MSE News: Mortgage prisoners need help to escape costly loans, watchdog told

wozearly

Consumerist wrote: »

What you are saying is true until you can't afford the mortgage repayments and the lender repossesses the house.

If the house is repossessed when you are in negative equity then the lender will hound you for payment of the difference between what you owed and what your former home was sold for.

And that's the really critical part, and why its a significant risk to both homeowner and mortgage provider if people have a very small (or no) equity in the property, because even a small house price drop in percentage terms can give you several thousand pounds of effectively unsecured debt.

Generally speaking I'm with Pixi - there's clearly a significant risk in having no equity buffer and having to rely on house price rises, stability in your own income and/or prevailing interest rates to avoid negative equity.

But this is almost a side-issue to the FSCP request to the FSA. What they were asking is that the FSA make it beyond doubt that the new rules will not prevent mortgage providers offering homeowners in negative equity remortgage terms provided they are able to afford the payments on the loan.

The real risk of negative equity is if the homeowner is forced into a short-term need to sell. With a repayment mortgage, provided the homeowner can ride it out and continue the loan payments in the short-to-medium term and not sell, then the problem will fix itself one way or the other. Interest-only mortgages are a more dicey if there's no mechanism to repay (note new FSA rulings on this; horses, stable doors, locking, etc.).

However, from the mortgage provider and homeowner's perspective, forcing a short-term sale when in negative equity is a lose-lose situation. Both sides are very likely to get burned, with the beneficiaries being those who can buy up the house at auction-sale prices.

In this instance, its in the interests of the mortgage provider to focus more on ability to repay and remortgage options rather than pushing people onto high SVR prices in the short-term, creating a rather ironic self-fulfilling prophecy where the extra loan cost for the higher perceived risk is what actually causes a repossession.

VT82

The_Pixi wrote: »

I'm not elderly, I'm saving up a deposit.

Your numbers are interesting and I'd argue too low however £200 a year is better off in my pocket than helping out those with self subscribed financial problems, according to those mock up Tax bills enough of my hard earned money is already doing that:)

Short sighted? Being annoyed at having to suffer low savings rates to try and keep people, who took out mortgages more than the cost of the underlying assets, in thier homes! Dear me, it isn't me being short sighted.

The last part of your post is admirable, financially slack in my opinion though.

I realised you weren't elderly - just saying that it's only really the people relying on savings interest that have genuine reason to be so cross about it.

The fact that you are saving for a house still suggests you are being a bit short sighted - you seem to want financial meltdown just so your £20k savings grow marginally quicker and maybe the house you buy will be a touch cheaper, ignoring the fact that this will be coupled with:

• banks requiring bigger deposits for mortgages
• banks charging higher margins (the 1% increase on your 20k won't be so great if it means a 2% increase on your £150k mortgage when the time comes)
• your job being more vulnerable, or at the least your employer having an excuse not to give you a payrise

I'm financially slack in some things but not others. I demand the best savings rates available, but I'll take the second cheapest energy deal if it means staying put. But the main thing is that I try and see the bigger picture - I wouldn't be happier with another £200 a year in savings interest in my pocket, if it's coupled with all my friends being too poor to enjoy doing stuff with me.

brit1234

I do think the government should support more negative equity mortgages. By this I mean people can move from their property to another worth equal amounts or less. This could help people move closer to work or family and thus boast the economy.

I do think there are a lot of stupid or very naive people out who gambled everything on property. They didn't realise that prices would fall and some don't realise they are going to fall a lot more.

We have also a new generation piling into the Newbuy scam who are going to be the next bunch of mortgage prisoners.

Pincher

So is anyone going to sign up for mortgages that revert to SVR ever again? Only millions, I'll bet. One born every minute. Sigh.

The_Pixi

VT82 wrote: »

I realised you weren't elderly - just saying that it's only really the people relying on savings interest that have genuine reason to be so cross about it.

The fact that you are saving for a house still suggests you are being a bit short sighted - you seem to want financial meltdown just so your £20k savings grow marginally quicker and maybe the house you buy will be a touch cheaper, ignoring the fact that this will be coupled with:

• banks requiring bigger deposits for mortgages
• banks charging higher margins (the 1% increase on your 20k won't be so great if it means a 2% increase on your £150k mortgage when the time comes)
• your job being more vulnerable, or at the least your employer having an excuse not to give you a payrise

I'm financially slack in some things but not others. I demand the best savings rates available, but I'll take the second cheapest energy deal if it means staying put. But the main thing is that I try and see the bigger picture - I wouldn't be happier with another £200 a year in savings interest in my pocket, if it's coupled with all my friends being too poor to enjoy doing stuff with me.

Hi,

I know we don't all know each other but I try not to be to general to a specific person, my opinion comes from my point of view / circumstances.

But I want to say that I live in London and the figures you are using are just so way off - 150K mortgage?

And I'm not hoping for a 1% increase across the board, back in 2009 -10 isa year I had a loyalty ISA at 5.5% (still lower than previous highs, but much higher 2.5% up on todays 3%) if my ISA for this year had 5.5% on £18,300 I'd get £1006 interest instead of £549 at 3% Im not happy that my money is making only half what it could in a year.

Anyway, Mortgage rates have been significantly higher than 4% before and any mortgage I'd plan to take out would have to be affordable (with room for overpayment) at something like... I don't know, 12%

This seriously limits the amount I could borrow and so yes, a large drop in house prices would allow that lower mortgage to purchases a better quality of property. As it stands at the moment I'm looking at still high house prices and the shotgun of even higher interest repayments in the future - and for that I have to plan with sense.

So I will, if its all the same look with a short sighted view, focus and spend on my OWN finances rather than try and be magnanimous and wish to help everyone out of their own mess.

I know it makes me sound heartless, but as I said before, Its finance.

A.Jones

Who is going to pay for this help? The rest of us that were not stupid enough to go for 100% mortgages.

I say tough too. People with 100% mortgages gambled and lost. They gambled on house prices increasing and not having any capital to put into their investment. They should have saved for a deposit like others had to.

DannyboyMidlands

I say tough as well. A 100% mortgage is a balls-out gamble on rising house prices. Fair enough but there's no point moaning about it if the market goes against you.

chewback

Everyone seems to think this isonly for people woth 100% mortgages. It isn't. If you took out a 75% LTV mortgage in 2007 were you being irresposible? No. Now your house has lost 20% your new LTV is 93.75%. Therefore, you are now a mortgage prisoner who will be raped by the banks. Meanwhile, they are still playing with our money, investig in derivatives etc etc, paying huge bonuses and generally sticking 2 fingers up to society.

The_Pixi

chewback wrote: »

Everyone seems to think this isonly for people woth 100% mortgages. It isn't. If you took out a 75% LTV mortgage in 2007 were you being irresposible? No. Now your house has lost 20% your new LTV is 93.75%. Therefore, you are now a mortgage prisoner who will be raped by the banks. Meanwhile, they are still playing with our money, investig in derivatives etc etc, paying huge bonuses and generally sticking 2 fingers up to society.

Why should others be particularly fussed? I am currently 'Trapped' in increasing rents being 'raped' by greedy landlords.

Everyone has problems.

A.Jones

Should we also bail out people who bought stuff on a credit card to sell on ebay, and then later found out that after fees and postage, they didn't make a profit?