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maverick73

2015 - A million interest-only mortgage holders 'face repossession'

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A million interest-only mortgage holders 'face repossession' in 2015, suddenly everything went quite - Link

The property values may have increased, yet they struggled to meet their payment obligations.

Now with inflation, wage declines, I'll presume all these properties will flow back onto the market.. prices drop and negative equity beckons... 

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Forgive my naivety but is this why I'm seeing loads of houses (4 bed +) coming up for sale all of a sudden?

Ive said to a few people how odd it is and where are these people all moving to, if it's their mortgage that's forcing sales then it makes lots of sense...

Anecdotally a family friend passed away recently and they had an IO mortgage, the widow has had to sell up as there was no cash to pay the balance.

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I'd lay money on there being some kind of bail out scheme for IO mortgage holders.

Something like the house becomes part of the local HA or LA and hey presto the government now has just increased its social housing scheme/s.

BF

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1 hour ago, Sajid the Taxmeister said:

Could someone please confirm the approximate timetable and mechanics for termination of an IO mortgage, when it collapsed and when it is paid off.

It is for planning my popcorn calories.

 

Id guess its connected to Basel3.

Any graps of what Basel3 is aiming - reduced leveraged.

And look at what IO mortgages are - non amortising (paid back) debt. Just gives you a WTF moment for regulated banks.

IO is very specialised lending, at very high cost for a few people.

IO BTL is basically a commercial bridging loan and should be priced as one.

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48 minutes ago, spyguy said:

Id guess its connected to Basel3.

Any graps of what Basel3 is aiming - reduced leveraged.

And look at what IO mortgages are - non amortising (paid back) debt. Just gives you a WTF moment for regulated banks.

IO is very specialised lending, at very high cost for a few people.

IO BTL is basically a commercial bridging loan and should be priced as one.

I still know people this year that have re-mortaged IO BTL around 2% (probably with a huge fee that they don't realise). This Basel3 has been quoted as something that will change this for the last few years, but from people I know their rates have kept pretty low.

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1 minute ago, stuckin2up2down said:

I still know people this year that have re-mortaged IO BTL around 2% (probably with a huge fee that they don't realise). This Basel3 has been quoted as something that will change this for the last few years, but from people I know their rates have kept pretty low.

Im not sure there are any large banks offering much in the way of IO loans.

It tends to be the challenger banks which are all equity backed and small.

IO will be classifed as riskier lending and the banks will be forced to retain more capital. The spread on IO mortgage over repayment is going to be large.

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1 hour ago, spyguy said:

Im not sure there are any large banks offering much in the way of IO loans.

It tends to be the challenger banks which are all equity backed and small.

IO will be classifed as riskier lending and the banks will be forced to retain more capital. The spread on IO mortgage over repayment is going to be large.

You are right it is coming from smaller banks. But what does it mean? Will they carry on like this or will this be curbed anytime soon? they are partying on like its 2007

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20 minutes ago, stuckin2up2down said:

You are right it is coming from smaller banks. But what does it mean? Will they carry on like this or will this be curbed anytime soon? they are partying on like its 2007

They'll go bust.

Their equity holders will take a bath.

The whole challenger bank ting smells let a patsy setup.

'Come to the UK. Look at all this IO and IO BTL lending you can do! You'll be millionaires!!!!'

Metrobank, virgin money, santander, TSB  ...... woohoo Its like 2005!!!! Whast this basel3 thing?

 

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6 minutes ago, stuckin2up2down said:

The OP said it was from 2015

clearly we didn't see the 1m repossessions...repos are at historic lows..

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1 minute ago, Wayward said:

clearly we didn't see the 1m repossessions...repos are at historic lows..

Low interest rates coupled with forbearance. in other words, robbing the prudent to bail out the reckless.

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6 minutes ago, Wayward said:

clearly we didn't see the 1m repossessions...repos are at historic lows..

If one person faces repossession he's got a problem. If a million people face repossession the banks and govt have a problem. Printy printy.

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11 hours ago, maverick73 said:

A million interest-only mortgage holders 'face repossession' in 2015, suddenly everything went quite - Link

The property values may have increased, yet they struggled to meet their payment obligations.

Now with inflation, wage declines, I'll presume all these properties will flow back onto the market.. prices drop and negative equity beckons... 

Out of circa 2.6 Mn IO mortgages outstanding just under a Million mortgage holders have no capital repayment plan.  The million mortgages you'e quoted did not mature in 2015, only around 60000 IO mortgages matured in that year.

'In 2013 the FCA published research showing that up to 2.6m interest-only mortgages will mature by 2041, of which almost half of the homeowners may be unable to repay the loan at the end of the term. However, 90% of the borrowers said they had a repayment strategy in place to repay what they owed'

There is a better graph on the following shelter link, showing maturing IO mortgages by year, 80k this year for example, hitting a peak of 200k mortgages in 2032.

http://blog.shelter.org.uk/2013/05/the-interest-only-timebomb/

The larger issue behind these numbers is that, for the 1.6mn who do have a repayment plan, the banks allow HPI as a valid repayment type. So if you have told your ban that you will be fine because houses only ever go up in price then you are not included in that 1Mn figure. 

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31 minutes ago, spyguy said:

They'll go bust.

Their equity holders will take a bath.

The whole challenger bank ting smells let a patsy setup.

'Come to the UK. Look at all this IO and IO BTL lending you can do! You'll be millionaires!!!!'

Metrobank, virgin money, santander, TSB  ...... woohoo Its like 2005!!!! Whast this basel3 thing?

 

Letting banks go bust historically hasn't happened, what are the chances that all these small ones will just be bailed out? It's only a few more trillion to print.

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15 minutes ago, stuckin2up2down said:

Letting banks go bust historically hasn't happened, what are the chances that all these small ones will just be bailed out? It's only a few more trillion to print.

Challenger banks will be let go bust.

So to will Nationwide.

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4 hours ago, buckers said:

You can be sure that if the banks managed to get hold of bmv property it would not be the great unwashed that benefit. City boys and their mates only.....

+1

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10 hours ago, Bunfight said:

Forgive my naivety but is this why I'm seeing loads of houses (4 bed +) coming up for sale all of a sudden?

Ive said to a few people how odd it is and where are these people all moving to, if it's their mortgage that's forcing sales then it makes lots of sense...

So am I, I've put a post up about it, and all much cheaper than before (Warwick)

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18 hours ago, maverick73 said:

A million interest-only mortgage holders 'face repossession' in 2015, suddenly everything went quite - Link

The property values may have increased, yet they struggled to meet their payment obligations.

Now with inflation, wage declines, I'll presume all these properties will flow back onto the market.. prices drop and negative equity beckons... 

Don't think we have a specific interest-only timebomb 'big fat thread'. I've posted bits and pieces, going back to this thread five years ago when the FSA put some numbers in the public domain:

The CML do release updates on this from time to time, and did so the other day, and it appears to have prompted an unusual piece of whimsy from the CML analytics manager, James Tatch

Quote

Interest-only is not inherently higher risk lending. Rather, it is that, in the absence of ongoing information on ability to repay the principal (as we do have for repayment mortgages), the risk is unquantified. To draw an analogy from another sphere, an interest-only mortgage is like Schrödinger’s Cat – both alive and dead until you open the box and look. Much of the pro-active work the industry has been doing in recent years has been, in effect, to open the box.

Source: Interest-only: coaxing the cat out of the bag, CML, 15 May 2017

The whole article is worth a skim (mixed metaphors about cats in boxes and bags notwithstanding).

From the article, a chart titled "Residential Interest-only mortgages outstanding"

20170515-news-views-chart-1-residential-

And here is a cat gif...

giphy.gif

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