MSE News: Interest-only mortgages could be 'thing of the past'

Thrugelmir

The mortgage market is undergoing a slow but significant change. With far fewer lenders in the market , membership of the CML is down around 30% since 2008. The future structure of the market is far from clear. As there is uncertainty as to how and where the funding will come from. A point noted by the BOE as far back as May 2009. Was only in 2000 that UK mortgages were funded by retail deposits. The constant blaming of funding issues on the US is far from the truth,

jamesd

The government took the view that it preferred to see a lost on part of Northern Rock to encourage more competition in the retail banking market. No way to know yet how the £50 billion NRAM remainder of Northern Rock will turn out. The purchases were near the bottom not necessarily at the bottom itself - you can't really time the exact bottom and you don't want to even try if you're engaged in a rescue operation.

No credit ratings agencies are likely to tell anyone that it is a good idea to put a lot of money on 36 red. They did say that mortgage backed securities were AAA rated. NR had no real reason to believe that the credit markets would cease to operate. It was a contingency that they seem not to have considered as well as they and many others might have done.

Some very rich people and ordinary people have already lost huge amounts of money on Northern Rock and RBS.

Thrugelmir

The taxpayer has a direct exposure of around £25 billion in NRAM at the moment, in terms of the money lent to finance the operation. With the rump of B&B in the mix as well. Some 250,000 BTL mortgages are still on the books. So some interesting times ahead.

Last figures I have seen showed averaged LTV above 75%. So hardly surprising that BOE is trying to engineer a soft landing for the property market. With an £85 billion mortgage book. That's around 7% of total outstanding borrowing.

mic200202

Thrugelmir wrote: »

Though on far lower income multiples. With my first mortgage an endowment policy had to be assigned to the lender. So the lender was aware if premiums were not paid etc.

Interesting - so you essentially had an interest only 100% mortgage- if the FSA and other have their way you would not have been able to get this mortgage.Or indeed nothing much like it.

JimmyTheWig

gingeralan wrote: »

So they used to monitor the performance of the repayment vehicle and they still went belly up. Excellent, so much for the new FSA proposal, let's do it again, just with even more money this time.

No, he said that they monitored whether the premiums were paid or not. The problem that time with the endowments was that they didn't perform as well as the salesmen said they [STRIKE]would[/STRIKE]might.

gingeralan

JimmyTheWig wrote: »

No, he said that they monitored whether the premiums were paid or not. The problem that time with the endowments was that they didn't perform as well as the salesmen said they [STRIKE]would[/STRIKE]might.

Surely if a lender registers an interest in the policy that must man they give a stuff about how it performs. I do not believe that they would have not been told by the investment company that the endowment was bit performing as expected, unless they really were/are as stupid a you seem to be making out

RenovationMan

gingeralan wrote: »

Surely if a keener registers an interest in the policy that must man they give a stuff about how it performs. I do not believe that they would have not been told by the investment company that the endowment was bit performing as expected, unless they really were/are as stupid a you seem to be making out

Perhaps they rightly supposed that if someone has an IO mortgage, where the risks are on the borrower and not the lender, then the borrower should monitor their own investment plan?

The people who moan about their failing endowments are the same people who moan about their failing pensions plans, the common denominator is that they never monitored their plans to see if they were still on track an they never adjusted the payment into the plan to account for inflation.

We have repayment mortgages for these people. We should have IO mortgages for people who want to manage their own finances and shoulder their own risks.

gingeralan

RenovationMan wrote: »

Perhaps they rightly supposed that if someone has an IO mortgage, and so the risks are on the borrower and not the lender, then the borrower should monitor their own investment plan?

The people who moan about their failing endowments are the same people who moan about their failing pensions plans, the common denominator is that they never monitored their plans to see if they were still on track an they never adjusted the payment into the plan to account for inflation.

We have repayment mortgages for these people. We should have IO mortgages for people who want to manage their own finances and shoulder their own risks.

!!!!!! it's not your risk it's our risk as we have bailed out all the numpties who over extended themselves. I am all for capitalism, but this requires that you let mistakes take their course. Not dole money out left right and centre both in the form if low interest rates, affect mine and other responsible peoples savings, quantitative easing meaning everything apart from the mortgage costs more.

If you were all prepared to do that and the government was going to let all these gamblers fall by their own sword I would agree. But this will not happen. Therefore we need protection from people who don't know how these things work.

RenovationMan

gingeralan wrote: »

!!!!!! it's not your risk it's our risk as we have bailed out all the numpties who over extended themselves. I am all for capitalism, but this requires that you let mistakes take their course. Not dole money out left right and centre both in the form if low interest rates, affect munged and other responsible prepress savings, quantitative easing meaning everything apart from the mortgage costs more.

If you were all prepared to do that and the government was going to let all these gamblers fall by their own sword I would agree. But this will not happen. Therefore we need protection from people who don't know how these things work.

Overextending yourself has nothing to do with IO mortgages. You can overextend yourself with a repayment mortgage.

Overextending is where people lie about their income and borrow too much. That is already in the process of being sorted with tighter lending restrictions and the removal of self-cert.

JimmyTheWig

RenovationMan wrote: »

We have repayment mortgages for these people. We should have IO mortgages for people who want to manage their own finances and shoulder their own risks.

The question remains, however, how do the banks decide who falls into which category. And is it more important to ensure that someone from the first category doesn't slip into the second category than ensure everyone who should be in the second category is in there.
I guess this is what banks are trying to do with the 50% deposits / repayment vehicle going for a year type plans.

RenovationMan wrote: »

Overextending yourself has nothing to do with IO mortgages. You can overextend yourself with a repayment mortgage.

And we come back full circle. If you overextend yourself on a repayment mortgage you have the option of going interest-only...