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

Consumerist

ashleypride wrote: »

Rewarding the reckless, and punishing the prudent doesn't sound a good idea to me.

I take your point but it's the automatic assumption of recklessness which I question.

It is true that home-owners should have seen this coming but the sad truth is that too many people in this country just don't understand the first thing about finance. Does that constitute recklessness?

The_Pixi

I grow weary of this conversation as it is now drifting away from the topic.
I stand by my first post

Thrugelmir

The_Pixi wrote: »

Which means the climate is always changing so when do you think it will be fine to let 'trapped' homeowners stay trapped.

As long as mortgage holders are repaying the capital balance down on their mortgages. Then the situation self corrects.

Whether they make a determined effort to repay quicker by making sacrifices is a personal choice.

wozearly

brit1234 wrote: »

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.

That would ultimately require the mortgage provider to agree to a >100% mortgage, but not charge the true market interest rate for the risk as it would almost certainly be higher than SVR payments on the current house. That would involve quite a hefty subsidy...

chewback wrote: »

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

Its not the same. If someone is able to sell a property for their mortgage amount or higher, there is always the option to sell the house and rent instead, because you're not going to be asked to stump up the cost of the negative equity (which, frankly, most people won't have enough savings to do).

Its not likely to be an attractive option, as it may mean writing off the majority of your deposit, but unlike a negative equity holder you're not at risk of being made bankrupt if you have to sell your house.


The most readily available solution is for mortgage providers to discuss options with people on a case by case basis where their monthly repayments have become unaffordable. As repossession whilst in negative equity hurts both sides, its in the interests of both parties to find some form of compromise.

This could involve options like agreeing to reduce payments for a fixed period, allowing a switch to an interest-only mortgage (if not on one already), extending the mortgage term to reduce monthly costs, adding the arrears onto the mortgage itself and paying it back over a longer period or looking into the existing options that the government provides for mortgage rescue.

Well, knock me down with a feather, they're already able to do (and doing) all of the above. So I'm not personally convinced that the case for additional universal assistance on top of this has been made.

Standingtall

Perhaps people may also like to consider where people would live if they had not been encourage to take out high LTV mortgages. There is a shortage of rental properties and relatively little social housing available. Additionally renting a property can be as costly as many mortgages and both have the potential to increase.

Many of these so called 'mortgage prisoners' will have simply been buying a home not necessarily investing in property or purchasing an asset. Many of these people will not have been educated in finance, a greater proportion stil will not have experienced the joys / woes of high interest in the 1980s. On the other hand they have been encouraged to take out these mortgages and buy into the property ownership dream as it solved the issue of alternative housing that would have been costly to the Government.

Thrugelmir

Standingtall wrote: »

Perhaps people may also like to consider where people would live if they had not been encourage to take out high LTV mortgages.

People had a choice. They saw house price inflation with £'s falling from the sky. Wealth without working.

Human nature is one of greed.

Consumerist

Thrugelmir wrote: »

People had a choice. They saw house price inflation with £'s falling from the sky. Wealth without working. Human nature is one of greed.

Whilst what you say is true, I don't think it's the full story.

People had a choice. They saw house price inflation with £'s going onto house prices so fast they wondered if they would ever be able to realise their dream of a home of their own.

So they went to a mortgage advisor, probably a bank or other financial institution. Did the advisor say "We ought to assume interest rates are at 8% per annum, let's see if you could then still afford the repayments". What the advisor probably said is along the lines of "Well, you can't really afford the mortgage at the moment but the value of your house will rapidly increase and inflation will make your repayments seem smaller due to pay rises you will get in the future"

Since the average joe doesn't understand anything about finance, they believe this garbage they have been fed and the advisor walks away with a handsome commission for selling the mortgage.

Who was irresponsible in this scenario?

Yes, human nature is one of greed. Not always the home-owners greed, however.

Credit-Crunched

Standingtall wrote: »

Perhaps people may also like to consider where people would live if they had not been encourage to take out high LTV mortgages. There is a shortage of rental properties and relatively little social housing available. Additionally renting a property can be as costly as many mortgages and both have the potential to increase.

Many of these so called 'mortgage prisoners' will have simply been buying a home not necessarily investing in property or purchasing an asset. Many of these people will not have been educated in finance, a greater proportion stil will not have experienced the joys / woes of high interest in the 1980s. On the other hand they have been encouraged to take out these mortgages and buy into the property ownership dream as it solved the issue of alternative housing that would have been costly to the Government.

No one encouraged them, other than their own desire to own a property and to ride the tails of the property boom. People need to take responsibility for their actions and not act as if they have always been duped.

Credit-Crunched

Consumerist wrote: »

Whilst what you say is true, I don't think it's the full story.

People had a choice. They saw house price inflation with £'s going onto house prices so fast they wondered if they would ever be able to realise their dream of a home of their own.

So they went to a mortgage advisor, probably a bank or other financial institution. Did the advisor say "We ought to assume interest rates are at 8% per annum, let's see if you could then still afford the repayments". What the advisor probably said is along the lines of "Well, you can't really afford the mortgage at the moment but the value of your house will rapidly increase and inflation will make your repayments seem smaller due to pay rises you will get in the future"

Since the average joe doesn't understand anything about finance, they believe this garbage they have been fed and the advisor walks away with a handsome commission for selling the mortgage.

Who was irresponsible in this scenario?

Yes, human nature is one of greed. Not always the home-owners greed, however.

If you refer to an KFI document they clearly state the impact of a price rise in the BOE base rate, it is the responsibility of the mortgagee to look at this information.

People spend more time researching their car than they do their mortgage which I find a shocking statistic. I feel the blame culture does not was here, yes banks took instructions, however people need a certain degree of self responsibility around borrowing and its potential impacts

AJ2007

You make your choices....you live with them. Some people have been greedy and thought that house prices would only go up (being fuelled by the lies and self-serving spivel from estate agents - "buy now before it is too late", "only 5 units left - buy now", "cashback, a free fridge, free carpets, etc - if you buy NOW!!"). Others were probably just doing what they thought everyone else was doing and decided to join the flock of sheep. Some decided to rent and are probably happy that they did so. NO-ONE was "forced" into buying a house unless they were physically taken to the estate agents and made to sign a piece of paper, etc. And to all those who "had" to buy a house (lack of space at their present digs, escaping from troubling flat-mates, escaping from the family home, etc), there's always the option of renting a modest place that fits your budget (leaving some room for manouevre in case things go pear-shaped e.g. losing a job, unexpected hospital bills, etc) or finding somewhere within the country or abroad where your limited income/money will stretch further. There's ALWAYS options - it's up to you to choose one that doesn't land you or your family into deep financial crisis. So, grow up, and take responsibility for your OWN actions and don't expect the state or others who didn't take such foolish risky action to support you.