Treatment Strategies, Bullets And Field Services

[Lord D'arcy Pew]

I'm sure the state will just launder a few £ Billion more to sort it all out. Robbing the savers of legitimate hard earned cash, and bailing out the fruadulant borrowers. How many of the original borrowers had no intention of ever paying back their loans?

They may give the systems used some fancy names, but the result is the same.

[porca misèria]

I'd think "unsure" sounds like a perfectly valid answer.

I could pay it off by liquidating some investments. But how should I know? If interest rates remain at zero it could make more sense to remortgage and keep the investments making better profits. Not to mention that it would be a shame to take money out of the ISA and lose the tax breaks. And I'll probably have moved on by then anyway: time enough to review things then.

[Bland Unsight]

Certainly points to a lot more equity release/ roll up mortgages consuming equity until the inhabitant expires. Assuming there is sufficient equity to consume by then. One question is whether the likes of lloyds will start rolling customers on to these deals by the back door or whether they will force the inhabitant to go to a specialist provider and remortgage (presently the high street banks don't play in ER).

Absolutely - this piece in The Grauniad today, Equity release: key to unlocking your retirement – or a dangerous trap?.

Mind you, look at the Liverpool Victoria, (sorry LV=) website - equity release is fun!

[Bland Unsight]

This figure is taken from a report from the International Longevity Centre (website) entitled The UK Equity Bank: Towards income security in old age, (pdf of full report at link). It covers the current 65+ population.

I thought that the chart was interesting but as The Dude says "It's like Lenin said, you look for the person who will benefit and,,, y'know.." A little digging into the source is enlightening.

The groups funding the International Longevity Centre include at least two providers of equity release products (Partnership and Aviva), but also some companies who depend on retirement incomes but are not involved in equity release (Audley and Anchor, both of which provide retirement housing) as well as some companies that seem to have very little skin in the equity release game . The report abstract states "The proposed Equity Bank, described in this paper, is a state agency which helps people release income from their homes in the form of a lifelong annuity in return for selling a portion of the equity in their homes to the state in which the value of the annuity is recovered on the death of the recipient. This paper describes how it could work in practice with examples and estimates of the size of target population and the consequent cash flows both for the individual and the state." (emphasis added).

Interestingly the good people at the Equity Release Council are not so keen on the state muscling in on their market, (emphasis added):

“The equity release sector is currently growing from strength to strength, with lending at pre-recession levels as more people look to their property wealth to solve their savings shortfall. Two in three plans agreed already allow the gradual drawing down of funds, addressing the all-important issue of low retirement incomes. The market continues to evolve with new product flexibilities – such as the ability to pay interest as you go – and most importantly, stringent safeguards like the ‘no negative equity guarantee’ which mean consumers can explore equity release with security and confidence.

“It’s unlikely that a ‘simpler’ alternative can offer the same consumer protections and rival the structured financial advice, face-to-face legal guidance and product safeguards that come as standard, overseen both by industry and financial regulators. There is undoubtedly a role for government to play, but instead of taking on a provider’s responsibilities and the associated risks, we urge government to throw its support behind the industry and work to raise awareness and promote better understanding of and access to equity release.”

Source: Equity Release Council responds to proposals for a 'UK Equity Bank', ERC website June 2014.

Given the track record of the UK on these things I guess you can bet your bottom dollar that there will be no state agency and that a layer of spivs (sorry, responsible ERC member firms) will trough (sorry, take a small measure of remuneration for the excellent service they provide) without any competition from the state. After all, a similar model is working brilliantly when it comes to the provision of housing for those who are ill equipped to house themselves, (and yes hardened hpcers, such souls do exist and not everyone thinks that walking past them as they rot in a gutter would actually be a preferable solution to the present HMO Daddy/housing benefit "solution").

Certainly, lots of people are eyeing the bubble equity held by retired households and looking to see how it could enrich them (equity release firms) or solve their problems (governments trying to keep low income pensioners housed). It certainly would complicate matters if 30% of it vanished - fortunately house prices never fall.

One other thing - what proportion of deposits, for FTBers or people moving to larger homes, has a component that is an inheritance - and what happens to prices if increasingly those inheritances are reduced. If you have an IO shortfall and 5-years of interest from an equity release product eating into the equity - how many inheritances from house sales turn out to be nothing? How quickly does this effect start to feed into the market and how big an effect will it be?

Which takes me back to my favourite FSA quote

“In general, the risk of interest-only lending does not translate into high arrears rates, because mortgages are more affordable, in terms of their monthly mortgage payments than an equivalent repayment mortgage. The risks typically crystallise many years later, at the end of the term, when the capital is due for repayment.” (para 4.19, p. 127, CP 11/16)

Edited August 2, 2014 by bland unsight

[Bland Unsight]

Funnier my way, I think

[Democorruptcy]

No, you're looking at a battle they lost. That was their response to CP11/31 which they issued May 2012.

You're looking at this:

And to the IO crackhead BSA, the regulator said no.

I'd never bothered to look at the detail of the VI responses to the MMR consultation papers, and I'm kind of glad, because it all bothers me a lot less now that we know that the reforms went through and that IO disappeared (in the world of people with median earnings and real life deposits trying to buy everyday houses).

One of the questions that I puzzled at for a long time but think that I finally get is why, in the face of so much pressure from the financial industry, did the regulatory authority ram the end of IO down their necks, and the answer that I'm working with for the time being is that the interests of the banks and governments are sometimes aligned but not always aligned. The economy is ripe with paths where these differences manifest. Take interest only. If the banking sector can get people to pay a ridiculous proportion of their lifetime earnings for housing - that's all good for the banks. But it is not all good for the government. The political classes and their technocrats know that in some sense 'they' will still be in power in thirty or forty years time, so how does it solve their problem to have a non-trivial swathe of a cohort of pensioners with no ability to pay any rent and nowhere to live rent free. In the longer run, the governmet has to engage with the problem that a citizen's lifetime earnings must be able to purchase their lifetime housing needs. The price has to be right. The BSA as presently constituted have no interest in this reality. The more the smucks can be gulled into paying, the better. There is an inherent conflict between the government and the banks. This is obscured during a massive credit boom, and its fallout, because in the expansion phase we have a time wherein, for a suitably idiotic and myopic group of leaders in the financial community and the political class, their interests appear to align, and during the panic phase both the government and the banks don't want people to panic.

Time moves slowly when interest rates are low.

Interest Only is dead by the old standards but such as Yorkshire Bank are kicking the corpse to see if there is still life in it. Last Autumn they started doing "low start" mortgages. Interest Only for the first 3 years then it switches to repayment. What happens if the expected pay rises don't come through after 3 years to make the larger payments or someone loses their job? Extend and pretend?

I cannot agree with your concept of banks and governbankment being separate! There is no line between banks and governbankments and they represent the 1% not the 99%. They work for people who want land values higher which they achieve via higher house prices. How can there be so many governbankment props to the housing market if they don't want the same as bankers? Governbankments also want more tax revenues and increasing the cost of our most expensive living expense means we have to work more hours to pay for it. If we work more hours we pay more tax. When older people are telling younger people that they also had to struggle to buy, it's hours worked to buy that young people should use to show how more expensive houses are now. When people cheer HPI, they are celebrating the governbankment capturing the lives of their children and their grandchildren because it's them who have to pay the bill for it, working more hours to service more debt.

[Bland Unsight]

Interest Only is dead by the old standards but such as Yorkshire Bank are kicking the corpse to see if there is still life in it. Last Autumn they started doing "low start" mortgages. Interest Only for the first 3 years then it switches to repayment. What happens if the expected pay rises don't come through after 3 years to make the larger payments or someone loses their job? Extend and pretend?

I cannot agree with your concept of banks and governbankment being separate! There is no line between banks and governbankments and they represent the 1% not the 99%. They work for people who want land values higher which they achieve via higher house prices. How can there be so many governbankment props to the housing market if they don't want the same as bankers? Governbankments also want more tax revenues and increasing the cost of our most expensive living expense means we have to work more hours to pay for it. If we work more hours we pay more tax. When older people are telling younger people that they also had to struggle to buy, it's hours worked to buy that young people should use to show how more expensive houses are now. When people cheer HPI, they are celebrating the governbankment capturing the lives of their children and their grandchildren because it's them who have to pay the bill for it, working more hours to service more debt.

As to Yorkshire Bank - if they get it wrong enough, they get to join the other corpses of crap banks in UKAR. On the line between the interests of the political class and how that will inform policy and the interests of the banks, what you say is all fair comment, and in terms of evidence from the previous 35 years, the evidence supports your assessment of the political class, not mine. However, every year that prices remain elevated above what people can afford to pay increases the size of the cohorts that are being shafted. Presently, shafting the un-propertied is politically expedient, but it's a numbers game. I don't have the demographics at my fingertips, but it stands to reason that at some point, the politics must shift and that the way to win elections will be to set the interests of the banks behind the interests of their prey (that's us, of course). The political and economic status quo is almost certainly manufacturing a cadre of swing voters who can be bought with the credible promise of cheaper houses.

[Democorruptcy]

As to Yorkshire Bank - if they get it wrong enough, they get to join the other corpses of crap banks in UKAR. On the line between the interests of the political class and how that will inform policy and the interests of the banks, what you say is all fair comment, and in terms of evidence from the previous 35 years, the evidence supports your assessment of the political class, not mine. However, every year that prices remain elevated above what people can afford to pay increases the size of the cohorts that are being shafted. Presently, shafting the un-propertied is politically expedient, but it's a numbers game. I don't have the demographics at my fingertips, but it stands to reason that at some point, the politics must shift and that the way to win elections will be to set the interests of the banks behind the interests of their prey (that's us, of course). The political and economic status quo is almost certainly manufacturing a cadre of swing voters who can be bought with the credible promise of cheaper houses.

I think it's Dorkins who is with you on that one.

I'm called Democorruptcy for a reason.