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Mortgage Prisoners - another bailout?

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https://www.theguardian.com/money/2019/may/25/hope-for-mortgage-prisoners-as-mps-and-regulator-act-to-free-them

From the article -

Mortgage prisoners fall into four main categories:

  • Those who don’t meet affordability rules because their circumstances have changed.
  • Those who don’t meet affordability rules because the rules have changed.
  • Those in negative equity.
  • Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move.

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The usual advice for these four categories if they weren't "mortgage prisoners":

1) Stay put or take the hit

2) Stay put or take the hit

3) Stay put or take the hit

4) Stay put or take the hit

Help to Buy will be the next thing where people are bailed out

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47 minutes ago, Clarky Cat said:

Help to Buy will be the next thing where people are bailed out

Help to Buy really isn't that different to the Northern Rock together mortgages. Having had to deal with the Northern Rock loan book Govt really should have known better. 

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Help to Buy merchants will all end up as mortgage prisoners...they probably in many cases already are and just do not know it !

We all know on here HTB was help to inflate the market....the suckers piled in ......in a property downturn these people will be crushed...we can already early signs of this...whether it be the odd HTB trying to move...or some turkey who bought a leasehold house or a leasehold flat with doubling charges....their values have dropped and the properties unsellable....will only take a few of these being stuck to the lenders to make the lenders more cautious...this is already happening...

Edited by Spindler

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“We will be looking at whether there could be better remedies for people who are in this position and asking what we need to do to make sure this doesn’t happen again"

 

for starters, don't introduce even more moral hazard

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Quote

Mortgage prisoners fall into four main categories:

Those who don’t meet affordability rules because their circumstances have changed.

Those who don’t meet affordability rules because the rules have changed.

Those in negative equity.

Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move.

 

Perhaps only one category; sub-prime?

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5 hours ago, pizza said:

https://www.theguardian.com/money/2019/may/25/hope-for-mortgage-prisoners-as-mps-and-regulator-act-to-free-them

From the article -

Mortgage prisoners fall into four main categories:

  • Those who don’t meet affordability rules because their circumstances have changed.
  • Those who don’t meet affordability rules because the rules have changed.
  • Those in negative equity.
  • Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move.
  • Those who don’t meet affordability rules because their circumstances have changed.
  • Those who don’t meet affordability rules because the rules have changed.
  • Those in negative equity.

I think it's quite likely many could could find they meet all three of the above.....triple whammy.....

Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move really classify as negative equity anyway....if the asset value after transaction costs is less than the loans(be it mortgage or an additional unsecured loan) that is Negative Equity

 

Edited by Spindler

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4 minutes ago, Spindler said:
  • Those who don’t meet affordability rules because their circumstances have changed.
  • Those who don’t meet affordability rules because the rules have changed.
  • Those in negative equity.

I think it's quite likely many could could find they meet all three of the above.....triple whammy.....

Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move really classify as negative equity anyway....if the asset value after transaction costs is less than the loans(be it mortgage or an additional unsecured loan) that is Negative Equity

 

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What about PRS prisoners? For many of these 'mortgage prisoners', even with higher interest rates, their mortgage payments will still be lower than rent on equivalent properties in the PRS. And, with the exception of IO, at least a proportion of those payments go toward paying off the mortgage. 

When will they realise that negative equity is a necessary evil to get people onto the property ladder.

Edited by spacedin

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7 hours ago, Si1 said:

for starters, don't introduce even more moral hazard

Tell the bankers that every mortgage issued from midnight tonight will be non-recourse i.e. if in negative equity hand the keys back and the whole mortgage is wiped. No more mortgage prisoners created from now on.

As for the existing mortgage prisoners, they should be encouraged to go bankrupt and move into private rentals. This is essentially what my parents did in the early 90s: borrowed too much in the late 80s boom, house prices crashed and they went into negative equity, lost everything and handed back the keys (they are British but were living in a non-recourse jurisdiction overseas), came back to the UK with nothing but managed to find employment and bought back in at the bottom of the property cycle in the mid 90s. Now they are absolutely fine economically, paid off house and enough pension money to see them through. There are benefits to dumping bad debts and there is a reason bankruptcy was created as an institution. It is stressful but better to face up to reality and fix it than let things drag on for decades.

Edited by Dorkins

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1 hour ago, Si1 said:

I wonder how many of these people are also NIMBYs? Any evidence or experience?

I think they will mostly be those miserable beige robots you see in broadsheet 'ask the finance expert' items e.g. 'My husband works as an accountant earning £34k and I make £18k as a teaching assistant in a primary school. We bought a 2 bedroom new build flat 18 months ago using Help to Buy but now want to start a property portfolio so we have something to pass onto our 1 year old son. What is the best way for us to go about this?'

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The borrowers say they have been badly treated by the government, which agreed sales to unregulated lenders, and are suffering financially because they are being denied the chance to switch to lower rates. Many are on standard variable rates of around 5% and paying hundreds of pounds a month more than if they were on the current best-buy deals. A sizeable chunk of them were with Northern Rock and Bradford & Bingley before the two lenders failed in the financial crash. Their loans were picked up by the government and held in a firm called UKAR, but many have been sold on to other organisations, including banks and funds.

5% is not a great deal more than someone borrowing at low LTV.

Comparing their mortgage  to best buy deals is nuts. These people are financial junk.

Lets have a look at

These borrowers, dubbed “mortgage prisoners”, include Jayne Emsley and her husband, who took out a Northern Rock mortgage in 2006 and are now with Landmark Mortgages, which is owned by US-based private equity firm Cerberus.

https://www.yorkshirepost.co.uk/business/mortgage-prisoners-call-for-public-inquiry-after-paying-through-the-nose-after-northern-rock-collapsed-1-9778791

https://www.thesun.co.uk/money/6311655/family-stuck-paying-expensive-mortgage-after-being-told-they-cant-afford-cheaper-one/

 

A SELF-EMPLOYED husband and wife have been told that they "can't afford" to move to a cheaper mortgage, even though it would reduce their outgoings by £130 a month.

Jayne Emsley, 49, and her husband Wayne, 51, from Pontefract in West Yorkshire are one of the thousands of homeowners known as mortgage prisoners in the UK.

The couple, who have two children, Jessica, 24 and George, 12, are trapped paying £1,500 extra interest a year because new lending rules mean they are now seen as much riskier customers.

Thats quite an age gap. Cough  *tax credits* cough.

The husband and wife are self-employed and struggle to prove two years worth of regular income

Self employed eh?

Why not have a company, and accounts?

https://companycheck.co.uk/director/912389561/JAYNE-MIRANDA-EMSLEY/companies

Oh they do. And the company makes f-all, despite being setup in 2007.

Maybe one of them needs to get a normal jobs that pays?

A good guess is their  income is mainly tax credits/benefits rather  than doing any work.

Still they are canny properdee investors

https://houseprices.io/?q=WF7+6GG

 

They cannot get a mortgagas as they paid twice the money they shold have for a new build in Pontefract.

Then, rather than work, theyve p1ssed around on tax credits, doing f-all.

 

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Jayne & Wayne!

(Good research Spy. I know it's technically straightforward but all the same someone had to do it ;) )

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That’s why he’s called spy guy!

 

pretty laughable really, the situations people get themselves in at the massive detriment to other people (driving prices up, keeping taxes high), and yet they still moan. 

i guess morally can’t complain, there was a figure than unless you earn over 40k or something like that your a net drain on society, I guess it’s just different shades of grey 

 

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What worries me with this is that it will set a precedent for all mortgage holders.  Don’t meet the mortgage rules?  We’ll waive them for you - borrow as much as you like!  Can’t afford to meet your mortgage payment?  The taxpayer will step in - help to pay!  In negative equity?  Don’t worry, oh sacred home-owner, the taxpayer will make you whole again!

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I do feel that the MMR rules have had an unintended consequence. Designed to stop people acquiring unaffordable or risky mortgages, it also has the effect of trapping people in mortgages even though they have demonstrated that they are a good credit risk. 

To pass MMR you have to demonstrate that you can afford to pay at 7%, which looks absurdly high at the moment. It's tough on those who have been retrospectively trapped by this rule. 

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if you want examples of where the rules have been ignored try googling about where a lender has stepped in to pay for work done on leaseholds to protect the lenders asset where the debtor couldnt or wouldnt pay it.....and simply slapped it on the mortgage....no checks no nothing......

 

Because as well know if you don;t fulfill the obligations on a leasehold the freeholder can take the property......

Why oh why do people pay/borrow hundreds of thousands for a glorified rental and why oh why can the lender circumvent the lending process ?

 

 

Edited by Spindler

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20 minutes ago, Ah-so said:

I do feel that the MMR rules have had an unintended consequence. Designed to stop people acquiring unaffordable or risky mortgages, it also has the effect of trapping people in mortgages even though they have demonstrated that they are a good credit risk. 

To pass MMR you have to demonstrate that you can afford to pay at 7%, which looks absurdly high at the moment. It's tough on those who have been retrospectively trapped by this rule. 

It's harsh but it's a result of the lenders acting like cowboys in the first place

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18 minutes ago, Si1 said:

It's harsh but it's a result of the lenders acting like cowboys in the first place

agreed ...there are always those who fall foul of new regulations....you simply can't cover every eventuality....perhaps those mortgage holders shoud be grateful they managed to borrow at all under a more lax set of rules....they don;t see that though...

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39 minutes ago, Ah-so said:

To pass MMR you have to demonstrate that you can afford to pay at 7%, which looks absurdly high at the moment. It's tough on those who have been retrospectively trapped by this rule. 

As I understand it the MMR rules ask banks to make an projection about what interest rates might be in 5 years but only actually stipulate that they must use 1% over current 'prevailing rate' as an absolute minimum. Some but not all banks are applying this at 7%.

Section 11.6.18.3

https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html

The article in the OP suggests we should think of the 'prevailing rate' as being the current best market rate, the application in practise suggests banks view the prevailing rate as their SVR (around 5%)

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9 minutes ago, regprentice said:

As I understand it the MMR rules ask banks to make an projection about what interest rates might be in 5 years but only actually stipulate that they must use 1% over current 'prevailing rate' as an absolute minimum. Some but not all banks are applying this at 7%.

Section 11.6.18.3

https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html

The article in the OP suggests we should think of the 'prevailing rate' as being the current best market rate, the application in practise suggests banks view the prevailing rate as their SVR (around 5%)

considering they magic it up with the aid of the BoE and the debtors note....it's money for old rope isn't it ?

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47 minutes ago, regprentice said:

As I understand it the MMR rules ask banks to make an projection about what interest rates might be in 5 years but only actually stipulate that they must use 1% over current 'prevailing rate' as an absolute minimum. Some but not all banks are applying this at 7%.

Section 11.6.18.3

https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html

The article in the OP suggests we should think of the 'prevailing rate' as being the current best market rate, the application in practise suggests banks view the prevailing rate as their SVR (around 5%)

Fair enough. So at a minimum this should be stressed at 6%, but more typically it will be 7%. Firms that interpret the 1% minium aggressively will probably end up getting offset by a counter-cyclical buffer in their capital attack. 

The role of SVR is an interesting one. Banks love it - it is where the profit is. Like insurers who overcharge faithful customers, they profit from those customers who don't move or exploiting those who can't. The fixed rate period has little to no profit in - hardly surprising that we see challengers like Tesco pulling out - they do not have a massive mortgage back-book to subsidise their front-book. 

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