I have discovered something incredible: MANY people on IO don't own their property out there!!

[scottbeard]

15 hours ago, Pop321 said:

I predicted and still predict a huge wave of complaints. I am still less certain of what the end result will be but I hope the ombudsman, government and even the banks stick to their guns on this. 

PPI I know had justification but at one stage 7/10 claims being received were by people who didn’t have PPI with that bank. In the absence of certainty in a claim some banks have just paid out...why not? It’s not their money it’s the shareholders and future customers. Bank directors and employees still get paid....

I agree, I think one day the papers will be full of people with IO mortgages coming to the end of the term who claim not to have understood it.  Like you, I hope they go nowhere because it's fundamentally different to PPI - with PPI people were essentially tricked into buying something they didn't need and couldn't use.  Customers were out of pocket, and deserved compensation.  But someone who takes out an IO mortgage because they couldn't afford (or turned down) a repayment mortgage isn't out of pocket - they've paid lower payments for 25 years, and can sell the house to pay off the mortgage.  The only people I'd have sympathy for are ones either tricked the broker (told it was repayment but was actually IO) or - as I had once - asked for a repayment one but they mis-clicked IO on the computer and actually set it up as IO (I spotted after a year that the mortgage balance was unchanged and complained, but I can imagine some less financially savvy people genuinely wouldn't spot it for 25 years).

As for the "it's not their money" I think that's not the reason - the reason banks pay out on some PPI claims without definitive proof is no doubt a business calculation that they have made: if 9 out of 10 cases are fraudulent but it costs more money to fight the 9 than to pay all 10 then you just pay all 10. That's not laziness, it's actually good business.

[StuartMc]

I remember when IO was basically a way for people to get an extra step up the housing ladder with a slightly larger mortgage with the same monthly repayment.

The fact that those people come out of the deal with a pot of cash and no house, which is a pot of cash better than the millions that are renters or homeless, is lost on them.

(The pot of cash as per Vacheron's example on page one is 40k in cash - plus the bonus of 20 years of living rent-free).

[Si1]

2 hours ago, StuartMc said:

I remember when IO was basically a way for people to get an extra step up the housing ladder with a slightly larger mortgage with the same monthly repayment.

The fact that those people come out of the deal with a pot of cash and no house, which is a pot of cash better than the millions that are renters or homeless, is lost on them.

(The pot of cash as per Vacheron's example on page one is 40k in cash - plus the bonus of 20 years of living rent-free).

?

[Houdini]

24 minutes ago, Si1 said:

?

The pot of cash is the profit made when selling the property. Granted they don't own the property but they pocket the difference between the mortgage and the property's sale price

[Si1]

1 minute ago, Houdini said:

The pot of cash is the profit made when selling the property. Granted they don't own the property but they pocket the difference between the mortgage and the property's sale price

Except the numbers in the calculation were nonsense.

[HariSeldon]

On 23/08/2019 at 22:24, Ah-so said:

Not the case - I've seen the data.

The most scary thing is that very few have verified repayment plans. 

That's different to the reports I've seen!

Quote

 

https://www.ukfinance.org.uk/blogs/interest-only-mortgages-shrinking-target

Amongst the most imminent (up to 2020) maturities, this rises even further – around six out of seven have plans in place.

Since 2011 the cumulative repossession rate over those seven years for term-expired interest-only mortgages is 0.4 per cent, a tiny fraction of a section of loans that, technically, are all in default.

 

There are definitely issues with the housing market but Interest Only Mortgages really isn't one of them...

[spyguy]

2 hours ago, HariSeldon said:

That's different to the reports I've seen!

There are definitely issues with the housing market but Interest Only Mortgages really isn't one of them...

I think the stats are murky.

I know of a few people who'd were convinced - not that it took much convincing - to take on an IO mortgage for a few years 'while their 'careers progress and earnings increase ....' with the idea of going onto a repayment 5-10 years down the line.

Of course, their earnings  have gone nowhere and they are still on an IO.

Of the IO OO I know, who knowingly took out IOs, all were 10-15 years.

 

 

 

[spyguy]

Id add that the fall in IO is down to the BoE/FSa beating up the banks to beat up the borrowers to move to repayment.

They are not being paid off.

AS I understand it, Basel3 basically kills IO by making it too expensive for the banks.

[spyguy]

The FSA’s 2013 thematic identified three distinct tranches of interest only maturities, 2012-2020, 2021-2027 and 2028-2033. As we approach the end-point of this first tranche it’s very positive news that, of the one million loans due to mature by 2020 that were live at the end of 2012, only around 200,000 now remain. Some 600,000 of these had maturity dates on or before 2017, so are, effectively, successful redemptions on schedule. But the remainder – around 200,000 mortgages – had redeemed ahead of schedule. The vast majority of these have converted their mortgage onto repayment terms, either internally or with another lender, with smaller numbers redeeming fully and finally before the end of term.

[spyguy]

2012-2020 is the **** end of 80s/90s endowments.

2021-2017 is the 10-15 IOs from 2020-2027 maturing.

 

[Aidan Ap Word]

On 21/08/2019 at 14:31, winkie said:

Have you considered that they may not want to OWN their home, they just want to live there as long as possible securely paying as little as possible....renters NEVER own their home and they NEVER feel secure, they also pay far more for the privilege.

Some have bought to let a second IO property using the equity from the home they live in, rented out securely and tax efficiently to a tenant paying high rent for a place they will never own.

Well worth considering. But the scale of IO mortgages - in terms of number of IO mortgages regardless of size) - that's 2 million households in this situation (counting from the graph regprentice posted, roughly, based on the IO mortgages to mature in the next 15 years or so).

Who knows how many of those 2 million households chose IO simply because it is more secure than renting?

[HariSeldon]

23 minutes ago, spyguy said:

AS I understand it, Basel3 basically kills IO by making it too expensive for the banks.

Whatever the reason is, the official stats suggest that IO is a non-issue.

21 minutes ago, spyguy said:

 The vast majority of these have converted their mortgage onto repayment terms,

Again confirming that IO is a non-issue, as all those IO mortgages are now repayment so will be paid off as with a normal mortgage.

3 minutes ago, Aidan Ap Word said:

But the scale of IO mortgages - 2 million households in this situation

What "situation" though? The vast majority of those 2 million have a repayment plan of one form or another in place to pay off the mortgage at the end of the term.

[spyguy]

3 hours ago, HariSeldon said:

Whatever the reason is, the official stats suggest that IO is a non-issue.

Again confirming that IO is a non-issue, as all those IO mortgages are now repayment so will be paid off as with a normal mortgage.

What "situation" though? The vast majority of those 2 million have a repayment plan of one form or another in place to pay off the mortgage at the end of the term.

Absolutely not.

The BoE and banks have sorted out about about half, the easy half.

The link shows theres still large number not on repayment.

IO mortgages are not evenly distributed - they are concentrated in London/SE.

[spyguy]

3 hours ago, Aidan Ap Word said:

Well worth considering. But the scale of IO mortgages - in terms of number of IO mortgages regardless of size) - that's 2 million households in this situation (counting from the graph regprentice posted, roughly, based on the IO mortgages to mature in the next 15 years or so).

Who knows how many of those 2 million households chose IO simply because it is more secure than renting?

AS it stands, theres about 80k/mortgages a month i nthe UK.

That 2m is getting on for ~3 years housing stock to be transacted.

Chuck in the IO BTL sales, the probates and the other normal sales and youve got a hard market to get out of.

 

 

[TopBanana101]

4 hours ago, spyguy said:

I think the stats are murky.

I know of a few people who'd were convinced - not that it took much convincing - to take on an IO mortgage for a few years 'while their 'careers progress and earnings increase ....' with the idea of going onto a repayment 5-10 years down the line.

Of course, their earnings  have gone nowhere and they are still on an IO.

Of the IO OO I know, who knowingly took out IOs, all were 10-15 years.

 

 

 

I believe that selling in the future and downsizing is a valid repayment mechanism.  I have a few family members that are convinced this is a brilliant strategy.  All they have is a lot of debt and the only way to pay it off is to unwind the leverage and pay CGT with money they've already spent!

[spyguy]

2 minutes ago, TopBanana101 said:

I believe that selling in the future and downsizing is a valid repayment mechanism.  I have a few family members that are convinced this is a brilliant strategy.  All they have is a lot of debt and the only way to pay it off is to unwind the leverage and pay CGT with money they've already spent!

Its a wishful think strategy.

The towns I follow have houses at the same nominal values as 2004.

[Ah-so]

18 hours ago, HariSeldon said:

That's different to the reports I've seen!

There are definitely issues with the housing market but Interest Only Mortgages really isn't one of them...

To clarify, I am talking about verified rather than stated repayment vehicles. Ticking a box that says "I have a repayment vehicle" is not a verified vehicle, but it was in the data you cite.

The large IO lenders did not verify these vehicles back pre-crisis.

[Houdini]

12 hours ago, spyguy said:

Its a wishful think strategy.

The towns I follow have houses at the same nominal values as 2004.

If you are lucky - for some of the areas I laugh at it's heading back to 2002..

[Ah-so]

15 hours ago, HariSeldon said:

Whatever the reason is, the official stats suggest that IO is a non-issue.

Again confirming that IO is a non-issue, as all those IO mortgages are now repayment so will be paid off as with a normal mortgage.

What "situation" though? The vast majority of those 2 million have a repayment plan of one form or another in place to pay off the mortgage at the end of the term.

IO is very much an issue. The biggest issue is around the 2030 bulk of maturities. A lot of those that did take out IO mortgages have now switched to repayment mortgages, but there are a huge number that have not.

Quote

The total number of interest-only homeowner mortgages has more than halved since 2012, according to UK Finance, falling from 2.5 million in 2012 to 1.23 million in 2018.

https://www.mortgagefinancegazette.com/lending-news/mortgage-lending-figures/number-interest-mortgages-halved-seven-years-19-06-2019/

By definition, those that have repaid or switched to IO are  those that can afford to. The junk is now more concentrated in the remainder who have not repaid.

Given that there was no verification of mortgage repayment vehicles at the time, we just do not know how many of the remainder are unable to repay. What does seem implausible to me was that all the people taking out 25-year mortgages in 2005  had certainty about how they were going to repay so much later.

Even the FCA report from a few years back was incredible optimistic and I have spoken to one of its contributors who said as much on the repayment vehicle angle. They did not question the veracity of stated repayment vehicles.

And as final tidbit of IO trivia, did you know that if an IO mortgage reaches the actual maturity date, and do not convert to another mortgage type, they mostly fail to repay the principal.

 

 

[HariSeldon]

1 hour ago, Ah-so said:

The large IO lenders did not verify these vehicles back pre-crisis.

That may very well be true, however...

48 minutes ago, Ah-so said:

And as final tidbit of IO trivia, did you know that if an IO mortgage reaches the actual maturity date, and do not convert to another mortgage type, they mostly fail to repay the principal.

The official statistics do not support your supposition "Since 2011 the cumulative repossession rate over those seven years for term-expired interest-only mortgages is 0.4 per cent."

Or rather, even if you were right, so what? Failing to repay the principal is a non-issue because only 0.4% get repossessed which means 99.6% get to carry on living in their home.

 

[“Nasty Piece of work”]

17 minutes ago, HariSeldon said:

Failing to repay the principal is a non-issue because only 0.4% get repossessed which means 99.6% get to carry on living in their home.

Is this a presumption too far?  Do you have an Vested Interest?

[HariSeldon]

17 minutes ago, Boo Hoo May said:

Is this a presumption too far?  Do you have an Vested Interest?

The "0.4% get repossessed" quote is from the report I linked to.

A vested interest in what?!?

[HariSeldon]

14 hours ago, spyguy said:

The link shows theres still large number not on repayment.

I couldn't find any stats on how many mortgages come to term each year but let's assume on average it's half a million. Regarding IO, the report says "Last year there were 34,000 such “term-expired” mortgages" so by my calculation that is well under 10% of all mortgages.

The report then continues that 90% of those 34,000 are then paid off within a "grace period" of typically a few months after they should have been paid off. All in all we're now left with less than 1% of IO mortgages still "in default" which does seem to tally with the later figure of 0.4% eventually getting repossessed.

Clearly we have issues with housing and house prices but I don't understand this focus on IO mortgages when all the official figures confirm it's a total non-issue affecting less than 1% of people.

14 hours ago, spyguy said:

AS it stands, theres about 80k/mortgages a month i nthe UK.

I think it's more like 40,000 mortgages a month isn't it?

https://tradingeconomics.com/united-kingdom/mortgage-applications

[“Nasty Piece of work”]

34 minutes ago, HariSeldon said:

The "0.4% get repossessed" quote is from the report I linked to.

A vested interest in what?!?

Naively making that presumption -  yes, I did read the link.  It appears horseshit.

 

V.I. In mortgages.

[HariSeldon]

32 minutes ago, Boo Hoo May said:

Naively making that presumption -  yes, I did read the link.  It appears horseshit.

So the official publicly available report from the UK banking industry is horseshit? It's been online for over a year, anyone has been able to critique it and disprove it in the last 12 months so do you have any evidence to refute their findings?

If it is all fake news then you would have thought the large number of IO mortgage holders getting repossessed would get more publicity in the media - I don't recall seeing many articles, perhaps you have?

32 minutes ago, Boo Hoo May said:

V.I. In mortgages.

No, I have no vested interested in mortgages or any other financial products (and never have unless you include having mortgages/loans myself in the past) - I am actually retired.

Do you have a vested interest in selling tin foil hats?