IO mortgages - should banks take some of the risk?

The_White_Horse

If Banks are willing to lend IO mortgages, would it not be better that they will only do so if the mortgagor takes out an approved repayment plan - but if that plan does not work out, then the bank agrees to accept whatever is in the pot after the mortgagor has paid in for 25 years - or whatever term is agreed.

If the bank is not willing to accept any risk, when offering risky products, then perhaps they should just offer bog standard repayment products.

SecondLegDownIsTheBigOne

Another genius plan from the TWH manifesto. What could possibly go wrong?

Graham_Devon

Well if that was the case, I'd take on an IO mortgage and not care less whether I can pay it or not.

Why take a repayment and pay in full when you can take a cheaper monthly option and if you can't pay it in full as the plan didnt work, it doesn't matter?

The_White_Horse

because the payments into the plan will not necessarily be the cheaper option and because if the bank is willing to lend a risky product to the consumer, they need to accept some of the risk.

i am not saying that you simply get an IO and not have any plan it situ and pay nothing back. You must be on a proper repayment plan that is approved by the lender.

System

So, you get reduced payments because it is an IO mortgage and then have to pay into a plan to cover the capital?

You reckon overall it probably won't be a cheaper option than repayment. Do you not notice a flaw in this plan?

If you can't afford repayment then....

wotsthat

Graham_Devon wrote: »

Well if that was the case, I'd take on an IO mortgage and not care less whether I can pay it or not.

Why take a repayment and pay in full when you can take a cheaper monthly option and if you can't pay it in full as the plan didnt work, it doesn't matter?

Is that the suggestion? i.e. take out an IO loan and if you can get to the end of the term then you're let off.

Banks should be taking much more of an interest in how their current IO mortgage holders plan to pay off the capital. At the moment, I think, they send out a yearly statement and remind the borrower that the capital still needs to be repaid at the end of the term. That's not good enough.

I think if someone's managed to get through 25 years without the bank properly checking that there's some sort of repayment plan then there's an argument for mis-selling so at the very least I'd expect the bank to be sympathetic in these circumstances.

If the 'danger' loans are those that were taken out in 2006 & 2007 then there's plenty of time to implement a considered plan which prevents or minimises the potential problem.

nearlynew

But, as everyone surely must know by now, the vast majority of the people who take out IO mortgages do so because otherwise they wouldn't be able to afford the monthly payment.

So, by definition, they will not have any spare cash to pay into a repayment vehicle.

wotsthat

nearlynew wrote: »

But, as everyone surely must know by now, the vast majority of the people who take out IO mortgages do so because otherwise they wouldn't be able to afford the monthly payment.

Why did the banks lend to them then?

Sounds like a mis-selling scandal brewing - wouldn't it be ironic if IO mortagage holders were compensated?

nearlynew

There was/is no mis-selling.

It is down to the greed and stupidity of the borrowers.
And the bank cranking up house prices so they can lend more imaginary money and receive the real interest.

wotsthat

nearlynew wrote: »

There was/is no mis-selling.

It is down to the greed and stupidity of the borrowers.
And the bank cranking up house prices so they can lend more imaginary money and receive the real interest.

Well if a bank lent someone money knowing they couldn't afford the loan there's a strong case for saying the bank is jointly liable if/ when it goes t*ts up.

Look at some of the campaigns on MSE - they are based, arguably, on much flimsier points of law. The next campaign looks like not repaying store card debts because the lender didn't do a triple somersault whilst drinking a gin & tonic whilst crossing their fingers.

nearlynew

wotsthat wrote: »

Well if a bank lent someone money knowing they couldn't afford the loan there's a strong case for saying the bank is jointly liable if/ when it goes t*ts up.

Precisely.

Which is why repossesions should have been started.

Which is why banks should have been allowed to go bust.

In a properly run, healthy economy this is what should have happened and, having got rid of the "dead wood", we would now have been well on the way to recovery.