MSE News: Is the interest-only mortgage dead?

The_J

brit1234 wrote: »

So first time buyers will be on an equal footing with buy to let landlords. Interest only and gearing is a great instability in the UK housing and banking industries.

Anyway we have the EU regulations being formulated on buy to let coming in shortly. Hopefully that will sort out the bias.

HAHAHAHAHA have you studied that changes proposed?

You would be absolutely ...... if they bought it in as currently worded. So would anyone who isn't HNW.

As with any champagne socialist, you are deluded.

Thrugelmir

The_J wrote: »

Important to note it's not the banks it's the FSA who are pushing these changes.

Banks are scaling back and contracting their mortgage books. They just wish to maintain control over the situation.

eh2nt

Banks are scaling back the number of IO mortgages available and encouraging those currently on to switch to repayment due largely to the FSA paper CP11/31 (page 125 onwards).

I'd post a link but the forum will not let me. Feel free to google especially as a cure for insomnia,

However the amount of extra resourcebanks will need to carry out the recommendations eg obtaining evidence of the repayment vehicle at application and then at least once during the lifetime of the mortgage, along with the risk that when the vehicles do not pay enough to clear the mortgage consumers will blame their bank (because they checked the vehicle), many banks are restricting the availabilty of IO mortgages to reduce the impact.

Once again the FSA have the right intention but their method is driving the wrong results eg making many people mortgage prisoners.

Thrugelmir

eh2nt wrote: »

Banks are scaling back the number of IO mortgages available and encouraging those currently on to switch to repayment due largely to the FSA paper CP11/31 (page 125 onwards).

Wrong. Banks need to reduce their mortgage books due to a contraction in wholesale money markets. As banks comply with both EU regulations to hold more capital and ultimately the imposition of Basle 3.

By wholesale money markets I am referring to interbank lending. Which funded in part the boom in UK mortgage lending.

cplatten

Greed is not the main reason for IO mortgages. In recent years it has been the only way to afford to have a house (vs. a poor value / neigbour-disturbing / leasehold / shoebox of a flat) in the London / SouthEast area. We have been on affordable IO mortgages for 9 years now but could not afford a full repayment mortgage as we don't have a long time left to retirement. Also, where are these mythical investment vehicles?

Hubby's 25 year endowment only returned the exact amount of money he put in over 25 years. He might as well have put the money under the mattress instead of lining the pockets of all those investment managers and their high fees. (He also didn't qualify for any compensation for misselling either as he bought it 3 months before the regulations came in in the 80's!)

And BTW - how are repayment mortgages going to work in the future? I don't see how the sums stack up. They kind of made sense when I bought my first flat in 1992 and I borrowed 3.5 times my income for it. However, now the same flat in London would be 8 times my income and, as it only had one bedroom, is hardly the necessary family home so many people need.

I digress but the economics of it all are baffling me and I studied the stuff at university.

We have around 30% equity in our house - if any bank wants to "penalise" us for not having a suitable repayment vehicle at the end of the term and repossess us, then they will be the winners in this game, regardless, so I don't see why they can't lend on an IO basis now.

However, we are grown-up enough to have plans at the end of our IO mortgage, despite the fact that we are being portrayed as reckless, and it upsets and worries me that the banks have now moved the goalposts instead of trusting us to our own financial planning for our future. I am a financially-astute grown-up, I have a business degree and this has also been done along with our trusted IFA at each step.

But now when it comes time to remortgage in 3 years we could find ourselves being turned down for another IO mortgage and forced to move from our 3 bedroom dream home and back down to the 1 bedroom flat I started out in as a single woman 20 years ago, as we will not be able to afford a repayment mortgage for the remaining 10 years of our mortgage until retirement - when we are thinking about moving abroad anyway.

As we have no other debt at all, have never missed a mortgage payment and it is all based on my husband's strong job and pension - why are we being penalised? What is being gained by the banks here? Who could afford to buy our house with the shortage of mortgage funds about and the strict earnings / borrowing criteria the banks are now imposing?

We know that the banks relaxed the borrowing restrictions too much in the past and were largely responsible for the huge house price increases, but the damage is done and shutting the stable door after the horses have bolted is pointless.

Rather than injecting any common sense into the housing market all that has happened is that the prices have barely changed, nobody is buying or moving anywhere and we have a stalemate between sellers, buyers and lenders.

The only winners are landlords with their unethical BTL mortgages - and the main losers are 2 generations of younger people who will never know the lovely feeling of security that comes from owning their own homes and not being at the mercy of greedy landlords and overpriced rents.

It truly worries me and I wonder what further changes are planned to the goalposts by 3 years time.:(

The_J

Thrugelmir wrote: »

Banks are scaling back and contracting their mortgage books. They just wish to maintain control over the situation.

Wrong. This is the FSA led MMR for 2013 which is currently written as suggesting banks will be responsible for ensuring interest only repayment vehicles are up to scratch for the life of the mortgage. Implicit is that they will be responsible for filling the shortfall should they not.

Thrugelmir wrote: »

Wrong. Banks need to reduce their mortgage books due to a contraction in wholesale money markets. As banks comply with both EU regulations to hold more capital and ultimately the imposition of Basle 3.

By wholesale money markets I am referring to interbank lending. Which funded in part the boom in UK mortgage lending.

Absolutely incorrect (although Basel III is true - note correct spelling - it has no relevance here). The interbank lending (which by your insinuation is something complicated, it really isn't) has not contracted at all. It has loosened considerably compared to 08/09. What you have basically said is "KFC have really struggled to turn a profit this year as the price of beef has increased significantly".

Please cease from commenting on things you do not fully understand.

shortchanged_2

The_J wrote: »

Please cease from commenting on things you do not fully understand.

I'd have more faith in Thrugelmir's advice than yours, that's for sure.

Thrugelmir

The_J wrote: »

The interbank lending (which by your insinuation is something complicated, it really isn't) has not contracted at all.

Interbank lending takes many forms. I was using it in the broadest sense of the expression. Not a direct reference to "interbank lending " per se.

Banks are repatriating capital. If that makes you feel happier.

Thrugelmir

The_J wrote: »

What you have basically said is "KFC have really struggled to turn a profit this year as the price of beef has increased significantly".

Please cease from commenting on things you do not fully understand.

What relevance has that to anything on this thread?

Suggest you think a little more before opening the place where the sun doesn't shine.

As your level of comprehension would appear considerably worse than mine.

PS. Always thought you were a mortgage broker. You don't market yourself very well. At least act professionally. Not like a used car salesmen which I suspect you once were.