Support for Mortgage Interest Changes

Deepmistrust

andyandflo wrote: »

Which proves the point that the equity you have built up of £130,000 should NOT be ring fenced by the government to protect it for you. If you can't afford the mortgage sell and rent using the equity!

AND help us all out by then not needing to claim SMI or Housing benefit - if more did that, the country would be that much healthier, financially!!

Are you an idiot? Since when did I say I needed SMI? I don't even own THAT house anymore.

I was refuting the notion that houses haven't rise by the example given in the 15 year period.

andyandflo

Deepmistrust wrote: »

Why do you equate a persons home with something they should just sell, like a spare car, when they hit hard times?

Maybe because the word is budgeting!!

If you have equity do you not think it right that you use it instead of ring fencing it by claiming SMI AND then complaining that you are not getting as much as you did!!

A house is an asset!!
A car is an asset

A home can be anywhere!!!

Ruth

As someone who works for a mortgage lender, I can see that this is the new government using a sledgehammer to crack a nut. And the people they are hurting are those most in need.

The old system was stupid. It made no sense to pay interest at a rate of 6.08% to a borrower who was paying a tracker rate of around 1% - or even less. Those people were benefit by having 5% of their capital balance repaid each year at no cost to themselves. It was complete madness.

But the reason that the rate was amended from a floating BBR+1.58% (which happened to be 6.08% when BBR was 4.5%) to being frozen at 6.08% was for very good reasons, most of which have already been expressed in this thread, but which I'll repeat to gather them together:

• Many people borrowed at fixed rates, prudently in order to protect against the risk of rate rises - as was recommended practice for those on limited incomes. Those fixed rates will typically have been 5% or more and often 6% or 7% depending when taken out.
• Many of the borrowers with a patchy employment history, and hence a patchy credit history, will only have been able to get mortgages from the dodgiest lenders, whose SVRs are way higher than average.
• Paying at a single rate only works if the spread of rates is relatively small. When BBR was 4.5%, most people were paying around 4.5% to 9% (say) with the vast bulk below 6.08% or not much above it. Now, the range has moved to 0.5% to 10%+ - because the non-mainstream lenders have increased their rates, and in many cases exited the market, whilst the mainstream lenders' average is distorted by the lucky few paying tracker rates around 1% and the lucky many paying SVR of 2.50% at Nationwide or LTSB Group.

The correct answer, in terms of equity, was to pay the ACTUAL rate payable by the customer, with a cap of 6.08%. That would have meant that in no case would any more money be paid than at present, and in at least half the cases there would be a substantial saving.

There would, as others have pointed out, be an increase in admin as a result. But DWP already collect the data on the actual rate payable from lenders - they simply don't use it!

And there's no reason why they shouldn't pay at a standard rate for a period of (say) 6 months or 1 year at a time, and then collect any under/overpayment from the lender. It's not like the lenders are going to be able to run off with the money, any more than they are likely to fail to pay over the tax they deduct from savings accounts.

The lenders can work out the amount of the underpayment which will arise, and get the borrower to pay it up front. They already do this for those whose rate is over 6.08%.


All in all, I'm pretty disappointed with this action by the government, because it involves lazy thinking and not caring about the consequences.


Re dmg24's point, the 3.76% rate is the actual weighted average rate payable by all mortgage customers, across the entire UK banking (and other lenders) market.

It doesn't relate to NEW lending. It relates to the existing mortgage book, which is why it is so distorted by existing lifetime trackers and the SVRs I refer to above, none of which is available to new borrowers.

Over time, the average will - very gradually - increase, even if BBR stays where it is, and that's what has happened over the past 9 months or so. But there won't be a significant increase until BBR increases as it's the trackers - and the SVRs which are effectively trackers - which are keeping the average down.


Speaking about the lender I work for, lots of our borrowers on benefits are paying a fixed rate above 7% which they took out when rates were relatively high. So they are going to have huge shortfalls. We will probably start writing to them next month (along with all the other customers currently receiving SMI) to tell them about the impact - and to recommend that they look strongly into taking independent advice about the options, including selling their property if they have any equity.

Regarding some of the earlier comments in the thread, this is all very well except for the fact that house prices have fallen, and many of these borrowers will not be able to sell up and clear their debt. Not to mention that if they are on fixed rates, they will be subject to early repayment charges, with us or any other lender.

So, they'll have a great choice come October:

As someone who works for a mortgage lender, I can see that this is the new government using a sledgehammer to crack a nut. And the people they are hurting are those most in need.

The old system was stupid. It made no sense to pay interest at a rate of 6.08% to a borrower who was paying a tracker rate of around 1% - or even less. Those people were benefit by having 5% of their capital balance repaid each year at no cost to themselves. It was complete madness.

But the reason that the rate was amended from a floating BBR+1.58% (which happened to be 6.08% when BBR was 4.5%) to being frozen at 6.08% was for very good reasons, most of which have already been expressed in this thread, but which I'll repeat to gather them all together:

• stay in the house and hope that they get a job/stop being ill/whatever; build up arrears at around 4% of the balance of their mortgage or nearly £350 a month on a £100k balance; probably get repossessed six months down the line and lose lots of money; or
• sell the property straight away, maybe realising an early repayment charge of £3k on £100k, incurring selling costs of maybe £1k or more, incurring negative equity sale shortfall of maybe £5k or more.
  
  And then they'll move into rented accommodation, and have their rent of up to £400 a week paid in housing benefit - over £1,700 per month - for a 4 bedroom house. Compared to the current £507 a month in SMI per £100k of mortgage.

How on earth is that going to save the government money overall?

Deepmistrust

andyandflo wrote: »

Which proves the point that the equity you have built up of £130,000 should NOT be ring fenced by the government to protect it for you. If you can't afford the mortgage sell and rent using the equity!

AND help us all out by then not needing to claim SMI or Housing benefit - if more did that, the country would be that much healthier, financially!!

And nor would I, assuming I was in difficulty, and assuming I lived there still, and assuming I had equity, be expected to sell the house if I could no longer meet the payments.

In the modern year of 2010, (exceptions aside like the US sub-prime mortgage scandal) it is not the job of the government to make people homeless and create yet more people to add to the housing lists. Instead their role is that of protecting it's citizens (you know those people that elect them into government?) to look for alternative options for them to remain in their homes, and not homeless where other factors such as a downturn in a persons health, the detrimental affect to any children and their education etc, that come with homelessness.

Regardless whether a person has £50k or £0 equity, why should they be treated differently because of a so-called paper increase of their supposed wealth?

andyandflo

Deepmistrust wrote: »

Are you an idiot? Since when did I say I needed SMI? I don't even own THAT house anymore.

I was refuting the notion that houses haven't rise by the example given in the 15 year period.

Sorry I just assumed - my apologies.

But it does go to show that the locked in money that people have should be used before claiming benefit.

Ruth

andyandflo wrote: »

Maybe because the word is budgeting!!

If you have equity do you not think it right that you use it instead of ring fencing it by claiming SMI AND then complaining that you are not getting as much as you did!!

A house is an asset!!
A car is an asset

A home can be anywhere!!!

But paying SMI is cheaper than paying housing benefit.

An owned property involves paying a residential rate of interest, and no profit for a landlord.

A rented property involves paying a BTL rate of interest, and the landlord making a profit.

Generally rent > mortgage interest, particularly mortgage interest capped at 6.08% which is lower than most BTL mortgage rates.

Deepmistrust

andyandflo wrote: »

Maybe because the word is budgeting!!

If you have equity do you not think it right that you use it instead of ring fencing it by claiming SMI AND then complaining that you are not getting as much as you did!!

A house is an asset!!
A car is an asset

A home can be anywhere!!!

Jesus christ has senility affected your reading ability?
I don't need SMI, you half-witted buffoon. I've already explained that I was simply refuting your idea that house prices haven't risen as much as the earlier example in 15 years.

Deepmistrust

andyandflo wrote: »

Sorry I just assumed - my apologies.

But it does go to show that the locked in money that people have should be used before claiming benefit.

Assumption is the mother of all you-know-whats.

I suggest that if you fail to have realised such a simple error, then I fail to see how you offer a balanced and well-considered opinion on this matter.

Deepmistrust

andyandflo wrote: »

Sorry I just assumed - my apologies.

But it does go to show that the locked in money that people have should be used before claiming benefit.

the money is locked in. You said it yourself. So would you see a family starve because their house has risen in value (through nothing to do with anything they have done, nor has it risen in RELATIVE terms)?

Do you realise the only alternative here, is for them to default on the mortgage, be made homeless and to have to suffer all the conotations that go with homelessness, and for then the government to have a duty of care anyway?

andyandflo

Deepmistrust wrote: »

And nor would I, assuming I was in difficulty, and assuming I lived there still, and assuming I had equity, be expected to sell the house if I could no longer meet the payments.

In the modern year of 2010, (exceptions aside like the US sub-prime mortgage scandal) it is not the job of the government to make people homeless and create yet more people to add to the housing lists. Instead their role is that of protecting it's citizens (you know those people that elect them into government?) to look for alternative options for them to remain in their homes, and not homeless where other factors such as a downturn in a persons health, the detrimental affect to any children and their education etc, that come with homelessness.

Regardless whether a person has £50k or £0 equity, why should they be treated differently because of a so-called paper increase of their supposed wealth?

Why not?

But is it right for the government to pay SMI in order that 'any' equity is protected for the eventual use of the home owner by allowing that person to stay there at the taxpayers expense?

As I have said, a house is merely an asset, a home can be anywhere.
What is so wrong to move from being a home owner to renting, thousands do it!!

And this will save money for the governemnt - you will NOT be homeless, and what equity you do have can be used to pay the rent until you become eligible for housing benefit if needed.
If you are not claiming SMI you would be paying the mortgage so what is the difference.

If someone finds that they cannot manage to pay the mortgage, what is so wrong in selling and renting? This 'paper' equity is as you say paper, but that would change when it is sold to make a 'profit'.

Why are we so preoccupied with protecting the equity in our homes. It is a savings pot!!!

Finally OK if you can pay your mortgage carry on and good luck. I am fed up with moaners that want their cake and eat it when things go wrong!