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Bland Unsight

When Interest Only Terms End

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...is that it continues :lol:

When+IO+ends.png

Figure 36 shows what happened to two cohorts of residential interest only mortgages maturing, in March 2010 and December 2010 respectively, during the 12 months following the end of the loan term. Each outcome in Figure 36 provides a snap-shot of the position at each point after the end of the term. For the first cohort 67.8% of consumers paid off the interest only mortgage in full after 12 months, for the second cohort 67.4%. The overwhelming majority of consumers repaying the balance have done so within six months of the end of the term (6 month post-maturity in Figure 36).

Approximately 15% (16% in March 2011 reducing to 14.5% in December 2011) convert to repayment terms with the same lender, essentially continuing past the formal term to pay off the capital balance (Repayment type change in Figure 36). A further 13% exhibited no change and were up to date with monthly payments i.e. they continued paying the interest only payment amount past the end of the formal term.

Source: Residential interest only mortgages: Volumes, concentrations and maturity horizons, Experian report for the FCA

Things ain't what they used to be! You get to the end of your mortgage term and you just ignore it and the bank is cool with that.

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...is that it continues :lol:

Source: Residential interest only mortgages: Volumes, concentrations and maturity horizons, Experian report for the FCA

Things ain't what they used to be! You get to the end of your mortgage term and you just ignore it and the bank is cool with that.

Good find. But at least 2/3 of the mortgages are settled within 12 months though. Interesting to find that close to zero 'upsizing' (is that going out of fasion?)

Extending term and change into repayment seemed to be the way to go I would think. Banks adapt (to customer's ability to pay).

p/s: Have a look at LBG half year presentation too. It provides its mortgage portfolio analysis, page 31 onwards

http://www.lloydsbankinggroup.com/media/pdfs/investors/2013/2013_LBG_HY_Results_Presentation.pdf

For residential mortages (owner and BTL and specialist), 7.2% are in negative equity, and another 10% in 90-100% LTV range, which is probably negative equity in the real world too. So, that is about 1/5 of the mortgage loan book in negative equity down from 1/4 in dec 2012.

Assuming a 30% loss in each case, LBG can handle it though.

Edited by easy2012

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Good find. But at least 2/3 of the mortgages are settled within 12 months though. Interesting to find that close to zero 'upsizing' (is that going out of fasion?)

Sell To Rent?

Extending term and change into repayment seemed to be the way to go I would think. Banks adapt (to customer's ability to pay).

It does give some indication of how powerful the 'extend and pretend' mechanism can be, especially if a very low interest rate environment means that even people on modest incomes can play along with the pretending and service the interest. Hardly the dream of a home own democracy as described in the original promotional materials though, ;) .

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Amazed at the extension of term - the lenders must be losing money, but that's not a problem for the regulators?

No reason to believe that the lenders would be losing money. Provided that they can fund the lending at a rate lower than the rate they are lending at (and thanks to the Bank of England's FLS they definitely can) they will be making money on these mortgages. It's a mortgage that provided you can service it will last until you die.

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No reason to believe that the lenders would be losing money. Provided that they can fund the lending at a rate lower than the rate they are lending at (and thanks to the Bank of England's FLS they definitely can) they will be making money on these mortgages. It's a mortgage that provided you can service it will last until you die.

Mortgage to rent ?

The banks become landlords without the tiresome need to maintain the property etc

Pretty much in line with everything else in the economy which is following the rentier model.

Edited by stormymonday_2011

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But at least 2/3 of the mortgages are settled within 12 months though. Interesting to find that close to zero 'upsizing' (is that going out of fasion?)

It doesn't say how many pay it off with a mortgage from another provider.

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Sell To Rent?

It does give some indication of how powerful the 'extend and pretend' mechanism can be, especially if a very low interest rate environment means that even people on modest incomes can play along with the pretending and service the interest. Hardly the dream of a home own democracy as described in the original promotional materials though, ;) .

Choices.......if given the choice there are those that will pay the least amount possible ie IO that allows them to live in the best situation possible (throw in a lie here and there to get it)..... and those who would prefer to buy a flash car or other nice present to themselves and still be able to live in the situation they live in rather that giving up the car payments and using that extra money to repay their debt.....and the little one said roll over, live now pay later, later will come but will they be able to pay for it, do they even care? ;)

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Its cheaper to rent from the bank than a private landlord though, indeed its actually cheaper to rent from the bank than the Council these days, plus no AST renewal hastles, and you get to choose the carpets and decorations, can smoke if you want to and keep pets. Win, win. Just keep making the payments and hope interest rates don't go up too much.

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It doesn't say how many pay it off with a mortgage from another provider.

From the chart it looks like they were just waiting for saving bonds to mature.

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It doesn't say how many pay it off with a mortgage from another provider.

I think it is not very likely they are able to move the IO as at maturity, the borrowers must be around 50+ years old (mortgage limit is 65 for owner occupied). Selling the property looks like the most likely explanation.

There is also a question here about what happen to those on term extended - do they get to keep the same interest rate or the banks will (as normally with commercial mortgage) charged an appropriate fees for the privilege.

I am surprised by the very low outright default rate which means HM HelpToRemortgage scheme will not be required. Just the pretend and extend scheme will do.

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Its cheaper to rent from the bank than a private landlord though, indeed its actually cheaper to rent from the bank than the Council these days, plus no AST renewal hastles, and you get to choose the carpets and decorations, can smoke if you want to and keep pets. Win, win. Just keep making the payments and hope interest rates don't go up too much.

I think it depends. 90% LTV interest is about 4-5% with no service while a BTL would be on 4% yield (though I think Bruce got it at under 3%) plus services.

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If this data relates to 25 year loans taken out in the mid-80s it doesn't tell you much about what's going to happen when the sort of mega loans that have been taken out in the last 10-15 years reach the same stage.

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If this data relates to 25 year loans taken out in the mid-80s it doesn't tell you much about what's going to happen when the sort of mega loans that have been taken out in the last 10-15 years reach the same stage.

Need a hell of a lot of inflation and global wage increases to pay that lot off....especially when people are not buying their first homes until they are half way to retirement so have fewer years to repay.....maybe the luckier ones are holding out for an inheritance to pay it off for them....... ;)

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On 02/08/2013 at 10:44 PM, Bland Unsight said:

...is that it continues :lol:

When+IO+ends.png

Source: Residential interest only mortgages: Volumes, concentrations and maturity horizons, Experian report for the FCA

Things ain't what they used to be! You get to the end of your mortgage term and you just ignore it and the bank is cool with that.

Renting with benefits.

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On 03/08/2013 at 8:22 AM, contradevian said:

Its cheaper to rent from the bank IF YOU ARE PREPARED TO GIVE THEM EVERY PENNY YOU HAVE AS A DEPOSIT than a private landlord though, indeed its actually cheaper to rent from the bank than the Council these days, plus no AST renewal hastles, and you get to choose the carpets and decorations, can smoke if you want to and keep pets. Win, win. Just keep making the payments and hope interest rates don't go up too much.

 

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19 minutes ago, Bland Unsight said:

Reckon this is as good a place to stick this as any I can remember.

59a59477dfac5_DWPSMIreporttrends.png.fab97841935056accdba44bb35af052e.png

Source

Right, up to speed.

 

Idiots borrow money they can never pay back to keep the ponzi going, rather than waiting for it to collapse then borrowing money they can afford to pay back and seeing real gains.

 

This is news ?

Edited by TheCountOfNowhere

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Just to add a rare positive anecdote, my 20 year interest only term ended last week when the endowment policy matured and paid the mortgage off with a small surplus too.

Nobody was more surprised at this than me right enough.

However I appreciate that as bad a press as endowments have got they're not in the same league of recklessness as having no repayment vehicle whatsoever,  as mentioned in the above post.

 

 

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In terms of naked io, id guess the bulk are io btl.

I know theres a lot of resi io in london/se, which is triply exposed to the rise in mortgae finance.

Ive not a problem with extend and pretend for resi mortgaes, esp. As they are banned now.

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10 hours ago, Lurkst said:

Just to add a rare positive anecdote, my 20 year interest only term ended last week when the endowment policy matured and paid the mortgage off with a small surplus too.

Nobody was more surprised at this than me right enough.

However I appreciate that as bad a press as endowments have got they're not in the same league of recklessness as having no repayment vehicle whatsoever,  as mentioned in the above post.

 

 

Sweet.

I'm halfway through the term. A third paid off,  a third in an offset, and a third to find. If only my appetite for risk was such that I could trust investing in higher earning mechanisms I might be a bit more ahead of the game.

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14 hours ago, spyguy said:

In terms of naked io, id guess the bulk are io btl.

I know theres a lot of resi io in london/se, which is triply exposed to the rise in mortgae finance.

Ive not a problem with extend and pretend for resi mortgaes, esp. As they are banned now.

I had a thought on this. The cohort of interest-only coming to term now are linked generally linked to endowments, have benefited from the massive run-up of prices since the mid-1990s when they were taken out and were kept on the lender's books. Whilst its maturity is still ten years off, the stuff that was written at the mid point (i.e. about 2003) of the present boom is very different. Some of it (e.g. in parts of Wales and the North East) has seen no net HPI in the 15 years since it was written (it's been up and down, but it's basically back where it started at the moment), there's much more likely to be no endowment and only a sketchy and inadequate repayment plan and also it was securitised. Some of it will be back on the lenders books, but some of it will be with Cerberus or some other similar vulture fund.

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Been trying to naively figure out what the effect of this will be. I don't believe people will be turfed out of their houses, politically undesirable. Extension of the mortgage (probably at non favourable rates) would be the option I think the banks would choose because it allows them to continue milking the cash cow while always having a claim on the property when and if the owner eventually dies.

That's likely to have a more insidious effect on the economy, in the respect that as these mortgages would normally clear and people stop paying interest in fact they will continue, which will take money out of the economy for them buying other stuff. Also inheritance which I guess is a major source of money for house upgrades will be reduced.

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