Interest Only Mortgages - Moneybox 04/05/2013

[jfk]

Broadcast today, Saturday 4th May 2013, 12pm Radio 4 linky

Interest-only mortgages, hikes in fuel bills, Zopa

Duration:

30 minutes

First broadcast:

Saturday 04 May 2013

INTEREST ONLY MORTGAGES

The Financial Conduct Authority's first major piece of work finds that 2.6 million people have interest only mortgages and around half will not have enough to pay them off. The average shortfall is £71,850 - compared with the £22,100 the average borrowers expect to have to find. The FCA Chief Executive Martin Wheatley tells Money Box that lenders should be helpful to those who cannot pay off the loan. But it may not be that simple. We talk to borrowers who face losing their home. And ask the Council for Mortgage Lenders what its members really will do to help.

PEERING INTO THE FUTURE

Peer to peer lending has just got a little bit safer. And we have a peer to peer debate between the biggest peer to peer arranger, Zopa, and the man who runs the p2p comparison site. They will discuss Zopa's new safeguard - which is not a guarantee, not a promise, not insurance but a system to sort of try to make sure that when someone you lend money to defaults you will get all, or most, or at worst some of your money back.

STANDING CHARGES RETURN

All energy companies will have to re-introduce a standing charge in the near future. Some have already. And already that has led to big percentage rises in the fuel bills of low users. Ofgem explains its policy to reintroduce them live on Money Box. A critic calls for safeguards.

I made sure I listened to this today, the sheer STUPIDITY of some people just amuses me. Which part of "INTEREST ONLY" do they not understand?

FCA's position is reiterated - the has been NO miss-selling. People were aware of what they were getting into, the lenders should contact borrower's giving them plenty of time to get their finances sorted.

... from the program it seems the angle is that the numpties are going to try and claim age discrimination (as apparently it's unreasonable to take a person's age into account as a factor for mortgages ... when they could kark it in 5 years when they are 70 now) and that they WERE miss-sold.

An example that shocked me was the retired copper (who will be coining it) who said he didn't realise he was on interest only. He was annoyed that the bank wouldn't "help him out" by giving him a remortgage / change terms when he had a steady income (police pension) and was going to come into an inheritance in a few years. Obviously its the mortgage companies problem for keeping to the terms of a contract eh? F*ucking idiot.

[Bloo Loo]

Broadcast today, Saturday 4th May 2013, 12pm Radio 4 linky

I made sure I listened to this today, the sheer STUPIDITY of some people just amuses me. Which part of "INTEREST ONLY" do they not understand?

FCA's position is reiterated - the has been NO miss-selling. People were aware of what they were getting into, the lenders should contact borrower's giving them plenty of time to get their finances sorted.

... from the program it seems the angle is that the numpties are going to try and claim age discrimination (as apparently it's unreasonable to take a person's age into account as a factor for mortgages ... when they could kark it in 5 years when they are 70 now) and that they WERE miss-sold.

An example that shocked me was the retired copper (who will be coining it) who said he didn't realise he was on interest only. He was annoyed that the bank wouldn't "help him out" by giving him a remortgage / change terms when he had a steady income (police pension) and was going to come into an inheritance in a few years. Obviously its the mortgage companies problem for keeping to the terms of a contract eh? F*ucking idiot.

you insinuated that these people dont even have life cover to pay the thing off if the "kark it" either.

Another mortgage condition they have broken.

I wonder how many car "owners" are shocked and outraged to find their £30K BMW still needs £15K to pay at 3 years....maybe they claim they werent told why the repayments were only £600 pm

Mortgages come with hours of advice, a contract, a witness and most likely a visit to the Solicitors....

Edited May 4, 2013 by Bloo Loo

[Executive Sadman]

I made sure I listened to this today, the sheer STUPIDITY of some people just amuses me. Which part of "INTEREST ONLY" do they not understand?

I was laughing at the telly the other day because the ITV newsreader mistakenly called them 'non-interest loans' (steve scott, although apparently he is the sports editor, i assure you he was reading the news)

When newsreaders cant read, you know you have problems.

Perhaps there are thousands of dyslexics out there who think they have 'non-interest' loans rather than 'interest only', and they are paying down the principle, and their banks are so gracious so as not to demand interest. Nothing would surprise me given the state of the UKs standard of education.

[goldbug9999]

Personally I cant see how "miss sold" can ever be made to stick re IO mortgages. In the case of PPI the claims were on the basis that the insurance was mandatory and for endowments the claims were on the basis that the investment would cover the principal on maturity. In the case of IO mortgages I dont any factual inaccuracies used during the selling that could form the basis of a claim.

[cybernoid]

The age concern woman was hilarious, age discrimination, should be based on ability to repay solely, and since they get a pension they can afford to repay!!! Correct me if I'm wrong but don't the pension payments come to rather an abrupt end when the person dies?

Are these people who took out Interest only so stupid they don't actually know they are going to die? Who do they sue for that?

[Correction]

The age concern woman was hilarious, age discrimination, should be based on ability to repay solely, and since they get a pension they can afford to repay!!! Correct me if I'm wrong but don't the pension payments come to rather an abrupt end when the person dies?

Are these people who took out Interest only so stupid they don't actually know they are going to die? Who do they sue for that?

This has to be a HPC classic post, to look back on in 20 years, surely?

[interestrateripoff]

I made sure I listened to this today, the sheer STUPIDITY of some people just amuses me. Which part of "INTEREST ONLY" do they not understand?

FCA's position is reiterated - the has been NO miss-selling. People were aware of what they were getting into, the lenders should contact borrower's giving them plenty of time to get their finances sorted.

Sounds like a denial there will be a bailout....

Yep there will be lots of people who think "interest only" somehow magically repays the capital and are shocked when at the end they still owe £150k. However when house prices are going up interest only can work.

[bristolhunter]

The age concern woman was hilarious, age discrimination, should be based on ability to repay solely, and since they get a pension they can afford to repay!!! Correct me if I'm wrong but don't the pension payments come to rather an abrupt end when the person dies?

Are these people who took out Interest only so stupid they don't actually know they are going to die? Who do they sue for that?

Funny, I thought that was one of the few sane parts of the interview; the need for a house tends to come to a similarly abrupt end, unless you're planning on eternity in a mausoleum shaped and sited just like your last home. At which point, it's sold, and any outstanding mortgage paid out of the estate.

Seems to be a statement of the bleading obvious that mortgages should be based on ability to pay - and not following that is the reason we're in this mess to start with.

[Charlie The Tramp Returns]

I remember years ago someone who took out an IO mortgage, thought they paid the interest for 25 years and the house was then paid for.

[SHERWICK]

I remember years ago someone who took out an IO mortgage, thought they paid the interest for 25 years and the house was then paid for.

You should have told him, YES IT'S TRUE! (i think)

[cybernoid]

Funny, I thought that was one of the few sane parts of the interview; the need for a house tends to come to a similarly abrupt end, unless you're planning on eternity in a mausoleum shaped and sited just like your last home. At which point, it's sold, and any outstanding mortgage paid out of the estate.

Seems to be a statement of the bleading obvious that mortgages should be based on ability to pay - and not following that is the reason we're in this mess to start with.

My point wasn't clear, they won't sell the property for the amount they bought by then. The properties of that generation are going to be on the market at the same time pretty much, and there won't be enough buyers.

Of course repayment mortgages should be based on the ability to repay the debt, interest only mortgages rely on rising or static house prices, which they ain't getting, so need to based on an ability not only to pay the interest but also to pay down the debt. When they're dead they aren't going to be able to pay down the debt.

It is perfectly sensible to discriminate on the grounds of age when selling a loan

[winkie]

I remember years ago someone who took out an IO mortgage, thought they paid the interest for 25 years and the house was then paid for.

Don't they open their bank statements?

[billybong]

Don't they get regular/annual statements from the lender detailing how much they (still) owe and how much interest they paid that year in case of tax purposes for the inland revenue.

[MattW]

I wonder if in a few years time,a glut of properties will flood the market, by the owners who are unable to raise the cash to pay off the capital?

[Bloo Loo]

I wonder if in a few years time,a glut of properties will flood the market, by the owners who are unable to raise the cash to pay off the capital?

Government gilts are IO....they simply issue new ones to cover the repayment of old...PLUS all the new borrowing they need to do.

Id imagine these things will be extended to lifelong IO if there are problems...It means a serious loss of future deposits for the kids who might have inherited.

[winkie]

No there will be some SMI type scheme as it will be deemed to be cheaper than re-housing them ... they are after all 'home owners'.

Will SMI be charged to the equity in the home and collected at point of sale.........very unfair if you have over £6k in savings you get less help.....but someone with no savings but a mortgage they can't pay with many thousands in equity gets the interest paid for them.

[mikthe20]

I wonder if in a few years time,a glut of properties will flood the market, by the owners who are unable to raise the cash to pay off the capital?

I've been saying this for some time - there are a lot of people who will be selling simultaneously - all have had the "unique" idea of selling to clear the mortgage and buy somewhere cheaper with the profits - geniuses. I exPect my kids to be able to buy some very cheap family homes in approx 15-20 years.

Edited May 5, 2013 by mikthe20

[Bloo Loo]

No there will be some SMI type scheme as it will be deemed to be cheaper than re-housing them ... they are after all 'home owners'.

SMI pay mortgage interest.

With the completion of an IO term, there is no mortgage....

Just a sum of money owing, backed by a first charge on a house.

[Bloo Loo]

But these 'home owners' will not have to sell to settle their debts, the debt will be small compared with the value of the property and some scheme will allow the taxpayer to bail them out. Happening now with forbearance and will happen when the IO mortgages are due for repayment ... there are no consequences for the over-borrowed.

there is no forebearance for end of term mortgages.

SMI is for mortgage payment relief....and to qualify some income circumstance would need to have changed. End of Term IO wouldnt qualify.

Theyd need a new scheme for that....

Of course, banks would be running short of Capital again, that which they were expecting back....any bonds they issued to cover these mortgages would need paying too.

[Orsino]

There will be a new scheme in the same way there are multiple schemes for the taxpayer to subsidise sellers via help to buy schemes. No government will evict 'home owners' when votes could be lost but using taxpayer money for a bail out is an option they are using now. Forcing these people to sell if they can't settle their IO mortgage debts will suppress house prices and this can't be allowed to happen.

Everything this and the previous government has done, has been done to help the banks. House prices have been kept high to keep the banks solvent. Borrowing has been subsidised by the taxpayer to keep the banks solvent. Interest rates have been slashed to keep the banks solvent. Billions of pounds has been printed to keep the banks solvent. Thanks to these policies the banks are clawing their way back into the black and it is incidental that these policies have, so far, helped reckless borrowers too. Once the banks are safe then those policies will change quickly to suit the banks. Those with mountainous IO mortgages will be toast and this is just beginning to dawn on them. Whatever happens these borrowers will be made to pay, because that is in the interests of the banks.

[goldbug9999]

Yes under the right circumstances we (we being the taxpayer) will pay the interest on your £200,000 mortgage forever at a rate of 3.63% with no claw-back ... £7,260 cash so worth around £11,000 in terms of earnings.

There are other ways (AFAIK) to shield wealth from means testing, for example you can have any amount of money tied up in cars. I quite fancy building up a collection of classic sports cars and if I fall on hard times I can potter down to the dole office in my 355/esprit/911 turbo

[gf3]

I don't think any will get evicted. Some one will offer a loan at 8% so they can keep their house till death. Only people at the end of their IO mortgage that have very little equity will have a problem.

Edited May 5, 2013 by gf3

[Bloo Loo]

If this was the case then the government would claw back SMI when the property was sold, but this could cause people to panic and down size and house prices could fall. Any government that allowed mass evictions of home owners would not be electable. Sure the government is in hock to the banks but they also need high house prices as this is the basis of the UK economy and the means to get re-elected. The two go hand in hand which is why Brown promoted HPI and allowed the banks a free rein.

10 years is a long time away.

you may be right, but, banks not getting their capital back on tens of thousands of completed loans will be a problem for them.

IF the Government are going forward to help the banks again, they are most likely to persuade the banks to convert IO at term to whole of life.

There wasnt an issue on repayments, so why SMI or any other support...the homeowner will just keep paying until death...the house then will be sold off, the loan repaid and a new opportunity for someone else to buy.

Or, there will be no support at all as rates have risen, and banks will be keen to sell the house, get their capital back and loan it to a new couple on the new rate.

At this time, the problem firmly remains where it should be....the borrower.

[bring_it_on]

Are IO mortgages still available if you prove you have a repayment vehicle in place? Was speaking to the CFO at my company the other day and he was saying that If you we're in a company pension and used AVC's as your repayment vehicle wouldn't this be quite a good way of repaying the capital as it would come from your gross salary and the compounded interest over the term would also be tax free, especially if you are a higher rate tax payer. When interest rates go up the interest payment would increase but then so would the interest on your AVC's. I'm not sure i would do this over a straight repayment mortgage but it is an interesting idea. You would have to be 42 so you access it in 25 years and if the retirement age is increased you'd be left in limbo.

Edited May 5, 2013 by bring_it_on

[Snugglybear]

Are IO mortgages still available if you prove you have a repayment vehicle in place? Was speaking to the CFO at my company the other day and he was saying that If you we're in a company pension and used AVC's as your repayment vehicle wouldn't this be quite a good way of repaying the capital as it would come from your gross salary and the compounded interest over the term would also be tax free, especially if you are a higher rate tax payer. When interest rates go up the interest payment would increase but then so would the interest on your AVC's. I'm not sure i would do this over a straight repayment mortgage but it is an interesting idea. You would have to be 42 so you access it in 25 years and if the retirement age is increased you'd be left in limbo.

Not sure this would be accepted as a repayment vehicle.

1. You'd have to be sure of being with the same company or one that offered a very, very similar scheme for those 25 years.

2. Even if you stayed with the same company, you'd have to be sure it wouldn't change its pension scheme e.g. not allowing AVC's any longer.

3. You'd have to be getting a pretty big pension to be sure the 25% lump sum you're allowed to take would pay the mortgage.

4. Indeed, you'd have to be sure you could still take 25% as a lump sum in 25 years' time.