Regulator Thinks Not Enough Io Mortgages Being Allowed

[Snugglybear]

"So many major lenders have pulled out of interest-only mortgages that the regulator is worried consumers could suffer. The exodus from these loans, which allow home buyers to only repay the interest each month, has been sparked by a crackdown on affordability checks, due to come into force next year.

However, the new Financial Conduct Authority (FCA) is concerned that too many lenders have abandoned them, or made them impossible for ordinary people to get.

In his first comment last week, the head of the FCA, Martin Wheatley, said: "There are two sides to the risk equation – consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products."

More at link

http://www.guardian.co.uk/money/2013/apr/07/interest-only-mortgage-crackdown

This is from the FCA Risk Outlook 2013 http://www.fsa.gov.uk/static/pubs/other/fcarco.pdf

Interestingly, the quote is from the foreword and therefore refers to all the topics dealt with in the document, not just interest only mortgages. The comments on restriction of interest only mortgages are on pages 36-37.

[winkie]

I thought banks needed to build up more reserves.....the quicker people repay debt the more there is to lend out, so are they wanting people to let inflation, inflation that they are planning on accelerating to sort it all out eventually whilst still trying to continue to push asset prices up?

What about productive businesses that do generate real growth getting interest only free loans that could go towards paying the wages bill.......no chance of that....land and property debt is far more profitable, it only goes up because manipulation like that forces it upwards.

Edited April 7, 2013 by winkie

[SleepyHead]

These people are too thick to hold positions of power.

Biggest financial crisis in human history, and they still won't learn the lessons.

[porca misèria]

What's the good of an interest-only mortgage? What we need is nil-payment mortgages, where the interest is just added to the principal pro vitam hypothecam et semine ejus.

[winkie]

What's the good of an interest-only mortgage? What we need is nil-payment mortgages, where the interest is just added to the principal pro vitam hypothecam et semine ejus.

....yes, anybody should be allowed one working or not....no deposit required.

[Ah-so]

The FCA is our new conduct authority and does not have a macro economic or prudential remit. I would think that he is concerned about people ending up with the wrong type of mortgage since he has no authority on wider issues on mortgage lending.

[SleepyHead]

The FCA is our new conduct authority and does not have a macro economic or prudential remit. I would think that he is concerned about people ending up with the wrong type of mortgage since he has no authority on wider issues on mortgage lending.

The wrong type of mortgage is always an interest only mortgage.

[inflating]

Good lord, the loonies, the asylum, please join the dots

[long time lurking]

"So many major lenders have pulled out of interest-only mortgages that the regulator is worried consumers could suffer. The exodus from these loans, which allow home buyers to only repay the interest each month, has been sparked by a crackdown on affordability checks, due to come into force next year.

However, the new Financial Conduct Authority (FCA) is concerned that too many lenders have abandoned them, or made them impossible for ordinary people to get.

In his first comment last week, the head of the FCA, Martin Wheatley, said: "There are two sides to the risk equation – consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products."

More at link

http://www.guardian.co.uk/money/2013/apr/07/interest-only-mortgage-crackdown

This is from the FCA Risk Outlook 2013 http://www.fsa.gov.uk/static/pubs/other/fcarco.pdf

Interestingly, the quote is from the foreword and therefore refers to all the topics dealt with in the document, not just interest only mortgages. The comments on restriction of interest only mortgages are on pages 36-37.

So that bit has not yet been enforced I take it ? how will this pan out concerning Help To Buy ,or could this be part of the reason HTB is being introduced next year and not this year

[deflation]

The wrong type of mortgage is always an interest only mortgage.

I wanted one to last 3 years until I had policies that would mature and repay it. This is the position of some people who still would prefer IO mortgages (and not just because the monthly payments would be lower).

I didn't bother in the end because many of the lenders have a minimum income threshold before you can have IO. And I wasn't over it.

[SleepyHead]

I wanted one to last 3 years until I had policies that would mature and repay it. This is the position of some people who still would prefer IO mortgages (and not just because the monthly payments would be lower).

I didn't bother in the end because many of the lenders have a minimum income threshold before you can have IO. And I wasn't over it.

So you have no concern that it pushes up the price of the asset itself?

Wow.

[tomandlu]

So you have no concern that it pushes up the price of the asset itself?

Wow.

I think that's only true if an IO mortgage is granted without an established repayment mechanism (and, no, that doesn't include "well, my mum is going to pop her clogs one day").

[pjw]

There's nothing wrong with an IO mortgage as long as it is seen as a form of renting. If you rent for years - you don't own the property at the end and have to move on. With IO mortgages, obviously you need the sale to cover the principal originally advanced - so IO mortgages should only be granted at loan to value ratios of less than 50%, so that even a 50% HPC allows the full principal to be repaid at the end of the term. But if everyone understands that this is effectively a long-lease, and not a way of buying the property, what's wrong?

[Debbiebegood]

....yes, anybody should be allowed one working or not....no deposit required.

Oh,yes.I have been thinking about that one for quite some time.Instead of getting the unemployment benefits, go to the jobcentre and the Government (Big Daddy) will take care of your house ownining needs by- giving you a mortgage.

And for those who think that Government (Big Daddy) is incompetent regarding economy etc.:

Government (Big Daddy) is doing this INTENTIONALLY in order to create a debt-slave society. (And of course, getting loads of new votes from indebted sheeple in the process).

[Bloo Loo]

I think that's only true if an IO mortgage is granted without an established repayment mechanism (and, no, that doesn't include "well, my mum is going to pop her clogs one day").

wot, like a lo-cost endowment?....or a bond in a Cypriot bank?...

IO was the child of affordability criteria....it was the place of lending of last resort for a single entity...it can all start again with the Government as an additional entity...

Porca is right....we can fix the economy by giving everyone a compulsory 100% IO mortgage....or rental.

[WSG]

What's the good of an interest-only mortgage? What we need is nil-payment mortgages, where the interest is just added to the principal pro vitam hypothecam et semine ejus.

Genius....sheer genius

[deflation]

There's nothing wrong with an IO mortgage as long as it is seen as a form of renting. If you rent for years - you don't own the property at the end and have to move on. With IO mortgages, obviously you need the sale to cover the principal originally advanced - so IO mortgages should only be granted at loan to value ratios of less than 50%, so that even a 50% HPC allows the full principal to be repaid at the end of the term. But if everyone understands that this is effectively a long-lease, and not a way of buying the property, what's wrong?

I wouldn't have been unhappy at that. I actually only wanted about a 30% LTV loan (HSBC do very low interest rates up to 60%).

Borrowing rates are so low with some providers, you'd be better off having a mortgage even if you have the cash in hand. Of course, I'm old enough now that I wouldn't then spunk that extra cash on hols and a 4X4. But if you're offered a massive IO mortgage in your 20s with no means to pay it off, that's a disgrace. I had to prove I had policies in place in 1988 but by 2000 (with the Coventry BS anyway), you just signed to say you were aware that you needed the capital at the end of the term i.e. they took your word for it.

[Giordano Bruno]

There's nothing wrong with an IO mortgage as long as it is seen as a form of renting. If you rent for years - you don't own the property at the end and have to move on. With IO mortgages, obviously you need the sale to cover the principal originally advanced - so IO mortgages should only be granted at loan to value ratios of less than 50%, so that even a 50% HPC allows the full principal to be repaid at the end of the term. But if everyone understands that this is effectively a long-lease, and not a way of buying the property, what's wrong?

I think the things that are wrong are that the two provisos are not met.

[jethrotull]

What's the good of an interest-only mortgage? What we need is nil-payment mortgages, where the interest is just added to the principal pro vitam hypothecam et semine ejus.

If you get paid quaterly or annually, rather than monthly, then interest only works out more sensible. I just paid the capital off each quarter I was paid. If you're self employed or have unpredictable income it makes more sense - you pay it off when you have it. The problem is people who don't - but you cannot protect numpties from themselves.

[winkie]

If you get paid quaterly or annually, rather than monthly, then interest only works out more sensible. I just paid the capital off each quarter I was paid. If you're self employed or have unpredictable income it makes more sense - you pay it off when you have it. The problem is people who don't - but you cannot protect numpties from themselves.

That is not interest only, you are repaying the capital.........there are a whole bunch of people that are not, they have no future means to repay it later, lump sum, investment, nada......some hope the money might miraculously land on the doorstep one day........downsize is another option, downsize to a caravan or a care home maybe.

[MrPin]

What's the good of an interest-only mortgage? What we need is nil-payment mortgages, where the interest is just added to the principal pro vitam hypothecam et semine ejus.

Aye, I'll bet yer Roman tongue can charm the pants off the bords!

What on Earth is good about an "interest only" mortgage? It's a 25 year rent contract!

[porca misèria]

If you get paid quaterly or annually, rather than monthly, then interest only works out more sensible. I just paid the capital off each quarter I was paid. If you're self employed or have unpredictable income it makes more sense - you pay it off when you have it. The problem is people who don't - but you cannot protect numpties from themselves.

If I ever take out a mortgage, it'll be interest only. By making my pension lump sum the repayment vehicle, I get to pay off the capital from untaxed money

But that only works 'cos my circumstances are unusual. I certainly wouldn't recommend it for anyone with 20+ years to retirement.

[longtomsilver]

If I ever take out a mortgage, it'll be interest only. By making my pension lump sum the repayment vehicle, I get to pay off the capital from untaxed money

But that only works 'cos my circumstances are unusual. I certainly wouldn't recommend it for anyone with 20+ years to retirement.

:shock:

That's what we are doing but we have the 20+ (22years) until 55. I suppose this could back fire on us.

[gf3]

I think there needs to be a limit on how much a person can borrow. There are two was to achieve this.

1) A person can only borrow say 4x salary

2) A person can only borrow money on a 25 year(or less) repayment mortgage.

With 2) the borrower would have to work out how much he thinks he could afford each month and be self limiting.

I don't see anything wrong with IO mortgages so long as there is a limit imposed by 1)

[Pindar]

In kicking the can down the road, vested interests have realised the road isn't long enough. Now they want to borrow some more time to make the road longer i.e so the cash poor can continue contributing to the perpetual bubble, sustaining it for longer, allowing those with large property investments to pay down the capital on their loans and comfortably realise juicy capital gains. It's all just buying time, getting an ever larger number of ordinary people who just want a home to blow into the bubble until they're out of breath. This is a very direct way for more property to be transferred into the ownership of fewer people. You may as well rent.