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    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 5:22 PM
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    stoutyeoman
    Help me end my festering resentment
    • #1
    • 19th Apr 17, 5:22 PM
    Help me end my festering resentment 19th Apr 17 at 5:22 PM
    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.
Page 1
    • kingstreet
    • By kingstreet 19th Apr 17, 5:27 PM
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    kingstreet
    • #2
    • 19th Apr 17, 5:27 PM
    • #2
    • 19th Apr 17, 5:27 PM
    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!
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • zx81
    • By zx81 19th Apr 17, 5:28 PM
    • 11,243 Posts
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    zx81
    • #3
    • 19th Apr 17, 5:28 PM
    • #3
    • 19th Apr 17, 5:28 PM
    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.
    Originally posted by stoutyeoman
    This makes absolutely no sense. Your mortgage payments went to reduce the outstanding mortgage.
    • kingstreet
    • By kingstreet 19th Apr 17, 5:32 PM
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    kingstreet
    • #4
    • 19th Apr 17, 5:32 PM
    • #4
    • 19th Apr 17, 5:32 PM
    This makes absolutely no sense. Your mortgage payments went to reduce the outstanding mortgage.
    Originally posted by zx81
    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.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 5:38 PM
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    stoutyeoman
    • #5
    • 19th Apr 17, 5:38 PM
    • #5
    • 19th Apr 17, 5:38 PM
    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
    • By zagfles 19th Apr 17, 5:40 PM
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    zagfles
    • #6
    • 19th Apr 17, 5:40 PM
    • #6
    • 19th Apr 17, 5:40 PM
    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.
    Originally posted by kingstreet
    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
    • By kingstreet 19th Apr 17, 5:45 PM
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    kingstreet
    • #7
    • 19th Apr 17, 5:45 PM
    • #7
    • 19th Apr 17, 5:45 PM
    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?
    Originally posted by stoutyeoman
    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
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 5:55 PM
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    stoutyeoman
    • #8
    • 19th Apr 17, 5:55 PM
    • #8
    • 19th Apr 17, 5:55 PM
    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
    • By kingstreet 19th Apr 17, 5:55 PM
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    kingstreet
    • #9
    • 19th Apr 17, 5:55 PM
    • #9
    • 19th Apr 17, 5:55 PM
    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****.
    Originally posted by zagfles
    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.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • zagfles
    • By zagfles 19th Apr 17, 5:58 PM
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    zagfles
    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.
    Originally posted by stoutyeoman
    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
    • By kingstreet 19th Apr 17, 6:08 PM
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    kingstreet
    that they persuaded you to take out an endowment with the new mortgage
    Originally posted by zagfles
    "They" didn't because the OP found his own with Equitable Life, the well-known non-commission life office!
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • zagfles
    • By zagfles 19th Apr 17, 6:14 PM
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    zagfles
    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?
    Originally posted by kingstreet
    No, it's just a different payment profile. If the savings product paid less in interest than the mortgage interest APR, the repayment mortgage is more efficient. Basic maths - but plug the numbers into a spreadsheet if you don't believe me.

    There was an issue in the old days where some banks didn't give interest credit on repayments until the annual recalcuation, ie they charged interest on the outstanding amount at the start of the year for the entire year, but that would have been reflected in the APR, and anyway this is more of an issue in the later years when repayments are bigger.
    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?
    Endowments were still being pushed in the late 90's, I remember being spun the type of bull above then.

    The idea of PEP/ISA mortgages was that hopefully the investment would grow at a better rate than mortgage interest.
    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?
    No. Is there a scandal that banks offered cash savings accounts paying less interest than equity based investments were making?

    Cash savings, like repayments mortgages, were safe and reliable.

    Besides investment returns since the 80's were pretty good too, just not good enough to hide the rip-off charges in endowments.
    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.
    Yes, equity (or partly equity) based investments would have worked out pretty well if it wasn't for the rip-off charges! However they always were a gamble - that wasn't always made clear.
    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 6:15 PM
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    stoutyeoman
    "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. "

    It was for the exact same amount of money as that's all they would lend me, but wouldn't the payments have been higher over a 20 year term than over a 25 year term? (Seems to me I don't understand mortgages any better now than I did then!)
    • AnotherJoe
    • By AnotherJoe 19th Apr 17, 7:36 PM
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    AnotherJoe
    "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. "

    It was for the exact same amount of money as that's all they would lend me, but wouldn't the payments have been higher over a 20 year term than over a 25 year term? (Seems to me I don't understand mortgages any better now than I did then!)
    Originally posted by stoutyeoman
    No because you were effectively on a 20 year term anyway with the old one.

    As someone else pointed out, say you take a 25 year mortage and the payment is £500 a month. That stays constant for 25 years . So after 5 years you are now effectively on a 20 year mortage at £500 a month and you owe a little less than 5 years previously. If you took out a new 20 year mortgage for whatever you owe at that point , your repayments will be exactly the same because it's the same amount for the same length of time.

    Perhaps It's a bit counterintuitive because the amount you owe goes down slowly at the start and decreases much faster towards the end, you tend to think if you paid off £2k over 5 years then over the next 20 you'd only pay off 8k but you'd pay it all off.
    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 7:59 PM
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    stoutyeoman
    I think I see. thanks for the explanation. To give Abbey a huge benefit of the doubt, maybe they did try to explain the mechanics of a repayment mortgage and I just didn't grasp it. Well, I do feel rather less resentful in that I understand it was high interest rates & slumping house prices that were the real downer. All that money I paid out on my first flat was gone whatever. And although I'd have been better off sticking with my repayment mortgage, it was me who chose the Equitable Life endowment. If I'd gone with an Abbey National suggestion for an endowment - I can't remember what they were - I perhaps wouldn't have come such a cropper. Thanks very much indeed to all who replied.
    • zagfles
    • By zagfles 19th Apr 17, 8:21 PM
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    zagfles
    I think I see. thanks for the explanation. To give Abbey a huge benefit of the doubt, maybe they did try to explain the mechanics of a repayment mortgage and I just didn't grasp it.
    Originally posted by stoutyeoman
    Possibly, but a lot of bank & building society staff didn't understand mortgages themselves, and there was pressure to flog endowments, just like there was to flog PPI in later years, because of the massive profits they made.
    Well, I do feel rather less resentful in that I understand it was high interest rates & slumping house prices that were the real downer. All that money I paid out on my first flat was gone whatever.
    Don't think of it like that - house prices went down but so what - it just means the second flat was cheaper, what you lost on the first one you gained on the second. And the second I bet went up? - so you're not worse off.

    I sold my first house for less than I bought it - but this was good news not bad. Because the second house I bought was over twice the price, and that would have gone in price too. The same percentage fall on both meant what I lost on my first house was made up for twice over by what I saved on the new house. So falling prices benefitted me overall.(luckily I wasn't in negative equity).
    And although I'd have been better off sticking with my repayment mortgage, it was me who chose the Equitable Life endowment. If I'd gone with an Abbey National suggestion for an endowment - I can't remember what they were - I perhaps wouldn't have come such a cropper. Thanks very much indeed to all who replied.
    Perhaps not as much - but endowments were never a sensible financial product after the tax relief stopped in the mid 80's. They were only sold because there was so much commission in selling them due to the rip-off charges.
    • stoutyeoman
    • By stoutyeoman 19th Apr 17, 8:38 PM
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    stoutyeoman
    Don't think of it like that - house prices went down but so what - it just means the second flat was cheaper, what you lost on the first one you gained on the second. And the second I bet went up?
    Originally posted by zagfles
    Oh god yes, eight times over, and you're right, I was able to just walk into a flat in a great location because no one else was buying. A 20-year suspicion of financial products may not have done me any harm either.
    • amateur house
    • By amateur house 20th Apr 17, 12:27 AM
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    amateur house
    For what it's worth, I think taking a repayment mortgage was the right thing to do. That's what we did, even though there was a hard sell to take an endowment. One advisor actually said the only way that it wouldn't pay out at least what the mortgage was, plus quite a bit extra, would be if lots of banks went out of business. Well that's what happened, but endowments were performing poorly long before then.

    I worked for Abbey in the early 90s and dealt with a lot of unhappy customers who had taken out fixed rate mortgages at 13-14%, and were stuck with them as interest rates fell to below 10%. So even though you weren't able to port your mortgage it sounds as though you at least weren't stuck on a high fixed rate mortgage.
    • stoutyeoman
    • By stoutyeoman 20th Apr 17, 11:45 AM
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    stoutyeoman
    Yes, it could have been worse. I was utterly suggestible at that time.
    • Imma Number
    • By Imma Number 20th Apr 17, 8:16 PM
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    Imma Number
    25 years ago, so ~1992, was the start of your 5 year repayment mortgage, then ~1997 onto an endowment.
    Below are the bonus rates for the Commercial Union With-Profits endowment I took out in 1993. I don't know how Equitable Life compare but up until 1997 the bonus amounts from CU weren't too bad, so it probably looked like a good deal. Unfortunately after that they went on a bit of a decline and haven't really recovered*

    %BSA = % Basic Sum Assured
    %BONUS = % of already accrued bonuses
    %GROWTH = % growth of the underlying fund

    Code:
                    %BSA    %BONUS  %GROWTH
    31 Dec 1994	4.00%	6.00%
    31 Dec 1995	3.50%	5.50%
    31 Dec 1996	3.00%	5.50%
    31 Dec 1997	3.00%	5.00%
    31 Dec 1998	2.50%	4.50%     13.4%
    31 Dec 1999	2.00%	4.50%     16.0%
    31 Dec 2000	2.00%	4.50%    - 0.7%
    31 Dec 2001	1.50%	3.50%    - 8.0%
    31 Dec 2002	0.50%	1.50%    - 6.8%
    31 Dec 2003	0.00%	0.50%     10.4%
    31 Dec 2004	0.00%	0.50%      9.9%
    31 Dec 2005	0.00%	1.50%     14.8%
    31 Dec 2006	0.00%	1.50%     10.2%
    31 Dec 2007	0.00%	1.50%      4.8%
    31 Dec 2008	0.50%	2.00%    -13.3%
    *More recently With-Profits endowments have paid crummy annual bonuses with, I hope, a higher terminal bonus.

    Imma.
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