End to Interest Only Mortgages????

michaels

There is so much support for the nanny state - the basic premis 'some people are too stupid to chose the best option so regulations should be brought in to stop them doing something that some 'us' who are much cleverer know to actually be their best option'. Am I the only one who finds it frightening that the govt more and more feels it is its' responsibility to make decisions for individuals rather than leaving to each person to make their own choices?

May be I didn't choose the most sensible car - I have not explicitly traded off safety, reliability, running costs etc etc - perhaps the govt should chose for me?

And I chose my wife myself whereas perhaps in a govt expert had fully investigated us both psychologically there would be evidence that many other women might have a higher probability of providing a lasting stable relationship in which we would both have the maximum level of happiness over our lifetimes...

I'm sorry but if I chose to 'pay rent' via an interest only mortgage rather than an AST then isn't that between me and the bank?

Thrugelmir

treliac wrote: »

None of that applied, nor was explained. It was a complete disaster. I don't think (with the benefit of hindsight) that the salesman understood it properly himself. It's a long story.

The sales person was more interested in commission no doubt.

I always called a certain company, Allied Crowbar. As when you looked into their fee structure it was impossible to see how you could make a return on your money!

Afriend_2

Thrugelmir wrote: »

An interest only loan is just that. Or am I missing something? :rolleyes:

No. Mortgages should be based on what people can afford. We've just been through the scenario of what people borrowing what they wanted. Unregulated lenders and mortgage brokers amongst others did this.

No. Banks create money by using Fractional Reserve Banking. Banks incur bad debts as well. Out of the margin. They pay overheads, corporation tax, dividends etc.

Lets say NR makes a net 1% margin on lending for example. To cover its lossess on repossessions which are averaging £26k each. This means it needs to lend £2,600, 000 to cover this loss.

The figures are actually far worse as even in the good times bank bottom line profitability on assets is well below 1%.

How much someone can afford is subjective. There's how much someone can afford now, how much they could afford once they own the property, how much they can afford in 5 years when they've became fully qualified. The pricing of products is more detailed than simply 'how much they can afford'.

FRB requires assets on the banks balance sheet. The lending is then leveraged on them.

Anywyay it's late now and I'm off to bed.

You don't have to thank me but I've thanked you.

Thrugelmir

michaels wrote: »

There is so much support for the nanny state - the basic premis 'some people are too stupid to chose the best option so regulations should be brought in to stop them doing something that some 'us' who are much cleverer know to actually be their best option'. Am I the only one who finds it frightening that the govt more and more feels it is its' responsibility to make decisions for individuals rather than leaving to each person to make their own choices?

May be I didn't choose the most sensible car - I have not explicitly traded off safety, reliability, running costs etc etc - perhaps the govt should chose for me?

And I chose my wife myself whereas perhaps in a govt expert had fully investigated us both psychologically there would be evidence that many other women might have a higher probability of providing a lasting stable relationship in which we would both have the maximum level of happiness over our lifetimes...

I'm sorry but if I chose to 'pay rent' via an interest only mortgage rather than an AST then isn't that between me and the bank?

You were able to choose because the option was there. Whilst it is suitable for some, it is not for all.

I fail to see what your comments have to do with a properly regulated banking system.

chucky

Thrugelmir wrote: »

So your argument is that lenders should advance money on an interest only basis. When the mortgage term ends. The borrower sells up and moves into rental accomadation.

how did you get that to that conclusion!?

Thrugelmir wrote: »

Mortgages should be based on peoples ability to meet the interest payments. Nothing else.

If no capital is repaid how do lenders then advance money to new applicants?

lenders mortgage products are demand based, based on whatever the demand for on the market - not on this forum :money:

Thrugelmir

Afriend wrote: »

How much someone can afford is subjective. There's how much someone can afford now, how much they could afford once they own the property, how much they can afford in 5 years when they've became fully qualified. The pricing of products is more detailed than simply 'how much they can afford'.

FRB requires assets on the banks balance sheet. The lending is then leveraged on them.

Anywyay it's late now and I'm off to bed.

You don't have to thank me but I've thanked you.

The culture of want it now pay later has come off the rails. I am trying to look at where we are today, and where we could be heading. What someone can afford has to be today not tomorrow. I am not suggesting regulation.

So someone with a £60k salary is obviously in a better position than someone with a £30k salary to repay a mortgage. As within reason the expenditure on basic household expenditure ie food, heat and light would be the same. So lending the higher salary 3.5 times as opposed to 3 times for the lower would seem to make sense for example.

And the banks are being reined as they are being asked to increase capital reserves from June 2010. Once the recession is past then there will a further tightening on capital ratios. Though this isn't envisaged until at 2011 or 2012 at the moment.

HAMISH_MCTAVISH

Thrugelmir wrote: »

Lets say NR makes a net 1% margin on lending for example. To cover its lossess on repossessions which are averaging £26k each. This means it needs to lend £2,600, 000 to cover this loss.

The figures are actually far worse as even in the good times bank bottom line profitability on assets is well below 1%.

Ummmm not quite.:rolleyes:

Banks today are averaging closer to 3% margins on mortgage lending.

So to cover that loss of £26,000, they now have to issue just £860,000 in lending... or only around 5 or 6 average size mortgages.

And lets not forget that modest amount of lending would cover the loss of £26K in the first year alone.... Leaving the returns for the next 24 years as profit.;)

Thrugelmir

chucky wrote: »

how did you get that to that conclusion!?



lenders mortgage products are demand based, based on whatever the demand for on the market - not on this forum :money:

I must of misunderstood your comment.

extremely unlikely and virtually impossible that an interest only mortgage being more than the value of a property. it will be very small mortgage outstanding.

I didn't say that previously. My point was that the mortgage needs to be repaid, in one form or another. (Not saying that there aren't exceptions but in principle).

Lenders created products to sell. Lack of regulation enabled them to do so. It wasn't demand from customers. The finance houses just wanted to lend money. As much and as fast they could.

Thrugelmir

HAMISH_MCTAVISH wrote: »

Ummmm not quite.:rolleyes:

Banks today are averaging closer to 3% margins on mortgage lending.

So to cover that loss of £26,000, they now have to issue just £860,000 in lending... or only around 5 or 6 average size mortgages.

And lets not forget that modest amount of lending would cover the loss of £26K in the first year alone.... Leaving the returns for the next 24 years as profit.;)

Explain how banks return a net 3% (bottom line profit) on lending ?

treliac

Thrugelmir wrote: »

The sales person was more interested in commission no doubt.

This illustrates our experience and my feelings about our predicament with the Pru: http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=320146&in_page_id=7&in_a_source=Mail%2520on%2520Sunday#

Fortunately the FOS agreed with us but it was a long hard fight to the bitter end before we got some compensation. And it left us permanently disadvantaged from the devastation of paying interest on the whole mortgage loan for many years and then having to start again from scratch - as if we'd never had a mortgage, which is what I meant by 'renting' - when we eventually understood our predicament and changed to a repayment mortgage.

Okay, if some want to gamble and understand what they're doing ... fair enough. But we didn't and I believe fervently that young people need protection from their lack of financial knowledge/understanding and even their own foolishness.

I wish we'd had greater protection. We were easy meat and we've paid for it ever since.