Help me end my festering resentment

stoutyeoman · 19 April 2017 at 5:22PM

I have a festering resentment towards Santander (then Abbey National) which I'd love to set to bed, if anybody will be good enough to chip in.
Twenty five years ago, when I was very just out of college, I took out a repayment mortgage with Abbey National on my first flat. I chose a repayment mortgage because of the security and simplicity - and to be honest I didn't understand mortgages at all.
Five years later I moved flats and the Abbey told me I couldn't transfer my mortgage but had to take out a new one. This was a shock. I said, but how can that be right? All those mortgage payments (about £30,000 as this was during the era of high interest rates) would be a waste of my time. Plus there was no equity in my flat, so I'd literally have been better off renting.
So they said I should take out an interest-only mortgage with an endowment product and set it at 20 years so I wouldn't lose out but would pay off my mortgage at the time I'd planned. Looking back at the paperwork I can see I didn't understand what I was doing because I took out a product with Equitable Life for 25 years, so nothing added up. Anyway, they went bust a few years later and so I was totally back to square one again. I had now a big mistrust of financial products, and ended up paying off the interest-only mortgage in hard-saved cash at the end of the term.
My question is, was it just normal to be refused permission to transfer a mortgage to a new property and be coaxed off repayment mortgages in that way - and just a case of things being better regulated now? Or did they take advantage of my naivety? I'd like to be able to just put this to bed, shrug and look on the bright side, which is that my home has made me very secure and happy.

kingstreet · 19 April 2017 at 5:27PM

You cannot transfer a mortgage from one property to another.

You would have achieved your objective by doing the new repayment mortgage over a shorter term so you benefitted from the earlier payments.

So, do a 30 year term at the outset, then a 25 year term when you move five years later. The outstanding balance has fallen, so you benefit from a lower outstanding loan and you have had a roof over your head for five years.

Abbey National recommended interest-only with endowment and you went and did your own endowment with Equitable Life? Ouch!

Back in the day (mid 80s) we (employees of "normal" insurers) used to make it known that Equitable Life had over 220 employees who were earning over £50k a year. This was astonishing for a firm which didn't pay commission!

[Deleted User] · 19 April 2017 at 5:28PM

stoutyeoman wrote: »

Five years later I moved flats and the Abbey told me I couldn't transfer my mortgage but had to take out a new one. This was a shock. I said, but how can that be right? All those mortgage payments (about £30,000 as this was during the era of high interest rates) would be a waste of my time.

This makes absolutely no sense. Your mortgage payments went to reduce the outstanding mortgage.

kingstreet · 19 April 2017 at 5:32PM

Deleted_User wrote: »

This makes absolutely no sense. Your mortgage payments went to reduce the outstanding mortgage.

Back then, so little of your monthly payment went to repaying capital a repayment mortgage was viewed as inefficient for those who would move regularly. It took discipline to not keep going back to a 25 year term every time you moved.

stoutyeoman · 19 April 2017 at 5:38PM

From memory, I hadn't really paid off anything on my mortgage when I moved despite the hefty repayments, a couple of grand at the very most. And I sold my flat for exactly what I paid for it (it had been in negative equity pretty much from the start).
Yes, definitely ouch re Equitable Life. It was recommended by a couple of people at work - I think it was popular with people in the creative professions?

zagfles · 19 April 2017 at 5:40PM

kingstreet wrote: »

Back then, so little of your monthly payment went to repaying capital a repayment mortgage was viewed as inefficient for those who would move regularly.

That was a line spun by those who had a vested interest in flogging high charge endowments, which they or their employer got a fat commission for. It was utter bull****.

It took discipline to not keep going back to a 25 year term every time you moved.

Indeed. But that's different to what repayment vehicle to use for the next mortgage.

kingstreet · 19 April 2017 at 5:45PM

stoutyeoman wrote: »

Yes, definitely ouch re Equitable Life. It was recommended by a couple of people at work - I think it was popular with people in the creative professions?

Yeah, I worked as a broker consultant for Sun Alliance.

Brokers were in direct competition with Equitable Life salesmen and it was galling to hear them carping on in their adverts about "not paying commission to middle-men" when they blatantly overpaid their own sales staff instead. The worst kind of hypocrisy later uncovered with their other myriad sins such as guaranteed annuity rates.

I'm sorry to appear to gloat as the customers lost out, but frankly their failure couldn't have happened to a more deserving outfit. UKPI (nothing to do with dodgy right-wing politics) which was a lovely mutual outfit went bump in the 80s and the whole industry rallied round and they were absorbed, into Friends Provident IIRC

stoutyeoman · 19 April 2017 at 5:55PM

Yes, that's what I remember of the advertising. I had the impression it was a sound, straightforward company. Ok, so not feeling any less resentment so far!

kingstreet · 19 April 2017 at 5:55PM

zagfles wrote: »

That was a line spun by those who had a vested interest in flogging high charge endowments, which they or their employer got a fat commission for. It was utter bull****.

So if the savings products had been low-charging without a fat commission would you agree the interest-only/savings plan methodology was actually pretty effective/successful against a repayment mortgage where very little of the capital is repaid in the early years?

When PEP/ISA savings replaced endowments at the end of the 80s shouldn't the criticisms have ended and the idea of the savings plan being topped-up at each house move surely could have continued?

If interest rates and investment returns had continued at 80s levels would we be discussing this, or would we have repayment mortgage mis-selling to frown at instead?

BTW I don't disagree. If the plans hadn't had over-optimistic growth rates and 67% commission, they would have been pitched at a savings level which might have avoided the outcomes we've seen and some of the best and most cost-competetive mutuals would still be around.

zagfles · 19 April 2017 at 5:58PM

stoutyeoman wrote: »

I have a festering resentment towards Santander (then Abbey National) which I'd love to set to bed, if anybody will be good enough to chip in.
Twenty five years ago, when I was very just out of college, I took out a repayment mortgage with Abbey National on my first flat. I chose a repayment mortgage because of the security and simplicity - and to be honest I didn't understand mortgages at all.

That sounds like the right choice then.

Five years later I moved flats and the Abbey told me I couldn't transfer my mortgage but had to take out a new one.

Quite correct, as a mortage is secured on a particular property.

This was a shock. I said, but how can that be right? All those mortgage payments (about £30,000 as this was during the era of high interest rates) would be a waste of my time. Plus there was no equity in my flat, so I'd literally have been better off renting.

Possibly - but that's just because house price inflation at that time might have been less than the mortgage interest rate. Nothing whatsoever to do with what repayment vehicle you chose for your mortgage.

So they said I should take out an interest-only mortgage with an endowment product and set it at 20 years so I wouldn't lose out but would pay off my mortgage at the time I'd planned.

You could have just taken out another repayment mortgage. If the new mortgage was of the same value as your existing mortgage balance, then your repayments for a new 20 year term would have carried on exactly the same as if it had been the same mortgage.

Repayment mortgages are recalcuated annually anyway - every year what they effectively do is calculate the repayments required for the term left, ie after 1 year they calculate what the repayments are required for a 24 year term given the current outstanding balance, then after 2 years for a 23 year term, etc. So it doesn't make any difference if you take out a new repayment mortgage for the same outstanding debt, for the same remaining term, or if you keep the existing one.

Obviously if you borrow more with the new mortgage, then the repayments would be more.

Looking back at the paperwork I can see I didn't understand what I was doing because I took out a product with Equitable Life for 25 years, so nothing added up. Anyway, they went bust a few years later and so I was totally back to square one again. I had now a big mistrust of financial products, and ended up paying off the interest-only mortgage in hard-saved cash at the end of the term.
My question is, was it just normal to be refused permission to transfer a mortgage to a new property and be coaxed off repayment mortgages in that way - and just a case of things being better regulated now? Or did they take advantage of my naivety? I'd like to be able to just put this to bed, shrug and look on the bright side, which is that my home has made me very secure and happy.

They could well have. The issue isn't they refused to "transfer" the mortgage, it's that they persuaded you to take out an endowment with the new mortgage rather than a new repayment. There was a lot of mis-selling of endowments at the time, as there was a lot of commission generated by endowment sales, and most banks, building societies and financial advisers were doing it.

kingstreet · 19 April 2017 at 6:08PM

zagfles wrote: »

that they persuaded you to take out an endowment with the new mortgage

"They" didn't because the OP found his own with Equitable Life, the well-known non-commission life office!

Help me end my festering resentment

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