MSE News: RBS and Natwest demand £50k salary for interest-only mortgages

ILW

I know a few peoplw who bought in the late nineties and early 2000s on IO purely because the payment would cover a larger purchase. None seem to have any idea what will happen at the end of the term in 10 -15 years.

hamsterfan1

I have an IO mortgage expiring in 7 years, we have a partial repayment vehicle & overpay (ie pay off some of the capital) each month - however we will still have to sell up & downsize radically , which was our original plan as the children have all left home so we won't need such a big house. What will happen if we can't sell I dread to think.

These should not be allowed to be anyone's default payment term, who is to say someone earning 50K is going to be any better at saving the capital (which is what a repayment vehicle is) ?

The_J

ILW wrote: »

I know a few peoplw who bought in the late nineties and early 2000s on IO purely because the payment would cover a larger purchase. None seem to have any idea what will happen at the end of the term in 10 -15 years.

Sell and use the substantial equity built up in that time? As an investment buying property in the 90s/00s turns out to be a fantastic decision.

That's why I have absolutely no sympathy for people who bought in that period. Even if they bought with interest only they made the right decision, maybe for the wrong reasons but it was the right thing to do, the right area to invest and they have "saved" money ever since by virtue of lower payments.

Simon_gloster

michaels wrote: »

So as a lender why is it better for the borrower to have less skin in the game but be paying off a tiny slice of the equity each year than for them to have a much larger capital cushion that is not being chiped away at?

With a 25 year mortgage taken at 75% how many years is it until the ltv is down to 50%?

ILW wrote: »

I know a few peoplw who bought in the late nineties and early 2000s on IO purely because the payment would cover a larger purchase. None seem to have any idea what will happen at the end of the term in 10 -15 years.

I think I quoted on the previous page......many years ago I spoke to client who was going through a divorce. Her hubby and had left her with 3 children and the mortgage.

£75,000 interest only with 1y 3 months to run. Income £9,000 pa plus benefits. Not only could she not transfer the equity, she had no idea the lender could call the loan in in 15 months time. Apart from being completely stunned, the lasy couldn't sell due to high LTV and couldn't flip to repayment based on her age as the monthly payment were too high.

RenovationMan

The_J wrote: »

1) Sense is not creeping in. The FSA are threatening mortgage lenders with the responsibility if IO mortgages are not provided with due diligence. The only people who will complain about their IO mortgage are the ones with high LTV who cannot "downsize" at the end of the term. That is the only reason they are cutting the LTV. You think they've suddenly realised what IO is and does? Don't make me laugh. This is purely about avoiding future litigation.

Yes, so sense is creeping in. The banks are realising tha we are following the US in terms of litigation and lack of personal responsibility. Many people seem unable to accept their own decisions when they turn out badly and need someone to blame and pay.

The banks are doing the best they can to allow responsible borrowers to continue to have access to a flexible mortgage product, while adhering to the FSA regulations. People who still have a high LTV at the end of their term are clearly not responsible borrowers as they must have withdrawn equity from ther home and have not re-invested it and not replaced it.

The_J wrote: »

2) Checking repayment vehicles add minimal admin costs. The reason is as per (1), why take a risk when you can simply avoid it entirely?
3) They are certainly not leaving interest only to the financially savvy. Is it financially savvy to have a £1m pension pot? Is it financially savvy to expect your ISA to lose 20% of it's value over the term of the mortgage?

The bank disagree with your assertion that checking repayment vehicles adds minimal costs, they have been howling at the increased overhead since it was first mooted. It also shifts responsibility for people's investments onto the banks and off the shoulders of the borrower. The repayment vehicle is unlikely to be invested with the lender.

It's the responsibility of the borrower to make sure that his repayment vehicle covers the mortgage. The borrower is the person who choose an investment backed repayment plan rather than to use a straightfoward repayment mortgage. If things go wrong with the repayment vehicle investment then it's the borrower at fault, not the lender.

The_J

No. The banks are not "realising" that we are following the litigation path of the US. The FSA are specifically telling them they will be held responsible and it will be backdated. That is why they are pooing themselves.

RenovationMan wrote: »

It's the responsibility of the borrower to make sure that his repayment vehicle covers the mortgage. The borrower is the person who choose an investment backed repayment plan rather than to use a straightfoward repayment mortgage. If things go wrong with the repayment vehicle investment then it's the borrower at fault, not the lender.

OK, so your viewpoint is that interest only should be available to everyone at any LTV because it is the borrowers responsibility? I agree with that entirely - IO is not a bad thing, IO at 90% is absolutely fine if you understand investments. I hate the nanny state and the lack of personal responsibility especially in financial matters. It does however contradict your earlier view welcoming the change?

You need to stop coming from the viewpoint that the "banks are doing the best by their customers". I thought maybe you worked for a bank and really believe their TCF rubbish but then no-one can be that naive.

RenovationMan

The_J wrote: »

No. The banks are not "realising" that we are following the litigation path of the US. The FSA are specifically telling them they will be held responsible and it will be backdated. That is why they are pooing themselves.



OK, so your viewpoint is that interest only should be available to everyone at any LTV because it is the borrowers responsibility? I agree with that entirely - IO is not a bad thing, IO at 90% is absolutely fine if you understand investments. I hate the nanny state and the lack of personal responsibility especially in financial matters. It does however contradict your earlier view welcoming the change?

You need to stop coming from the viewpoint that the "banks are doing the best by their customers". I thought maybe you worked for a bank and really believe their TCF rubbish but then no-one can be that naive.

My viewpoint comes from earlier discussions where IO mortgages seemed to be on the verge of being withdrawn/banned completely. Now it looks like the banks are doing their best, within the FSA regulations, to keep the IO product alive in one form or another for those clients see as having less risk (whether their criteria for 'less risk' is correct is debateable).

I therefore welcome the fact that IO mortages are still available. I also don't believe that the anks have my best interest at heart, I am just thankful that some at least are seeing sense and not withdrawing the IO mortgage completely.

The_J

IO was never going to be banned completely and the banks are certainly going above and beyond the FSA requirements. I think they are trying to blackmail the FSA into watering down the MMR but because the regulatory authority is just a bunch of pathetic, socialist nobodies who can't make it in the private sector and led us blindfolded into this recession through lack of intelligence and proactivity, they are not going to realise this until it's too late.

Sooler

FatherAbraham wrote: »

Misusing the word "repayment" in the way that the article does is just going to confuse readers.

Another poorly written article from MSE.

shortchanged_2

The_J wrote: »

Sell and use the substantial equity built up in that time? As an investment buying property in the 90s/00s turns out to be a fantastic decision.

That's why I have absolutely no sympathy for people who bought in that period. Even if they bought with interest only they made the right decision, maybe for the wrong reasons but it was the right thing to do, the right area to invest and they have "saved" money ever since by virtue of lower payments.

Depends though if they have been Mewing like no ones business over the past few years then............... Oops.