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Borrowers ignoring mortgage timebomb, says FCA

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From BBC

http://www.bbc.co.uk/news/business-42872432

Borrowers ignoring mortgage timebomb, says FCA

Hundreds of thousands of homeowners could be at risk of losing their homes by ignoring how they will pay off their mortgage, a regulator has warned.

Nearly one in five mortgage-holders has an interest-only home loan, meaning they would need savings or other funds to pay a final lump sum.

The Financial Conduct Authority (FCA) said the end of these mortgage terms would peak in the next 10 to 14 years.

Many borrowers were ignoring letters from lenders, it found.

Interest-only deals allow borrowers to pay off the amount borrowed only when the mortgage term ends, usually after 25 years, but there is concern that a host of homeowners do not have plans in place to pay the final bill.

The FCA said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.

One peak of these final bills has come in the past year or so, for those who took out endowment policies in the 1990s and 2000s.

Less affluent, middle-aged homeowners who often converted to interest-only deals in 2003-09 - who are concentrated in the South West, East and North West of England, as well as London and the West Midlands - will see their final repayment demand come in 2027-28.

The regulator said that lenders had improved their communications with customers at risk since its initial report on the issue five years ago.

However, there were still concerns that some customers may have been incorrectly reassured about their plans by non-specialist staff.

Action needed

The FCA had more concerns over the reaction of borrowers who, for a variety of reasons, were ignoring letters from their lender.

Some believed that they had an adequate repayment plan in place, while others were simply burying their head in the sand. Some had little trust in their lender, so were suspicious of the letters.

The FCA urged these borrowers to talk to their lender as early as possible, otherwise they would restrict their options over time of paying off their mortgage.

"We are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes," said Jonathan Davidson, executive director of supervision at the FCA.

Hannah Maundrell, from comparison service Money.co.uk, said: "You may be able to remortgage your property, extend your mortgage to give you time to raise the money to pay it back or look into taking out another mortgage from a different lender.

"If you're at risk of losing your home, there are government schemes that could help. The key thing is to pick up that phone and talk to your lender."

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6 minutes ago, rantnrave said:

From BBC

http://www.bbc.co.uk/news/business-42872432

Borrowers ignoring mortgage timebomb, says FCA

Hundreds of thousands of homeowners could be at risk of losing their homes by ignoring how they will pay off their mortgage, a regulator has warned.

Nearly one in five mortgage-holders has an interest-only home loan, meaning they would need savings or other funds to pay a final lump sum.

The Financial Conduct Authority (FCA) said the end of these mortgage terms would peak in the next 10 to 14 years.

Many borrowers were ignoring letters from lenders, it found.

Interest-only deals allow borrowers to pay off the amount borrowed only when the mortgage term ends, usually after 25 years, but there is concern that a host of homeowners do not have plans in place to pay the final bill.

The FCA said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.

One peak of these final bills has come in the past year or so, for those who took out endowment policies in the 1990s and 2000s.

Less affluent, middle-aged homeowners who often converted to interest-only deals in 2003-09 - who are concentrated in the South West, East and North West of England, as well as London and the West Midlands - will see their final repayment demand come in 2027-28.

The regulator said that lenders had improved their communications with customers at risk since its initial report on the issue five years ago.

However, there were still concerns that some customers may have been incorrectly reassured about their plans by non-specialist staff.

Action needed

The FCA had more concerns over the reaction of borrowers who, for a variety of reasons, were ignoring letters from their lender.

Some believed that they had an adequate repayment plan in place, while others were simply burying their head in the sand. Some had little trust in their lender, so were suspicious of the letters.

The FCA urged these borrowers to talk to their lender as early as possible, otherwise they would restrict their options over time of paying off their mortgage.

"We are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes," said Jonathan Davidson, executive director of supervision at the FCA.

Hannah Maundrell, from comparison service Money.co.uk, said: "You may be able to remortgage your property, extend your mortgage to give you time to raise the money to pay it back or look into taking out another mortgage from a different lender.

"If you're at risk of losing your home, there are government schemes that could help. The key thing is to pick up that phone and talk to your lender."

Why should the government help those who borrowed knowing fully well they cant afford borrowing. Another bailout??

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2 minutes ago, warrior88 said:

Why should the government help those who borrowed knowing fully well they cant afford borrowing. Another bailout??

Of course!

Didn't you know? Any financial choice is a safe one.

Fill yer boots.

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36 minutes ago, rantnrave said:

From BBC

http://www.bbc.co.uk/news/business-42872432

Borrowers ignoring mortgage timebomb, says FCA

Hundreds of thousands of homeowners could be at risk of losing their homes by ignoring how they will pay off their mortgage, a regulator has warned.

Nearly one in five mortgage-holders has an interest-only home loan, meaning they would need savings or other funds to pay a final lump sum.

The Financial Conduct Authority (FCA) said the end of these mortgage terms would peak in the next 10 to 14 years.

Many borrowers were ignoring letters from lenders, it found.

Interest-only deals allow borrowers to pay off the amount borrowed only when the mortgage term ends, usually after 25 years, but there is concern that a host of homeowners do not have plans in place to pay the final bill.

The FCA said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.

One peak of these final bills has come in the past year or so, for those who took out endowment policies in the 1990s and 2000s.

Less affluent, middle-aged homeowners who often converted to interest-only deals in 2003-09 - who are concentrated in the South West, East and North West of England, as well as London and the West Midlands - will see their final repayment demand come in 2027-28.

The regulator said that lenders had improved their communications with customers at risk since its initial report on the issue five years ago.

However, there were still concerns that some customers may have been incorrectly reassured about their plans by non-specialist staff.

Action needed

The FCA had more concerns over the reaction of borrowers who, for a variety of reasons, were ignoring letters from their lender.

Some believed that they had an adequate repayment plan in place, while others were simply burying their head in the sand. Some had little trust in their lender, so were suspicious of the letters.

The FCA urged these borrowers to talk to their lender as early as possible, otherwise they would restrict their options over time of paying off their mortgage.

"We are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes," said Jonathan Davidson, executive director of supervision at the FCA.

Hannah Maundrell, from comparison service Money.co.uk, said: "You may be able to remortgage your property, extend your mortgage to give you time to raise the money to pay it back or look into taking out another mortgage from a different lender.

"If you're at risk of losing your home, there are government schemes that could help. The key thing is to pick up that phone and talk to your lender."

Borrowers dont give a f**k.  They'll sell up and take their massive unearned gains and moved back to Pooland.

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'411. Posted by Petal

on 15 minutes ago

Took out 25 year interest only mortgage in 2005 knowing when mortgage term was up we'd need to sell the property to pay it off. Perfect answer for us in that we not only keep a nice secure roof over our children's heads whilst they're growing up, but at the same time create a nice little nest egg for our retirement. We knew exactly what we were doing & went into it with our eyes wide open!!'

OK.

What happens when IRs go up?

So, the is is sell up and live where?

If theyd bought outside of London/SE then its likely the house is worth the same they bought it for, almost halfway thru the mortgage term.

The way mortgages work is that you must pay down the capital, otherwise you risk IRs catching you with your pants down.

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Two things.....why would someone want to remain on a certain mortgage deal? They may have a lifetime tracker where the interest is less than a savings interest rate or other investment for example. Just because someone has a mortgage outstanding doesn't mean they don't have the money to repay it if they wanted to.

Another thing......if someone has a mortgage o/s and they require extra borrowing they can if low loan to value generally do a quick call to top it up......if they repay it in full they have all the inconvenience of being a new customer, having to get new survey/valuation done, extra fees to pay etc.

Maybe should split this into, can repay don't want to repay, would like to repay but can't repay.......two completely different scenarios.;)

 

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Presumably they are free to ignore it if they like. And, equally, they are free to face the consequences of their actions.

Edited by Errol

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1 hour ago, Errol said:

Presumably they are free to ignore it if they like. And, equally, they are free to face the consequences of their actions.

Never the case these days. You must be protected from doing anything foolish, and if you do the responsibility for the consequences falls on whoever failed to treat you like a cotton wool-wrapped baby.

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2 minutes ago, TonyJ said:

Looks like the hype is building. We need to help all the unfortunate people, who chose interest only mortgages so they could avoid repaying the loan and have luxuries, such as foreign holidays instead. It is plain wrong that they should be penalised in any way for being irresponsible and greedy.

They are only renting after all.....like thousands already do, perhaps they will deduct the interest from any equity.....then it is gone.;)

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oooh. Nice. Iain Dale on LBC now, saying that he is one of those who has no means to meet the interest only mortgage capital demand (in his case, 6 years away - LBC hosts earn around £250-1M per annum). Usual call from experts and callers for borrowers to be given government assistance, reduced mortgage expenses and discounted conversion to extended repayment mortgages due to 'mis-selling'. Your tax money, their fecklessness. More government and bank moral hazard. My blood is pretty much boiling after R4 Bank of England show yesterday and now the LBC show this afternoon.

Enjoy!

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Iain Dale is a pretty well known TV and radio show host. He is often on Sky and has a regular slot on CBC from the states. He once ran as a Tory MP. I quite like his shows, he is usually quite impartial and a difficult interview for politicians. Lots of callers also starting to mention that house price falls or rises will be a trap for them. Rising house prices will mean they will be unable to fund a new house purchase from the equity gain they have or, if prices fall, they may have nearly nothing left. Also complaining about renting charges in their areas, if they have to rent. Two decades of government and BoE sponsored HPI suddenly not seeming such a great thing to these 'home owners' now.

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Don't know, He seems to be going into great details about his own circumstance. Also, they run live twitter and facebook feeds, pretty sure he would get bombarded with abuse if he was just playing devils advocate (there's always people who know your real circumstances if you are in the media spotlight and I'm pretty sure backroom bank staff are very gossipy, in general. Just look at the LBC twitter feeds of James O'Brien and Nigel Farage!

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Well, not just the borrower.

IO mortgages are a total no no with Basel 3, at least for a regulated bank.

Only way a regulated bank will be able to offer IO mortgages is if it almost holds 100% of the capital ofthe loan e.g very expensive.

Thats not to say they wont exist rather they will only be offe5red by specialist i.e. expensive financial orgs.

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45 minutes ago, frankvw said:

oooh. Nice. Iain Dale on LBC now, saying that he is one of those who has no means to meet the interest only mortgage capital demand (in his case, 6 years away - LBC hosts earn around £250-1M per annum). Usual call from experts and callers for borrowers to be given government assistance, reduced mortgage expenses and discounted conversion to extended repayment mortgages due to 'mis-selling'. Your tax money, their fecklessness. More government and bank moral hazard. My blood is pretty much boiling after R4 Bank of England show yesterday and now the LBC show this afternoon.

Enjoy!

Th a claims lawyers are deep into this already.  I suspect a deal had already been agreed with regulators to compensate IO,  self certs, MEW customers, and high risk borrowers.  The law firms are trawling now in all these categories. FOS is already upholding mis-selling claims.   

Edited by ingermany
Spellig

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3 hours ago, rantnrave said:

concentrated in the South West, East and North West of England, as well as London and the West Midlands

Concentrated? Wtf

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In the long run, moral hazard will lead to hyper inflation or Revolution imho.

 

If you destroy the motivation to produce but reward excessive consumption then what else is there?

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17 minutes ago, ingermany said:

Th a claims lawyers are deep into this already.  I suspect a deal had already been agreed with regulators to compensate IO,  self certs, MEW customers, and high risk borrowers.  The law firms are trawling now in all these categories. FOS is already upholding mis-selling claims.   

This FOS website page has some case studies - to my admittedly untrained eye, it looks like there could be an awful lot of compensation payouts

http://www.financial-ombudsman.org.uk/publications/technical_notes/interest-only-mortgage-case-studies.html

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1 hour ago, 17clarence said:

On LBC radio today at 4pm, Iain Dale show

'Interest Only Mortgages: The next big miss-selling scandal?'

 

 

Yes. People were clearly misled. With a technical jargon name like Interest Only Mortgages, who but a financial specialist could possibly have figured out that you were only paying interest on the loan and nothing else?

Edited by Shrink Proof

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23 minutes ago, ingermany said:

Th a claims lawyers are deep into this already.  I suspect a deal had already been agreed with regulators to compensate IO,  self certs, MEW customers, and high risk borrowers.  The law firms are trawling now in all these categories. FOS is already upholding mis-selling claims.   

KFI.....lenders protected from ignorance?;)

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Could potentially Busta be on the hook for any of this, as a brokerage?

Edited by Si1

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Presumably with qe and a high stockmarket, the banks are in a position to actually afford to backstop the fscs to cover this? 

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  • 406 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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