Jump to content
House Price Crash Forum
hurlerontheditch

Plan to free 'mortgage prisoners' revealed by FCA

Recommended Posts

the thin edge of a wedge... lets see what other "forgiveness" follows on from this..

https://www.bbc.co.uk/news/business-46821660

 

Quote

The City regulator is planning a change of rules that could lower the housing costs of thousands of so-called "mortgage prisoners".

Some 140,000 homeowners are trapped on high interest-rate home loans with unregulated or inactive firms, and are unable to switch to a cheaper deal.

The Financial Conduct Authority (FCA) has now said it is considering a change to its affordability checks.

This could allow these people to switch to deals that are easier to pay.

At present, they are stuck on high default rates, owing to an FCA requirement - introduced in 2014 - for mortgage holders to meet strict affordability criteria when they apply for a new fixed deal.

 

Share this post


Link to post
Share on other sites

I have some sympathy. Most (nearly all by definition) of these people took out mortgages before the MMR mortgages took effect, so are effectively being punished by de facto retrospective legislation. Also, they can get totally screwed by their lender who will know that they cannot leave and can use its SVR to take advantage of them.

Share this post


Link to post
Share on other sites

A bunch of spivs took over Northern Rock's mortgages entirely with the intention of doing exactly this, so that is what they're doing - charging them silly interest rates as they know that nobody else will touch them.

However... every one of them has the option of selling their house and buying something they can actually afford or renting.  The fact is that the reason they fail affordability tests is that their house is not affordable by them.

Share this post


Link to post
Share on other sites

Not much really.

Applies to 140,000 households.

How many will another bank want to offer a new, cheaper mortgage to - 50%?

Just a small number of people caught up between the old, unregulated mortgage market and the new, struct MMR one.

 

 

Share this post


Link to post
Share on other sites
36 minutes ago, Ah-so said:

I have some sympathy. Most (nearly all by definition) of these people took out mortgages before the MMR mortgages took effect, so are effectively being punished by de facto retrospective legislation. Also, they can get totally screwed by their lender who will know that they cannot leave and can use its SVR to take advantage of them.

Retrospective legislation is always a problem 

24 minutes ago, Tes Tickle said:

A bunch of spivs took over Northern Rock's mortgages entirely with the intention of doing exactly this, so that is what they're doing - charging them silly interest rates as they know that nobody else will touch them.

Spiv = businessman - they took these mortgages aware that there was  risk of non payment - it is a simple business decision

24 minutes ago, Tes Tickle said:

However... every one of them has the option of selling their house and buying something they can actually afford or renting.  The fact is that the reason they fail affordability tests is that their house is not affordable by them.

The lender is just making a business decision.

If they are still in the house and have not been repossessed one presumes that they have been able to pay at the higher rate and that their house is affordable to them.  In that instance I see that the lender will not have any concern that the loan will be defaulted on.  I guess that they want to tie an existing customer into a longer term deal.  

 

Share this post


Link to post
Share on other sites

There is also no benefit to a lender in making a mortgage unaffordable for an existing customer.

If the customer defaults its costs time and money for the lender to chase the debt.

Lending institutions do not want the bad publicity of a load of repossessions.

Lending institutions do not want to own repossessed property which has to be made secure, sold, have the risk of fire, squatters, dilapidation.  It is easier for them to ensure a customer can afford the repayments. 

 

Share this post


Link to post
Share on other sites
10 minutes ago, happyguy said:

There is also no benefit to a lender in making a mortgage unaffordable for an existing customer.

If the customer defaults its costs time and money for the lender to chase the debt.

Lending institutions do not want the bad publicity of a load of repossessions.

Lending institutions do not want to own repossessed property which has to be made secure, sold, have the risk of fire, squatters, dilapidation.  It is easier for them to ensure a customer can afford the repayments. 

 

Agree with this. It's a balance as they want to be lending on the fat margin, and know if default happens that margin disappears. OK if there is lots of equity, but clearly there isn't otherwise the occupiers would re-mortgage.

Share this post


Link to post
Share on other sites
3 minutes ago, monkeyman1974 said:

Agree with this. It's a balance as they want to be lending on the fat margin, and know if default happens that margin disappears. OK if there is lots of equity, but clearly there isn't otherwise the occupiers would re-mortgage.

Agreed back to you :) 

Share this post


Link to post
Share on other sites
1 hour ago, Ah-so said:

I have some sympathy. Most (nearly all by definition) of these people took out mortgages before the MMR mortgages took effect, so are effectively being punished by de facto retrospective legislation. Also, they can get totally screwed by their lender who will know that they cannot leave and can use its SVR to take advantage of them.

This would be more understandable if we had 100% home ownership. Then it would really just be a case of the people versus the banks. But in reality renters are in conflict with homeowners. If banks can turn the screws on homeowners (those with outstanding mortgages) then it benefits renters.

Share this post


Link to post
Share on other sites
1 hour ago, spyguy said:

Not much really.

Applies to 140,000 households.

How many will another bank want to offer a new, cheaper mortgage to - 50%?

Just a small number of people caught up between the old, unregulated mortgage market and the new, struct MMR one.

 

 

Even if all of those 140000 households are indeed stuck in terms of new mortgage provider they only represent 0.5% of the households in Britain.

And for those that have held their mortgages for > 2 years in many (most areas) of the country they have seen an increase in asset price and so moving to more affordable is at least possible (albeit expensive).

If the MMR rules are relaxed and prices rise then a lot more than 0.5% of the population are going to be negatively affected - first time buyers alone are numbered in the region(s) between 50k and 200k - they get even more screwed by easing the pressure on the asset price bubble ... as well as all the other people who would be first time buyers if prices were in fact reasonable *today*.

Share this post


Link to post
Share on other sites
2 hours ago, Ah-so said:

I have some sympathy. Most (nearly all by definition) of these people took out mortgages before the MMR mortgages took effect, so are effectively being punished by de facto retrospective legislation. Also, they can get totally screwed by their lender who will know that they cannot leave and can use its SVR to take advantage of them.

This is not retrospective legislation. They can continue on the mortgage they signed up for, but they want a new product so the new rules apply. Effectively, what this is lobbying for is giving better mortgage terms to existing, overstretched people than they give to first time buyers. Bad move. 

Edited by Quicken
Typo

Share this post


Link to post
Share on other sites
1 hour ago, happyguy said:

There is also no benefit to a lender in making a mortgage unaffordable for an existing customer.

If the customer defaults its costs time and money for the lender to chase the debt.

Lending institutions do not want the bad publicity of a load of repossessions.

Lending institutions do not want to own repossessed property which has to be made secure, sold, have the risk of fire, squatters, dilapidation.  It is easier for them to ensure a customer can afford the repayments. 

 

In a falling market it may be preferable to repossess early and offload before the market drops further. Doubt the government will want that though and this has the probably be expressed to them

Share this post


Link to post
Share on other sites
3 hours ago, Ah-so said:

I have some sympathy. Most (nearly all by definition) of these people took out mortgages before the MMR mortgages took effect, so are effectively being punished by de facto retrospective legislation. Also, they can get totally screwed by their lender who will know that they cannot leave and can use its SVR to take advantage of them.

Providing it's covered by existing bank turnover and doesn't end up with govt subsidy.

Share this post


Link to post
Share on other sites
2 hours ago, happyguy said:

There is also no benefit to a lender in making a mortgage unaffordable for an existing customer.

 

 

Nonsense. The customer can get an extra job, sell their furniture etc.

Share this post


Link to post
Share on other sites

 

11 minutes ago, Si1 said:

Nonsense. The customer can get an extra job, sell their furniture etc.

They will not need to as the lender is going to make it easier for homeowners to afford the mortgage  and offer a lower interest rate as in this instance 

Share this post


Link to post
Share on other sites
1 hour ago, Quicken said:

This is not retrospective legislation. They can continue on the mortgage they signed up for, but they want a new product so the new rules apply. Effectively, what this is lobbying for is giving better mortgage terms to existing, overstretched people than they give to first time buyers. Bad move. 

The new affordability regulations were certainly retrospective and after the mortgage had initially been taken out under the status quo at that time.

Presumably they have not in huge arrears or they would have been repossessed already.

If the customer defaults its costs time and money for the lender to chase the debt so they do not want to incur those costs. 

Lending institutions do not want the bad publicity of a load of repossessions.

Again, lending institutions do not want to own repossessed property which has to be made secure, maintain gardens, pay for them to be sold, have the risk of fire, squatters, dilapidation.  It is easier for them to ensure a customer can afford the repayments, all companies work on the principle that it is far easier and more cost effective to retain an existing customer than it is to get a new customer.  

Someone who has a lot of equity in a home is less a risk than a FTB (from the lender's perspective) not saying that is fair but it is how the underwriters calculate risk. 

1 hour ago, Killian said:

In a falling market it may be preferable to repossess early and offload before the market drops further. Doubt the government will want that though and this has the probably be expressed to them

Most UK  lenders are PLC's who are accountable to shareholders - they will act on what they think is best for them not what a govt minister wants them to do.

You may think that they should repossess but the fact is they do not want to repossess - that is why there were relatively few repossessions during 2008/9.

During 1989-90 lenders repossessed record numbers and it proved to take an inordinate amount of staff time and added costs for the aforementioned reasons.

Since that time lenders really do not want to go down that route and will avoid doing so if at all possible.  From the lenders point of view they are better off reducing interest rates and retaining a customer who has signed up for a 3-5 year fixed therm than repossessing a property they do not want ownership of.  

Share this post


Link to post
Share on other sites

Consider the millions of savers who signed up for a one year 'bonus' account and now receive derisory ongoing interest due to zirp. Bet they'd like pre-crisis interest rates but the market has changed. 

Share this post


Link to post
Share on other sites

Despite what company law may state, the banks and other PLCs certainly not accountable to shareholders. They do what is best for the managers making the decisions

Share this post


Link to post
Share on other sites
1 hour ago, happyguy said:

 

They will not need to as the lender is going to make it easier for homeowners to afford the mortgage  and offer a lower interest rate as in this instance 

Not an answer. Try harder.

Share this post


Link to post
Share on other sites
6 hours ago, Kosmin said:

This would be more understandable if we had 100% home ownership. Then it would really just be a case of the people versus the banks. But in reality renters are in conflict with homeowners. If banks can turn the screws on homeowners (those with outstanding mortgages) then it benefits renters.

Renters are not in conflict with home owners. What makes you think this?

Share this post


Link to post
Share on other sites
6 hours ago, Quicken said:

This is not retrospective legislation. They can continue on the mortgage they signed up for, but they want a new product so the new rules apply. Effectively, what this is lobbying for is giving better mortgage terms to existing, overstretched people than they give to first time buyers. Bad move. 

Obviously not literally retrospective, but when these people took out their mortgages originally they would have assumed that they would have been able to remortgage when their mortgage fix was up.

MMR - rules that were brought in to protect consumers from not being able to afford repayments on the future if rates rise. By being stuck on these mortgages, they are worse off and peversely more likely to succumb to rate rises.

For this group of borrowers the MMR rules are not having the intended effect. 

Share this post


Link to post
Share on other sites
14 hours ago, Quicken said:

Consider the millions of savers who signed up for a one year 'bonus' account and now receive derisory ongoing interest due to zirp. Bet they'd like pre-crisis interest rates but the market has changed.

Agree I have an ISA which is worth zip but hey that is life no point moaning about it 

14 hours ago, Killian said:

Despite what company law may state, the banks and other PLCs certainly not accountable to shareholders. They do what is best for the managers making the decisions

In your opinion which you are entitled to.  In any business people make business decisions, if the company makes decisions they do so to increase the profit of the company.  That is what directors do in every commercial business.  All companies work on the basis that it is more cost effective to retain existing customers than trawl for new business.  If these people sign up for a lower rate deal for 3-5 years they have retained a customer which is far better for them than having an ex customer.  

11 hours ago, Ah-so said:

Renters are not in conflict with home owners. What makes you think this?

I have no conflict with anyone who has a different housing situation to my own, any more than I have a conflict with someone who has a different car to me etc 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 295 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.