Money Box Radio 4 29/09/2012

[jfk]

Very interesting listening to Moneybox just now.

Won't be on iplayer yet but link to the programme here

Normally Paul Lewis tries to down play the housing bubble, this programme had lots of interesting points.

- IO mortgages with no repayment vehicle

- Mortgages going into retirement age

- Mortgage timebomb

... of course we know that there will not be any large scale reposessions and having a slave paying a mortgage into retirement age is preferable.

29/09/2012

Duration:

30 minutes

First broadcast:

Saturday 29 September 2012

On Money Box with Paul Lewis:

On Monday a new Government scheme begins to make every employer put in place a work based pension and pay into it. And everyone who works - just about - will have to join it. The plan for auto-enrolment will start slowly beginning with the biggest firms. But by the end of 2013 every employer with more than 800 workers will have to be signed up. And by 2017 it will include all employers - even the very smallest and newest. We explain the rules and talk to Pensions Minister Steve Webb and Malcolm McLean, pensions consultant at Barnett-Waddingham.

Money Box has uncovered worrying evidence that some banks are telling customers with interest-only mortgages that they can - and might - tell them to convert to a repayment mortgage. That would be prohibitively expensive for many borrowers, especially those within a few years of pension age. It comes in the week that figures from mortgage research organisation xit2 reveal that more than a million people owe £116 billion on interest only mortgages which mature before 2020 but they have no repayment plan in place. Bob Howard reports. The programme also hears from Paul Smee, director general of the CML and also from IFA Mark Meldon from RC Gray.

A revolution in the way financial advice is given begins on 1 January. Advisers on investments and pensions will not be able to take commission - they will have to charge a fee and the cost per hour is expected to be high. The qualifications for giving advice on these products will also be made much tougher. As a result of these changes many independent financial advisers are expected to leave the industry - or lose their independence. And this week Lloyds is the latest of the High Street banks to pull out of giving financial advice to its customers. So where will people of modest means get advice in the future? Merryn Somerset Webb, editor in chief of MoneyWeek and Dennis Hall, an IFA and MD of Yellowtail financial planning speak to the programme.

A London borough is using role play to demonstrate some of the common financial scams in front of an audience of local people and community workers. It's hoped that projects like this will make its older citizens aware of just how clever these criminals are - and to defend themselves. Jane Beresford eavesdrops on a session.

[“Nasty Piece of work”]

I disagree with your comments about Paul Lewis. Generally, he is one of the better questioners on the puss ridden organ that is the BBC, rather than the weak usual rubbish. Also, Money Box frequently features the fragrant MSW.

[Democorruptcy]

I disagree with your comments about Paul Lewis. Generally, he is one of the better questioners on the puss ridden organ that is the BBC, rather than the weak usual rubbish. Also, Money Box frequently features the fragrant MSW.

I once saw him on BBC Breakfast saying it doesn't matter what you pay for a house if you are going to live there a few years.

For a program that spends time recommending saving pennies here and there, what cracking advice to ignore overpaying for your most expensive purchase, plus with having more mortgage interest to pay the overpayment could be doubled.

[Hold Fast]

It comes in the week that figures from mortgage research organisation xit2 reveal that more than a million people owe £116 billion on interest only mortgages which mature before 2020 but they have no repayment plan in place

Maybe they could take a lump sum out of their pension to use as a deposit on the house which they bought as a pension........ or something.

At least we know what the next bubble will be in - I/O mortgage mis-selling cases.

Edited September 29, 2012 by Lionel Mandrake

[LiveinHope]

At least we know what the next bubble will be in - I/O mortgage mis-selling cases.

This is my despair

Another bailout for the dumb

[winkie]

This is my despair

Another bailout for the dumb

It won't happen......no bailout compensation this time......the terms and conditions were clear, the onus is on the borrower to see they stick with their responsibilities and promise to pay in full.....or the property can be sold to recover or part recover.

[The Masked Tulip]

The problem for HPCers is that such people need high house prices or they will not sell... and low IRs are allowing them to hold on to their houses until they get the price they believe they should have...

[LiveinHope]

It won't happen......no bailout compensation this time......the terms and conditions were clear, the onus is on the borrower to see they stick with their responsibilities and promise to pay in full.....or the property can be sold to recover or part recover.

You know that, I know that

Doesn't stop me despairing tho'

Today, Ed Milliband knows all about what it's like to come out from a WW. P1llock

Edited September 29, 2012 by LiveinHope

[winkie]

The problem for HPCers is that such people need high house prices or they will not sell... and low IRs are allowing them to hold on to their houses until they get the price they believe they should have...

So they are stuck living in a place they can't afford to move out of and they can't afford to buy....therefore the place is not for sale.

[winkie]

You know that, I know that

Doesn't stop me despairing tho'

Today, Ed Milliband knows all about what it's like to come out from a WW. P1llock

......you mean on or offerable Ed.....I can't understand why I think that every time I see him and smile, is it only me?

edit: sorry I couldn't resist.

Edited September 29, 2012 by winkie

[The Masked Tulip]

So they are stuck living in a place they can't afford to move out of and they can't afford to buy....therefore the place is not for sale.

Which does not help us.

[olliegog]

Paul Lewis is very irritating as he never seems to grasp the bigger picture - cannot listen to Money Box program for that reason

the following quote is to me very relevant to why this is not a missold scenario (unless those that took out IO mortgages were illiterate enough to not understand the words interest only and repayment vehicle)

Money Box has uncovered worrying evidence that some banks are telling customers with interest-only mortgages that they can - and might - tell them to convert to a repayment mortgage. That would be prohibitively expensive for many borrowers, especially those within a few years of pension age.

the banks are not foreclosing - they are requiring the normal repayment mortgage for those with no/little means of paying it back

those with IO on BTL - are not potentially losing their home as they can sell up and hope the mortgage is covered

if those who do not have the wherewithal to pay off the mortgage on a repayment basis and are within a few years of retirement (what were they thinking) must have MEWed excessively.

[Dorkins]

Which does not help us.

Yes it does. If their wages are tied up servicing a LIAR LOAN forever then they are not competing with your income or savings to buy property or consume other goods and services. The things they would have consumed will be left for those who didn't overcommit themselves.

[winkie]

Which does not help us.

It does not help when there are fewer available places for sale I agree, that is why if we are to see that our expanding population has available to them a home they CAN buy at a price they CAN afford, more homes are therefore required to be made available to buy at a cost that relates to the average take home incomes of the productive, voting, working, population....one good way to piss a nation off is by forcing them to live and work in environments they are dissatisfied with when they can openly see others that have put less into it getting more out of it.

[Democorruptcy]

Money Box has uncovered worrying evidence that some banks are telling customers with interest-only mortgages that they can - and might - tell them to convert to a repayment mortgage. That would be prohibitively expensive for many borrowers, especially those within a few years of pension age. It comes in the week that figures from mortgage research organisation xit2 reveal that more than a million people owe £116 billion on interest only mortgages which mature before 2020 but they have no repayment plan in place

Have I got this right?

The problem is people being asked to move from Interest Only to Repayment?

What about this then? People in the worst financial state are being told to do it.

Cash-strapped families switch £60bn-worth of mortgages to interest-only

Up to 300,000 cash-strapped households have switched more than £60bn of mortgage debt from repayment into risky interest-only deals over the past three years to help cover their living costs.

With the average UK mortgage at £109,000 and average borrowing costs at 3.5pc, switching from repayment to interest-only saves households roughly £230 a month. But although the move may help families with their immediate cash-flow problems, concerns have been raised about how the debts will be repaid. Darren Winder, UK economist at Oriel, said: "For someone who's trying to alleviate monthly cash flow pressure, moving to interest-only makes sense. But it does raise questions about how that loan gets repaid."

The trend also runs against the FSA's advice. It has threatened to "constrain future interest-only lending", branding much of it unsustainable.

In its Mortgage Market Review paper last July, the FSA said: "Evidence suggests that interest-only mortgages have often been taken to extend affordability, with no firm plan in place to repay the capital...

"Our current view is that interest-only should be used only where there is a genuine repayment method in place."

However, it added: "We do not intend to restrict interest-only from being used as a forbearance method for customers in arrears."

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8546531/Cash-strapped-families-switch-60bn-worth-of-mortgages-to-interest-only.html

[Jail Them All]

At least we know what the next bubble will be in - I/O mortgage mis-selling cases.

Hmmmmm, so I lend you money and you give me more than base rate. Then I come along and take possession of the asset that you needed the money to purchase.

Most of these I/O's were made between 2003/7 to people who couldn't afford a mortgage with a repayment vehicle.

Typical over extension, with the lenders rubbing their hands.

BTW In 2008, a financial adviser told me to put money into commercial property. Who educated / directed the FA's?

[Liquid Goldfish]

There seems to be very few IO mortgages on offer now. I've just done a search on moneysupermarket as if I was an FTB with a 10% deposit and only 9 came up and none of them were major lenders, whereas there were 126 capital and repayment mortgages using the same criteria. So that must be another big hurdle for FTBs as the repayments on the capital and repayment basis were almost double the IO level.

[thecrashingisles]

Money Box has uncovered worrying evidence that some banks are telling customers with interest-only mortgages that they can - and might - tell them to convert to a repayment mortgage. That would be prohibitively expensive for many borrowers, especially those within a few years of pension age.

A few years away from retiring and not only do they have no hope of paying off the loan, they couldn't even afford a repayment mortgage? If there are many people in this position then they had better think about downsizing ASAP while they still have some equity.

[ska_mna]

Yes it does. If their wages are tied up servicing a LIAR LOAN forever then they are not competing with your income or savings to buy property or consume other goods and services. The things they would have consumed will be left for those who didn't overcommit themselves.

And therein lies the problem. If only it were do simple.

If peoples' incomes are tied up servicing mortgages, they aren't spending. Which means many of us on this site are out of jobs.

[19 year mortgage 8itch]

And therein lies the problem. If only it were do simple.

If peoples' incomes are tied up servicing mortgages, they aren't spending. Which means many of us on this site are out of jobs.

That's the price we're happy to pay to keep bank bonuses flowing

[okaycuckoo]

There seems to be very few IO mortgages on offer now. I've just done a search on moneysupermarket as if I was an FTB with a 10% deposit and only 9 came up and none of them were major lenders, whereas there were 126 capital and repayment mortgages using the same criteria. So that must be another big hurdle for FTBs as the repayments on the capital and repayment basis were almost double the IO level.

Ah, but alot of repayment mortgages have been converted to IO over the past few years.

So these deals are on offer if you're an existing customer in trouble. The odd thing is that IO will be granted if you can maintain 6 months of payments. Wot?

All part of the effort to pretend that bizarre loans are fully securitised. All the regulator has to do is require the lender to show a repayment vehicle, but that's not going to happen even where CB policy is to prop up the stock market.

COZ WE IS WURF IT!

[spyguy]

> more than a million people owe £116 billion on interest only mortgages which mature before 2020

Lets assume a 20 year mortgage then these loans would have been taken out in 1990 i.e. endowments.

The IO as we've come to understand them were taken out in 2000-2009ishn.

The sh1t will not be hitting the fan on these until 2020-2029.

[winkie]

There seems to be very few IO mortgages on offer now. I've just done a search on moneysupermarket as if I was an FTB with a 10% deposit and only 9 came up and none of them were major lenders, whereas there were 126 capital and repayment mortgages using the same criteria. So that must be another big hurdle for FTBs as the repayments on the capital and repayment basis were almost double the IO level.

As already mentioned......interest only were in the main designed for non-regulated BTL mortgages ony.

The interest only owner occupied mortgages mostly became interest only at a later date by the cancellation or encashment of the repayment vehicle to keep the monthly payments low, the banks did not seem to be that fussed at the time because it means more interest money for them and house prices, inflation and pay rises only go up.....another case of short-term thinking, bonuses today attitudes.....tomorrows problems are for someone else to sort out.

[Dorkins]

And therein lies the problem. If only it were do simple.

If peoples' incomes are tied up servicing mortgages, they aren't spending. Which means many of us on this site are out of jobs.

Wages, consumer prices and rents are all able to adjust until they find their level. The one thing that won't adjust is the size of a 2007 interest only mortgage. I fully expect my income to fall, but since I am not servicing a huge mortgage it's much less of a problem than it could be.

[ska_mna]

Wages, consumer prices and rents are all able to adjust until they find their level. The one thing that won't adjust is the size of a 2007 interest only mortgage. I fully expect my income to fall, but since I am not servicing a huge mortgage it's much less of a problem than it could be.

It depends how many clients of the company you work for are in some way dependent on the spending power (or lack of it) of those people now stuck servicing huge mortgages. If all their income gets sucked up by banks, who in turn aren't lending it out again, suddenly lots of us will find we're out of jobs.

e.g. a (prudent, renting) IT guy working for an IT company servicing - I don't know - leisure chains. Interest rates rise, households cut back on eating/drinking out, leisure chain closes a few sites, IT company goes out of business, IT guy loses job.

Different for different people of course, but I don't assume that my feckless neighbour getting screwed by interest rate rises or whatever might not in some way come back to indirectly bite me in ways I didn't expect.