Lender forbearance becoming “a sick joke”

RenovationMan

What I find amazing is that Graham's Gang don't seem to be upset about the millions spent keeping tenants in their homes, many of which are BTLs. There are far, far more BTL landlords coining it in from Housing Benefit than there are home owners increasing their equity with SMI.

It doesn't make sense, but then much of what Graham's Gang says doesn't make much sense.

Dribley

RenovationMan wrote: »

It doesn't make sense, but then much of what Graham's Gang says doesn't make much sense.

Does your 'gang' make any sense? Have you been a naughty boy?

chewmylegoff

ukcarper wrote: »

They would also claim back the 2% SMI a year.the difference being the homeowner owes government £100 not bank.

Yes and what advantage does the govt get from effectively taking over the loan? Nothing that I can see.

ukcarper

chewmylegoff wrote: »

Yes and what advantage does the govt get from effectively taking over the loan? Nothing that I can see.

The net cost to government would be 0 as apposed to the £4 in your example whether that is worth the government taking on the debt is debateable and as you say it would be simpler to keep things as they are and claim back SMI. I would be surprised if they even do that as they would probably feel it would be politically damaging.

chewmylegoff

ukcarper wrote: »

The net cost to government would be 0 as apposed to the £4 in your example whether that is worth the government taking on the debt is debateable and as you say it would be simpler to keep things as they are and claim back SMI. I would be surprised if they even do that as they would probably feel it would be politically damaging.

that's not comparing like for like though, as the net cost to the govt would be £0 in both of my examples if the govt charged interest to the claimant.

i agree though that the govt will be concerned about the potential for political damage, especially as over half the claimants are pensioners receiving pension credit and are therefore amongst the least well off (at least in income terms) in soceity.

ukcarper

chewmylegoff wrote: »

that's not comparing like for like though, as the net cost to the govt would be £0 in both of my examples if the govt charged interest to the claimant.

i agree though that the govt will be concerned about the potential for political damage, especially as over half the claimants are pensioners receiving pension credit and are therefore amongst the least well off (at least in income terms) in soceity.

It is like for like you claim back SMI in both cases

chewmylegoff

ukcarper wrote: »

It is like for like you claim back SMI in both cases

eh? there is no SMI if you pay back the capital up front. there are three elements. SMI, capital repayment, and the govt's borrowing costs (either to fund the SMI payments or the capital payments).


Basically the four possible scenarios are:

(1) i (i being the govt) pay £10 to the bank and it costs me £1 to finance that. i pass on the financing costs to the claimant and claim back £11 from the claimant. net cost £0.

(2) i pay £10 to the bank and it costs me £1 to finance that. i only recover the actual payments to the bank from the claimant. net cost £1.

(3) i pay £100 to the bank and it costs me £10 to finance that. i pass on the financing costs to the claimant and claim back £110 from the claimant. net cost £0.

(4) i pay £100 to the bank and it costs me £10 to finance that. i only recover the actual payments to the bank from the claimant. net cost £10.

you seem to be comparing (2) to (3) whereas (3) should in fact be compared to (1).

[NB/ all of these examples ignore the time value of money which would obviously cause greater detriment under (3) and (4) as there is more money involved].

ukcarper

chewmylegoff wrote: »

eh? there is no SMI if you pay back the capital up front. there are three elements. SMI, capital repayment, and the govt's borrowing costs (either to fund the SMI payments or the capital payments).


Basically the four possible scenarios are:

(1) i (i being the govt) pay £10 to the bank and it costs me £1 to finance that. i pass on the financing costs to the claimant and claim back £11 from the claimant. net cost £0.

(2) i pay £10 to the bank and it costs me £1 to finance that. i only recover the actual payments to the bank from the claimant. net cost £1.

(3) i pay £100 to the bank and it costs me £10 to finance that. i pass on the financing costs to the claimant and claim back £110 from the claimant. net cost £0.

(4) i pay £100 to the bank and it costs me £10 to finance that. i only recover the actual payments to the bank from the claimant. net cost £10.

you seem to be comparing (2) to (3) whereas (3) should in fact be compared to (1).

[NB/ all of these examples ignore the time value of money which would obviously cause greater detriment under (3) and (4) as there is more money involved].

For simplicity current SMI £4 (4% mortgage of £100)

Government borrows £4 at 2% after 10 years total outlay £40+80p = £40.80p government claims back £40 cost to government 80p. Cost to homeowner £40 plus £100 to bank.

Government takes on loan £100k at 2% after 10 years government owes £120 claims back £20 reduced level of SMI and £100 capital net cost £0. Cost to homeowner £20 plus £100 capital.

Only person losing out in second example is bank instead of SMI being paid to bank it is paid to government.

chewmylegoff

ukcarper wrote: »

For simplicity current SMI £4 (4% mortgage of £100)

Government borrows £4 at 2% after 10 years total outlay £40+80p = £40.80p government claims back £40 cost to government 80p. Cost to homeowner £40 plus £100 to bank.

Government takes on loan £100k at 2% after 10 years government owes £120 claims back £20 reduced level of SMI and £100 capital net cost £0. Cost to homeowner £20 plus £100 capital.

Only person losing out in second example is bank instead of SMI being paid to bank it is paid to government.

the £20 is not a "reduced level of SMI" it is the cost to the government of borrowing the money to repay the claimant's mortgage. the bank doesn't lose out in the second example as it gets all of its money back and can now lend it to someone else and charge them interest on it (probably at more than 3.6% as well). instead the govt loses out because it has to borrow the money now, and pay interest on it until the homeowner decides to flog the house and pay the money back.

look at it this way. you have to do one of the following two things:

(1) you can give me £100 now, and i will give you £100 back in 10 years time, plus £20 interest. it will cost you £20 to borrow the £100.

(2) you can give me £4 now, and i will give you £4 back in 10 years time plus 80p interest. it will cost you 80p to borrow the £4.

which would you do? if you say you would do (1) then i am going to bang my head against a wall until it splits open and my shrivelled brain falls out.

also, i don't really understand why in your first scenario the govt cannot claim back the 80p from the claimant. if they can get the £20 from the claimant under scenario 2 then they can get the 80p back under scenario 1 (by the same mechanism of putting a contractual agreement backed by a second charge over the property in place). it seems rather illogical to me to assume anything otherwise.

ukcarper

chewmylegoff wrote: »

the £20 is not a "reduced level of SMI" it is the cost to the government of borrowing the money to repay the claimant's mortgage. the bank doesn't lose out in the second example as it gets all of its money back and can now lend it to someone else and charge them interest on it (probably at more than 3.6% as well). instead the govt loses out because it has to borrow the money now, and pay interest on it until the homeowner decides to flog the house and pay the money back.

look at it this way. you have to do one of the following two things:

(1) you can give me £100 now, and i will give you £100 back in 10 years time, plus £20 interest. it will cost you £20 to borrow the £100.

(2) you can give me £4 now, and i will give you £4 back in 10 years time plus 80p interest. it will cost you 80p to borrow the £4.

which would you do? if you say you would do (1) then i am going to bang my head against a wall until it splits open and my shrivelled brain falls out.

also, i don't really understand why in your first scenario the govt cannot claim back the 80p from the claimant. if they can get the £20 from the claimant under scenario 2 then they can get the 80p back under scenario 1 (by the same mechanism of putting a contractual agreement backed by a second charge over the property in place). it seems rather illogical to me to assume anything otherwise.

True but that is just the same thing, as the bank government are effectively paying the banks interest and the interest on the money they borrow to pay it as opposed only the interest they pay on the money they borrow.

I suppose the bank doesn’t lose out they break even as they can lend out the money.

They can its just the overall thing is cheaper where do you think the extra 2% the bank pockets comes from.