable customers,” said Paul Broadhead, the head of mortgage policy at the Building Society Association in the statement.

^

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(keeping distance)

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Yeah right

Edited September 30, 2010 by billybong

[General Melchett]

Indeed I know a number of people who have bought on an IO (and probably liar loan) basis 'because it is cheaper'. They have given no thought to ever repaying the capital. I predict a huge misselling scandal in a few years time in a similar vein to the endowment mortgage situation. The number if people who have failed to understand that 'Interest Only' means just that will be quite frightening in the years to come.

Not sure:

On the one hand 'What bit of Interest Only did you not understand? Two words, twelve letters. Not hard to grasp?'

OTOH.......

We increasingly live in a culture of wilful ignorance and blame.

Edited to correct spelling mistake.

Edited September 30, 2010 by General Melchett

[Traktion]

Indeed I know a number of people who have bought on an IO (and probably liar loan) basis 'because it is cheaper'. They have given no thought to ever repaying the capital. I predict a huge misselling scandal in a few years time in a similar vein to the endowment mortgage situation. The number if people who have failed to understand that 'Interest Only' means just that will be quite frightening in the years to come.

The problem is, people think house prices only go up, so making the inflated away capital repayment at the end shouldn't be a problem. With all this money printing going on, maybe they will be 'right' simply for being pandered to by the government/BoE. Either that or they will go bankrupt when the retire/die.

[General Melchett]

http://www.talktalk....a/d0083053.html

Smartarse (ass?)

[Smashy]

See link:

http://www.mortgageintroducer.com/mortgages/238576/5/Industry_in_depth/Interest-only_loans_defended_to_FSA.htm

Don't post often but thought this absolute travesty deserved its own thread - I sincerely hope a few will add to my comment (reproduced below) !

"I have difficulty in understanding how anyone can make these kind of submissions (and also the comments above) with a straight face. No one sensible should be fooled by this. The idea that renting off a bank is good for consumers in anything other than extreme circumstances, that ideally they should never find themselves in, is simply crazy. None of the so called examples where IO on a long term could be justified stacks up. A few unwise consumers may want them because they think (wrongly) that asset prices will only go up - wrong - and that it is a way to get on the ladder. This is essentially taking advantage of the poor and all of these vested interests should be deeply ashamed of themselves. The FSA (and anyone with any moral fibre at all) should stand up to this spivvery - it has had its day"

[the flying pig]

The problem is, people think house prices only go up, so making the inflated away capital repayment at the end shouldn't be a problem...

agreed. repayment might be about, say, £4k a year more expensive than IO on a FTB-ish property... what 'homeowner' doesn't expect to make more than £4k a year in capidal appweciation?

Edited September 30, 2010 by the flying pig

[exiges]

There's nothing inherently wrong in IO mortgages IMO, the problem is in their implementation.

All that's needed is the following:

1. No greater than 50% LTV loans (no risk to the bank)

2. No SMI can be claimed on them (no risk to the tax payer)

3. Banks to have greater powers to repossess sooner. (no risk to the housing market)

If the only person that can lose is the borrower, what's the problem.

Edited September 30, 2010 by exiges

[the flying pig]

Yes there is nothing wrong whatsoever with IO's, in fact they are a very beneficial loan method. IO is bad is a myth just the same as the deposits are a good thing myth.

i'm not sure that an incredibly imprecise statement such as that contributes a great deal to the debate. whaddaya mean exactly?

something like:

(a) there is nothing inherently wrong with IO mortgages in the right hands?

or perhaps

there is nothing at all wrong with a sitguation in which a third of borrowers having IO mortgages, most of them with little to no notion of what an IO mortgage or, particualrly, a repayment vehicle actually is.

or maybe

[c] there is no case whatsoever for any type of reform?

perhaps

(d) i can see some arguments for reform but IMO the disbenefits would outweigh the benefits in the round?

even

(e) i can see some cases for a limited reform. the specific form that it should take is X?

Edited September 30, 2010 by the flying pig

[gravity always wins]

What I meant is that there is nothing wrong with IO loans at all and they are quite a good method of servicing debt.

With respect to loan deposits what I meant to say is that there is nota lot of merit in them for borrowers.

The debt isn't serviced only the interest, the debt remains the same. I thought that was the point of them.

IO is simply a way for people to borrow money who otherwise would not be able to repay the interest and capital.

Sure there are some "canny" investors who take advantage of this situation but if you are using this form of credit to invest in the same asset class as these overleveradged sheeple then watch out below.

[Realistbear]

http://uk.finance.yahoo.com/news/interest-only-mortgages-will-effectively-vanish-tele-25c8403ae8ca.html?x=0

Interest-only mortgages will "effectively vanish"

Buzz up! 0 Print..Myra Butterworth, 16:27, Thursday 30 September 2010

Interest-only mortgages will vanish if new regulations are applied, lenders have warned.

Thousands of home owners took out interest only mortgages during the property boom, but the City regulator has raised concerns about borrowers ability to repay them amid the economic downturn.

In a consultation paper released earlier this summer, the Financial Services Authority suggested lenders should introduce regular checks to ensure borrowers have a repayment method in place.

The Council of Mortgage Lenders warned that if the FSA proposals are implemented, interest-only mortgages will effectively vanish.

Let the pigs squeal I say.

[Si1]

In a consultation paper released earlier this summer, the Financial Services Authority suggested lenders

should introduce regular checks to ensure borrowers have a repayment method in place.

The Council of Mortgage Lenders warned that

if the FSA proposals are implemented, interest-only mortgages will effectively vanish.

so the CML are actually saying that IO mortgages without a repayment vehicle, will effectively vanish. Damn right too.

[non frog]

The problem is, people think house prices only go up, so making the inflated away capital repayment at the end shouldn't be a problem. With all this money printing going on, maybe they will be 'right' simply for being pandered to by the government/BoE. Either that or they will go bankrupt when the retire/die.

These people will go bankrupt when interest rates rise to a point where they cannot service the debt and the capital value of the proeprty is 20-50% less than the (mostly) imbecilic borrowers paid for it.

So about 3 to 5 years time.

[wealthy]

Well from a consumer perspective, being able to buy a place because you're prudent is far better than being able to buy a place cos you're a reckless liar that doesn't mind borrowing 14x their salary

From a consumer perspective, steady reliable interest on savings is preferable to 2% interest because you're bailing out the reckless

I'm a sure as a bank or building society this makes no sense though, where's the fun in keeping your customers happy when you can go out and stick it all on black?

[wealthy]

What I meant is that there is nothing wrong with IO loans at all and they are quite a good method of servicing debt.

With respect to loan deposits what I meant to say is that there is nota lot of merit in them for borrowers.

A repayment plan is something where you pay down the debt over a period of time at a specified, consistent rate

A repayment plan is not assuming that your wages will easily be able to pay off the debt in 25 years time or you'll downgrade

[Lucifer]

The problem is, people think house prices only go up, so making the inflated away capital repayment at the end shouldn't be a problem. With all this money printing going on, maybe they will be 'right' simply for being pandered to by the government/BoE. Either that or they will go bankrupt when the retire/die.

I hate to be controversial but it looks to me like house prices do keep going up and in the current

situation I think its a very safe bet that peoples capital repayment is absolutely going to be inflated

away and pretty damn quick too....

[tim123]

There's nothing inherently wrong in IO mortgages IMO, the problem is in their implementation.

All that's needed is the following:

1. No greater than 50% LTV loans (no risk to the bank)

2. No SMI can be claimed on them (no risk to the tax payer)

3. Banks to have greater powers to repossess sooner. (no risk to the housing market)

If the only person that can lose is the borrower, what's the problem.

I don't see why (2) should be necessary. The risks that you are trying to protect against are different and the risk in (2) is that of the mortgagee becoming unemployed. Why should he lose taxpayer protection in this case just by having an IO morgtate the amount that the tax payer will have to pay if he does have to claim will be about the same as for a normal mortgage.

tim

[NEO72]

I hate to be controversial but it looks to me like house prices do keep going up and in the current

situation I think its a very safe bet that peoples capital repayment is absolutely going to be inflated

away and pretty damn quick too....

Really? I thought prices are still lower than 3 years ago and starting to continue down.

Also, the only thing that is being inflated away are people's paychecks, relative to the cost of living..