IO mortgages - should banks take some of the risk?

ILW

Are there really people with IO mortgages that are so dim that they did not realise they had to repay the capital at some point?

nearlynew

ILW wrote: »

Are there really people with IO mortgages that are so dim that they did not realise they had to repay the capital at some point?

I would say yes.

SecondLegDownIsTheBigOne

ILW wrote: »

Are there really people with IO mortgages that are so dim that they did not realise they had to repay the capital at some point?

For certain. Alarming, isn't it?

Graham_Devon

wotsthat wrote: »

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?

It's not really mis-selling, certainly nothing like PPI, where in many cases, you simply were never entitled to the product you were paying for in the first place.

It might be mis-selling if your mortgage advisor never told you and you never got any paperwork for the mortgage informing you of what IO actually is.

We all get that paperwork though. Every year infact, in a statement.

Whether people took any notice whatsoever, is another case entirely. And I'd suggest many people didn't care, they just had the house.

wotsthat

Graham_Devon wrote: »

It's not really mis-selling, certainly nothing like PPI, where in many cases, you simply were never entitled to the product you were paying for in the first place.

The consumer credit directive places an obligation on the lender to check creditworthiness before offering or increasing credit.

Lending to people who you know can't afford to repay the loan (which is the assertion being made) sure doesn't sound like the lender has fulfilled their obligations.

Graham_Devon

wotsthat wrote: »

The consumer credit directive places an obligation on the lender to check creditworthiness before offering or increasing credit.

Lending to people who you know can't afford to repay the loan (which is the assertion being made) sure doesn't sound like the lender has fulfilled their obligations.

But the loan itself, would have been affordable. The loan itself was for the interest.

wotsthat

Graham_Devon wrote: »

But the loan itself, would have been affordable. The loan itself was for the interest.

If someone couldn't afford to repay the loan (as asserted) then by definition isn't the loan unaffordable?

The banks are going to be doing the same squirming as you are so presumably will be working very hard on defusing the 'ticking time bomb' over the next few years.

Expect owner occupier numbers to reduce further.

ILW

If the bank cannot get their capital back, take the house. That is surely the idea of a mortgage.

heathcote123

The_White_Horse wrote: »

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.

erm, surely the bank are already taking some of the risk? - ie lending to someone that probably cant afford a repayment mortgage?

Conrad

nearlynew wrote: »

It is down to the greed and stupidity of the borrowers.

Whilst it's true some took I/O as it was the only affordable option at that point, I assure you it tends to be sophisticated borrowers that go for I/O.

Also keep in mind here that even those on I/O that could not afford repayment (perhaps recently divorced, facing the world alone with kids needs put first, buying out the husband and keeping the children in thier existing home and thus school environments), would typically on average still have benefited from capital gain, although not so assured since 2007 of course. Rent is always dead and affords no exposure to capital gain.