Wednesday, Aug 23, 2006

Utter Utter Madness

Daily Mail: The Mortgage that Never Ends

Here is a scheme that passes the debt to the kids, and the property to the lending institution. When things get this desparate then surely the end is nigh.

Posted by martyn @ 08:32 AM (2794 views)
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18 Comments

1. Gregzki said...

Japanese Uncle - were these inheritable mortgags popular in Japan (before proprety values fell by 75%)

Wednesday, August 23, 2006 09:40AM Report Comment
 

2. uncle chris said...

Yeah right .... I can't see Crash Gordon going for this - expect an announcement in the next and hopefully his last budget.

Wednesday, August 23, 2006 09:41AM Report Comment
 

3. Bfskinner said...

utter madness indeed,

however, read the post on the DM website about this story, see how many people actually think this is a good idea!

BFS

Wednesday, August 23, 2006 09:42AM Report Comment
 

4. waitingfor hpc said...

Call me stupid but I am confused. This seems like the biggest load of crap ever. It will stop inheritance tax? - HOW? Well YES because the equity you OWN is so low on a house. How is that any good.

Interest is calculated monthly or fixed max of circa 2/3 years - how does this help anyone? The kids with the mortage just have a new debt?

If houses kept going up then inheritance tax would still need to be payed anyway?

I am not so learned as others on this site but help me here - why is this a good idea?

Wednesday, August 23, 2006 10:26AM Report Comment
 

5. Dude said...

Waitingfor, I think this sort of loan is sometimes called rent. (But in this case the landlord is the bank.)

Wednesday, August 23, 2006 10:45AM Report Comment
 

6. d'oh said...

Too many people taking out interest only mortgages...hmmm, don't really want to have to repossess half the homes in the country at the end of their mortagage...doesn't look good kicking penioners out into the street....I know, how about a mortgage that never has to be paid off. Banks get the "rent" and don't have to pay for repairs, insurance, etc. This of course will just boost asset prices relative to earnings even further, so nothing will be solved except in the short term.

Any responsible government would have bitten the economic bullet and stopped these ever more irresponsible loosenings of credit years ago. What are they playing at? Asset prices just can't keeping getting ratcheted up and up for ever, and the longer it goes on the worse the eventual disaster will be. Are they wicked, just plain stupid, or both?

We are one step away from a new feudalism where one will be able to sign over the lifetime income of your children to the banks, in effect if not in word. It sounds far fetched to me too, but my experience has been that not matter how cynical I am, the world always proves me to be a card carrying, rosy coloured spectacle wearing optimist.

Wednesday, August 23, 2006 11:04AM Report Comment
 

7. Daopig said...

This kind of clutching at straws is pathetic.
I am sorry: my reply is not learned. But I would say that this initiative is a 'good idea' because it appears to offer comfort to thousands of people who don't want to admit the inevitability of the impending you-know-what.

I mean if your daily-mail-reading BTL finger is poised over the sell button, right now, then maybe this story would persuade you that the end is not yet nigh. That there is a way to keep the bubble pumping forever. That there will be no return to boom and bust economics. That the next generation hasn't been quite eaten up, just yet. There is still some meat on their bones.

Wednesday, August 23, 2006 11:08AM Report Comment
 

8. rich said...

Wow, you're even cynical about your cynicism :o)

I think your point about banks becoming responsibility-free landlords is a good one. I'm going to be sticking with my landlord for a while yet before I buy my first place. At least he buys me a new washing machine occasionally and I can leave on a month's notice.

Wednesday, August 23, 2006 11:35AM Report Comment
 

9. denzil said...


By any other name this approach looks like a shared equity rental scam and will simply inflate prices to the point where a much larger percentage of housing stock is owned by the banks than is currently.

Wednesday, August 23, 2006 11:55AM Report Comment
 

10. kpjcomp said...

Ok, this is now getting silly. So silly in fact it sounds like good news (desperation!!).

I think the banks are hoping for the same thing that happended in Japan, but I don't think people in this country are going to fall for it. When Japan was having a booming economy it was backed with amazing manufacturing & export etc, what does the UK have? (Nowt!), and even with this Japan is still strugling to get back on terms, OMG:what would happen to the UK?. Anyway how dumb was it for them too quote Japan in the first place?.

Also not sure what effect this would have anyway, because it appears there are millions of people doing Interest Only mortgages now & starting to struggle.

I wonder if it's time for some peacefully demonstrations?. I wonder what could be put on the placards.
"Banks, destroy our Country", "STOP!, Dept killing our Land", "More control of Banks! NOW!!" etc. I'm sure someone else has better ideas. :)

Wednesday, August 23, 2006 12:00PM Report Comment
 

11. Wiseman said...

It IS a good scheme. Let the Bank own it, pay rent on the house and let the bank have it eventually when you go bankrupt. It is the Bank that will go out of business. Otherwise, make sure that you don't bank with the bank that offers such mortgages.

Wednesday, August 23, 2006 12:56PM Report Comment
 

12. Ticktock said...

I've said it before and I'll say it again, look at how the finance of REITS work,if you want to understand what banks are up to. All US collonial outposts have these schemes imposed upon them.

D'oh, is absolutely right, but even worse, the new landlords (the banks) are not even British.

It will end in tears, and sadly, history would seem to suggest that it will end with Nationalist blood-letting too.

Those who fail to learn from history are condemed to repeat its mistakes.


Wednesday, August 23, 2006 03:15PM Report Comment
 

13. bidin'matime said...

I dont see what all the fuss is about. If someone has an interest only mortgage, with no life cover, then if they pop their socks before the loan is up, the effect is no different. All the banks are apparently saying is that its okay to do this We accept that you are not repaying the mortgage and have no means to repay it and so long as you continue to pay the interest, we dont mind and we shall gladly take the interest off someone else when you go, or else we shall foreclose in the usual way.

It seems only a natural progression of their current thinking and I dont see that it will have any more impact on prices than their present lending regime. However, it assumes two things

(1) that prices are going to be higher, whenever that time comes, than they are now. That may be a reasonable assumption if you take the average length of time between people buying their last house and then dying.

(2) that people will still be able to pay the interest into their retirement. This is a much more dangerous assumption, as not only will their incomes fall, but the interest rate may rise. Then you are into a de facto equity release scheme, whereby they underpay and the loan gets bigger. This could be a very risky game for the lenders.

As for saving Inheritance Tax, then of course, if you spend it rather than leave it, you pay less Inheritance Tax no change there. In this sense it really is equity release by a different name.

My guess is that this bright idea will quietly disappear once prices start to slide and interest rates rise and lending criteria return to the realms of the real world.

Wednesday, August 23, 2006 04:50PM Report Comment
 

14. Cstanhope said...

Well I am sure it will make sence to the BEEB!

Lets do the Math

[1] Your Pension (unless you have won lifes lottery and get to work in th Public Sector) will be about 400/month, oh plenty of change.
[2] I assume the children will never get into debt before they inherit the Mortgage.
[3] And the kids will be happy to pay a mortgage on a property that they have to share with their parents.
[4] The children will all be lawyers earning plenty of cash to pay the mortgage.
[5] Hey but the best part I am not married but no probs! I can pass it on to a friend (oh what a great idea does anyone know Gordon Browns number!!)

Wednesday, August 23, 2006 06:21PM Report Comment
 

15. japanese uncle said...

To Gregzki's query

The so called 'two generation home loan' was devised at nearly the end of the peak of the property frenzy in the late 1980's. I have not heard anything about this ludicrous scheme ever since the full-scale collapse of the bubble. I have little doubt the scheme is all but extinct now, and so will be the British property boom in a year or so. The emergence of this laughable method of repayment itself is the telling sign, "The end is really nigh.", indeed.

Wednesday, August 23, 2006 07:42PM Report Comment
 

16. tyrellcorporation said...

This nonsense has certainly got a lot of media exposure today.

The guys at the mortgage company who have concocted this 'mortgage product' will have moved on in a few years to work at some other financial institution - it won't be their problem. If they pull in a few thousand suckers now to sign the dotted-line-of-purgatory, they'll hit their targets and can put down a payment on a new Lexus. Short-termism gone mad? I wonder where they've learnt these tricks?... Gordon...

Wednesday, August 23, 2006 07:44PM Report Comment
 

17. Paolo88888 said...

If someone inherits a property with a normal mortgage on it then the mortgage will have to be redeemed on the sale of the property or transfer into their own name. But if they are in good standing then it is likely they would be able to take out a mortgage themselves with the same institution. So what is the big advantage? The kids can keep the mortgage even if they have not turned out well and would ordinarily be turned down for a mortgage? Perhaps in this week of A-level results there will be a few families enticed by this product!

Wednesday, August 23, 2006 11:15PM Report Comment
 

18. Daintydiana said...

d'oh is so right. The government is not stupid, it is just plain wicked. This is the next logical step for lenders, whose only job is to lend at a profit. It's entirely the government's fault for not releasing building land. We need free-for-all sales of land and let demand sort it out. Planning laws are bunk. Look down from a plane....you couldn't pave the world even if everyone had an acre. UK Plc will end up with an immobilised population that cannot relocate to where the jobs are. Sadly the eternal mortgage could extend the bubble for another year or three.

Thursday, August 24, 2006 10:09AM Report Comment
 

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