Saturday, Oct 24, 2009

Dodgy interest only home loans face the Chop

Guardian: Is the interest-only mortgage endangered?

Interest only loans for speculators and the financially clueless or reckless to be axed after the FSA eventually labels them "high-risk" and puts them in the same category as liar loans and mortgages for people with dodgy credit records. Apparently the FSA has been worried for a while that many homebuyers are storing up problems for the future as they have little or no idea how they will pay back the loan and could end up being repossessed. Simples- it's hardly rocket science!

Posted by enuii @ 01:54 PM (2088 views)
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27 Comments

1. will said...

IMO 'interest only' mortgages were always a suicidal way to buy a home. I refused to go down this route whilst many of my friends and family did. If they ban these mortgages home values will half.

Saturday, October 24, 2009 02:40PM Report Comment
 

2. crunchy said...

The whiff of bank interest rate rises is in the air, or is it the cappuccino I mentioned a while back.

Saturday, October 24, 2009 03:03PM Report Comment
 

3. brickormortis said...

Will, you are very close to bang on I would say. If interest only mortgages go, the Uk property market is fooked and I would say would result in a fall of about 40% from peak. That is a fact. There are millions of folf treading water and/or currently feeling very smug with low interest rates who are all on interest only mortgages. If they were to be removed lets say by the end of 2010, I can not see a recovery until well into 2015 and prices not returning to peak levels till nearer 2020.

I can't see this being allowed to happen though as a 40% fall in house prices would leave almost the whole nation (below 40 years of age) with no equity and would force repossessions that would cause a massive downward spiral.

I always said these things were insane but everyone just told me I was. I still don't know who was right!

Saturday, October 24, 2009 03:14PM Report Comment
 

4. quiet guy said...

If the borrower is serious about paying back the principal but wants flexibility in doing so then fair enough. Miles Brignall's description of how he financed his house sounds quite attractive but nobody is going to get a tracker without a collar now. I'm pretty much certain that a large majority of these loans were taken out by people relying on appreciation i.e. speculators.

Saturday, October 24, 2009 03:35PM Report Comment
 

5. crunchy said...

3. brickormortis said- "I can't see this being allowed to happen though as a 40% fall in house prices would leave almost the whole nation (below 40 years of age) with no equity and would force repossessions that would cause a massive downward spiral."


The near never, to the never, never.

Centalised Social housing indeed!

Saturday, October 24, 2009 03:39PM Report Comment
 

6. Tpbeta said...

I bought my first house on interest only back in 99, then switched to repayment when I could afford it some years later. It got me on the housing ladder. Sucks to be young today.

Saturday, October 24, 2009 03:50PM Report Comment
 

7. crunchy said...

Last one........

The real loss on a property is only realised when sold.

Saturday, October 24, 2009 03:51PM Report Comment
 

8. crunchy said...

The banks never lose.

Think about it!

Saturday, October 24, 2009 03:52PM Report Comment
 

9. crunchy said...

Time stamp probs.

Saturday, October 24, 2009 03:52PM Report Comment
 

10. Mrb said...

Some maths for Mr Brignall:

Assuming he took out a £350,000 IO mortgage in 2006 (90% LTV).

He plans on saving £5,100 per year. Cleverly getting a better saving rate than borrowing rate (thanks to bailouts I guess - note this is a silly state of affairs, only in our messed up system is there a negative spread on lending vs saving, but hey ho)

If he does this for 25 years, ignoring:

"The beauty of it is, if the car breaks down, or the roof falls in, I can withhold that month's "repayment" and make the repair"

his dodgy repairs, he will have £127,500.

His mortgage company will be expecting £350,000. He will have £127,500.

He will be reposessed - or he and his lender will be bailed out somehow, again.

Saturday, October 24, 2009 04:49PM Report Comment
 

11. Spot said...

A couple of my mates have interest only mortgages and when I asked what they had set up to pay the principal, the one just looked at me rather blankly and the other said he had nothing and was relying on his inheritance when his parents finally die!
Doomed. We're all doomed! :-)

Saturday, October 24, 2009 05:39PM Report Comment
 

12. tenyearstogetmymoneyback said...

It is amusing how endowments are now seen as a safe traditional way to fund
a house purchase. Back when I took mine out it had to me lodged with the
building society, presumably to make sure you didn't cash it in or anything stupid.

I can just imagine the radio adverts in a few years " Were you mis-sold an Interest
Only mortgage ? If the lender didn't clearly explain that you would eventually have to pay
back the money we can wipe out all your debts and let you stay in your house for free"

The example at the bottom of the article is interesting although you have to ask
if it could last. If everyone was doing it then the banks and building societies would
soon be bankrupt, unless they were bailed out by the Government. Maybe that is
where all the QE money is going.

Saturday, October 24, 2009 05:46PM Report Comment
 

13. smugdog said...

The Elephant stays in the room. Darling will simply not allow it to be removed, at any cost.

Saturday, October 24, 2009 07:31PM Report Comment
 

14. smugdog said...

Will said@1
IMO 'interest only' mortgages were always a suicidal way to buy a home. I refused to go down this route whilst many of my friends and family did.

Bet they have rallied round with support and condolences since hey Will?

Saturday, October 24, 2009 07:37PM Report Comment
 

15. happy mondays said...

@ 10, Captain Darling might not have a choice..The Government , BOE, IMF, business elite are NOT masters of the universe, all though they might mistakenly think so ! Too many variables, too many free radicals, too much confusion, too much complication !

"We can't solve problems by using the same kind of thinking we used when we created them." Albert Einstein

smugdog, only a fool would preach the un-preach-able.

Saturday, October 24, 2009 07:50PM Report Comment
 

16. shining wit said...

Smudog, I've been reading your inane and obviously hyped and contentious musings for weeks now and it appears that your have little grasp on reality.

Mssrs Brown and Darling are finished. If you hadn't noticed they have completly trashed the economy and now even Italy has a bigger economic base. This country wouldn't join the Euro when it was worth 65p and now, even after about £1trillion pounds of support, $175billion annual borrowing, banks technically bankrupt and every bolt in the governments arsenal completely shot you think that Darling and Brown will still save the day. They have devalued the pound against the currency that we not only do most trade with, but will undoubtedly be the de-facto currency within the next few years.

"Darling will simply not allow it to be removed, at any cost." - Your political niavety is staggering. Happy Mondays is spot on "Too many variables". Current property values in this country are completely usustainable. HBOS borrowed more money in 2007 (to lend to all those suckers who wanted it to buy a 350k terraced house in the south!) than the Italian government did ! Our banks credit worthyness is now a worldwide joke. Would you lend them any money now to support our overvalued property base? The very reason the government is still supporting them is that they cannot get any worthwhile credit themselves.

I do hope you're not an estate agent, financial advisor or have borrowed large sums of money to pay for a still 20-30% overvalued house. Don't hold your breath waiting for Darling, Brown, the FSA or the trained monkeys that make up the MPC to save your bacon.

I can't wait until the European Central Bank starts raising it's interest rates, considering the major economies are out of recession already this wont be long and then watch the money flood out of the UK to safer havens.

All this talk of recovery is hokum. The housing market is stuffed, the economy in tatters and if you're not already hurting then the tax rises that will come in the next 2 years will surely do the rest.

No more boom and bust. Sounds better every time it gets used.

Saturday, October 24, 2009 08:47PM Report Comment
 

17. smugdog said...

But it's the greedy Mr Jones & Mrs Jones next door that keeps it ticking along Witty. We on this site denounce those who have profited greatly from property, yet we talk openly, freely and pompously about gains in stock, gold, oil and any other commodity that you care to mention, pat on the back Techie, nice on crunchy, have that one on me______. But Property, those nasty speculators who prevent young, needy families from becoming house owners. Get real folks, it's called a free market.
You just pop along to you little lap top in between the Bill adverts and post your " Believe me, it's just unsustainable, it's goin' to crash tomorrow" comments.
But it's the greedy Mr Jones & Mrs Jones next door that keeps it ticking along, and along.
Thank you Mr & Mrs Jones.

Saturday, October 24, 2009 09:15PM Report Comment
 

18. gone-to-colombia said...

Smug - all we need to understand about you is stated in your name.
Time will tell in this debate. Why not add to the discourse instead of sniping.
I await your sarcastic reply.

Saturday, October 24, 2009 09:31PM Report Comment
 

19. Dunkindogdo said...

To smugdog@14,

In answer to "But it's the greedy Mr Jones & Mrs Jones next that keeps it ticking along...", similar mistaken words were said of the US stock market in the 1920s, when the general population were feverishly borrowing to invest in a market that many said could never fall.

Such was the optimism of that decade, that Herber Hoover announced in a presidential campaign speech, that he could forsee an end to poverty (I think Gordon Brown's "no more boom or bust" is probably the modern equivalent). The few that warned about an impending crisis were denounced as foolish, or crazy (anyone remeber Kirsty Allsopp's rant regarindg the HPC site on London Tonight, or Alan Greenspan's retiring comments regarding safer markets?)

The similarities between articles, events & sentiment, at around the time of the great depression, when compared with those of today, are enough to suggest to me that, depsite the lessons of history, we currently seem destined only to repeat it.

Saturday, October 24, 2009 10:12PM Report Comment
 

20. wiltshire said...

Smugdog, I've been visiting this site for about 4 years now and I would trust many of the posters here long before I would trust a single word from any of the so-called 'experts'.

You know about a year ago all manner of politicians and pundits and the so called 'experts' were in the media saying "no one could have predicted this" and "no one could have predicted that" etc etc, all continued saying it mantra-like for months until it probably sounded to Mr & Mrs Jones like it was actually true? Well there are a number of people who post on this site who did predict all of those things. All those issues (sub-prime mortgages, toxic loans etc) were being openly discussed here years before the sh*t hit the fan. For years we had uber VIs like Kirsty Allsopp calling the users here doom-mongers and the like when in reality those 'doom-mongers' have proved to have far better insight and understanding of the economy in general and housing in particular than all those so-called experts (who probably earn ridiculous amounts of money for their opinions and still haven't eaten any hats!).

Don't forget, the banks are technically insolvent. It's only because corrupt governments have bailed them out that there is any sort of banking system, never mind mortgage loans. You probably think Mr & Mrs Jones think they can't lose because the banks are too big to fail. Well, I suppose they are too big to fail but that doesn't mean it won't happen.

Regarding share dealing. I think the point is that share dealing is people using skill and judgement and probably their own money to speculate. If they lose their shirt because they invest poorly then they could lose everything. The housing market was the opposite. Anyone could borrow silly money to buy property. The more joined the game the more silly money needed to be borrowed because the prices got sillier. Interest only loan? Ahhh, no problem. It'll be worth more when we come to sell it.... As usual, everything is fine as long as the price continues to climb. The moment they stop climbing the whole rotten story is revealed. So rotten infact that it nearly brought capitalism down. Do you really understand the jeopardy we were (are?) all in? Mr & Mrs Jones wouldn't be quite so smug with no food or electricity would they?

I'm going to offer you some advice, which I'm sure you won't take but let me offer it anyway. Take a week off work. Take the time to read through as many of the comments left here as you can, starting about 2006. Just try and get an understanding and a flavour of what some of the more experienced posters say. The reason being that their predictions are FAR MORE likely to be accurate than ANYTHING you will see in the mainstream media.

(Here's just one example:

on the 9 Dec 2005 (2005!!!!!), Follow The Bear said:

"There's no such thing as 'over supply', just overpriced rubbish. Watch these 'bespoke, executive' apartments becoming the social housing of the future".

http://www.housepricecrash.co.uk/forum/index.php?showtopic=20311 ).

Saturday, October 24, 2009 10:34PM Report Comment
 

21. crunchy said...

12. happy mondays said...The Government , BOE, IMF, business elite are NOT masters of the universe, all though they might mistakenly think so ! Too many variables, too many free radicals, too much confusion, too much complication !

With due respect happy mondays, this is what they thrive on. Ask yourself this, who has won from the dot com bubble to date, us or them.

I really hate to say this but they are running rings around us. Never underestimate the elite they have been in control for much longer than

us.

Saturday, October 24, 2009 11:28PM Report Comment
 

22. crunchy said...

16. wiltshire If only the majority of the population were educated in finance the elite would not be able to play these silly media games.

The elite and the media knew exactly what was going to happen, as we mere mortals did. The weak point in this was the brainwashed

(forced into greed by design-no pension) public. It is this same public that think the banks are on their side. In time they will have a very

rude awakening when they find out what this sting really is. As I have said before, nobody will win in this.

It is more a case of damage limitation.

Sunday, October 25, 2009 12:27AM Report Comment
 

23. drewster said...

smugdog,

"We on this site denounce those who have profited greatly from property, yet we talk openly, freely and pompously about gains in stock, gold, oil and any other commodity that you care to mention...."

Housing is a basic human need. Stocks and gold aren't.

Property in this country is in limited supply. If I own 700 houses in my local town (like the Wilsons in Ashford) then I've deprived others of a property of their own, and denied them the security and comfort of home-ownership. By contrast if I buy or sell stocks or gold then nobody's lives are directly affected.

Sunday, October 25, 2009 01:30AM Report Comment
 

24. crunchy said...

There is a big difference between a speculative investor and a sociopathic investor.

One can become wealthy and still do it morally. It is not impossible.

Sunday, October 25, 2009 09:53AM Report Comment
 

25. jackas said...

Smugdog,

When a national bubble in gold/stocks threatens the stability of the currency I will warn you, I promise.

Next time a gun is held to the head of the majority of the nation forcing them to either to rent gold or borrow insustainably large amounts of money to own it and hence spending a lifetime in debt I will warn you, I promise.

The excellent thing about the posters on this site is that discussions are made by people without reference to their own books. Of course, a majority of people on here are not the vile debt-ridden speculators that caused this mess but that doesn't lead them to talk irrationally like many people who's phoney wealth in housing stock often do.

You have no right to be smug. The people that can be smug are those that worked hard and saved money patiently, making sure their assets were not concentrated in sterling, but spread amongst the obvious beneficiaries of a broken fiscal and monetary policy - namely gold and stocks. But they rarely are. They are normally just enlightening those that feel they need to protect themselves from the storms that the selfish, greedy behaviour of Mr and Mrs Jones has caused to EVERYONE.

Sunday, October 25, 2009 12:04PM Report Comment
 

26. smugdog said...

Amen! Thank you all so very much for your lovely enlightening sermons. Perhaps you are so very uneasy with opposing views.
When I do finally arrive at the door of the last ditch Soup Kitchen, I'm sure I will find more than a few of you handing out your
more than prefect advice along with the pea water.
Wiltshire;-
"Regarding share dealing. I think the point is that share dealing is people using skill and judgement and probably their own money to speculate"
Do ave' a word with yourself, no, Techie, ave' a word with him, the real, nasty world ain't like his holy world, bless him.
You are angry with yourselves, angry because the system has not bent over to accommodate YOU. The winter dullness suits you.
I remain content soaking up the gorgeous Mediterranean winter for some time yet, all thanks to Mr & Mrs Average.

Sunday, October 25, 2009 04:21PM Report Comment
 

27. jackas said...

If everyone in society were like you smuggy this world wouldn't be a very nice place. And nothing would ever get done.

Thank goodness for Mr & Mrs Average.

Sunday, October 25, 2009 05:11PM Report Comment
 

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