Halifax Interest Only mortgage letters

Jimbo1976

Lloyds Banking Group which owns Halifax, is going through a pretty huge exercise at the moment looking at how existing borrowers on interest only mortgages are going to repay their loans. It has been doing this for some time.

If you reply and tell them what plans you have made, ie sizeable cash savings and an unemcumbered foreign property I'm confident that it will leave you alone but it will probably write every couple of years or so to remind you and to ask for updates. I would be highly surprised if it moved you to a repayment mortgage as long as you reply supplying the information.

jamesd

opinions4u wrote: »

There might be mileage in a complaint, but I can't really see the point as there is no loss made and no gain to be made.

The gains are interest earned at a rate higher than the mortgage rate, availability of higher income after mortgage costs until downsizing and flexibility of timing.

opinions4u

jamesd wrote: »

The gains are interest earned at a rate higher than the mortgage rate, availability of higher income after mortgage costs until downsizing and flexibility of timing.

With an SVR at 3.99% that would be an achievement (without getting caught out on a fixed savings rate as mortgage rates rise).

jamesd

Any indication that Railman has a product at SVR?

For a while competition is easy. 8% for a year on up to £300 a month from the First Direct regular saver. A two year fix at 3.6% won't beat 3.99% but it's probably higher than a majority of mortgage interest rates today.

Even without being on SVR the mortgage rate might be 3.99%$ or higher, of course. That's a pretty low rate in historic terms.

brit1234

jamesd wrote: »

A credible downsizing plan is one of the repayment vehicles considered by the FSA to be acceptable.

Could you back that up with a link please?

Downsizing success seems very linked to capital appreciation and that can not be guaranteed. Also any one can simply say they plan to downsize so you are taking someones word and saying it as good as showing a lender your isa summary. I don't buy it.

jamesd

The most convenient one to hand is "there may be circumstances where the sale of property is a realistic option, for example a consumer with a large family house genuinely planning to downsize when their children leave home, where there is a relatively large amount of equity in the property" but there have been others, that just happens to be the first that turns up in a search.

Moving on to the actual proposed regulations. The document introducing rule itself does not recommend downsizing or any other specific repayment vehicle and merely requires that affordability for an interest only loan is assessed either on repayment basis or on interest only basis if

"• the lender has evidence that the consumer will have in place a clearly understood and credible repayment strategy; and
• as far as it is reasonably able to assess, the repayment strategy has the potential to repay the mortgage."

But it's up to individual lenders to set their own policies for which types of repayment strategy they will accept for new lending. Note not vehicle in the rule, that's struck out and replaced by strategy, a broadening of the meaning that avoids requiring say a single product as a vehicle.

The rule itself, bold added by me, is:

"11.6.24 R (1) A mortgage lender may only enter into an interest-only mortgage, or switch a repayment mortgage onto an interest-only basis for all or part of its term, if:
(a) it has evidence that the customer will have in place a clearly understood and credible repayment strategy; and
(b) as far as it is reasonably able to assess, the repayment strategy has the potential to repay the capital borrowed and any interest reasonably expected to be accrued under the interest-only mortgage.
(2) In MCOB 11.6, a reference to an interest-only mortgage is to be read as including any regulated mortgage contract which includes an interest-only period or where part of the sum is advanced on an interest-only basis.
(3) A mortgage lender must not accept speculative repayment strategies for the purposes of (1)."
...
"11.6.28 G The following repayment strategies may, subject to the circumstances of the customer, be acceptable for the purposes of MCOB 11.6.24R(1):
(1) regular savings into an investment product;
(2) the periodic repayment of capital from irregular sources of income (such as bonuses or some sources of income from self-employment); and
(3) the sale of assets such as another property or other land owned by the customer.
11.6.29 E Acceptance by a mortgage lender of any of the following repayment strategies for the purposes of MCOB 11.6.24R(1) may be relied upon as tending to show contravention of that rule:
(1) an expectation on the part of the customer that the value of the property which is the subject of the regulated mortgage contract will increase over its term sufficiently to enable the customer to sell the property to repay the capital borrowed and, where applicable, pay the interest accrued under the interest-only mortgage;
(2) an intention on the part of the customer to utilise an expected, but uncertain, inheritance to repay the capital borrowed and, where applicable, pay the interest accrued under the interest-only mortgage; and
(3) the sale of the property which is the subject of the regulated mortgage contract, where the mortgage lender does not consider whether the property will have the potential to provide sufficient funds for the customer to repay the capital borrowed and, where applicable, the interest accrued under the interest-only mortgage, and allow the customer to purchase a cheaper property to reside in or execute any other associated strategy.

The above list is not exhaustive.

11.6.30 G In complying with MCOB 11.6.24R(1), where a customer’s repayment strategy is the sale of the property which is the subject of the regulated mortgage contract, a mortgage lender may wish to consider, as part of its assessment of that repayment strategy, factors such as the equity in the property when considered in relation to the level of property prices in the relevant area or, for a lifetime mortgage, the borrower’s life expectancy."

So the price rise aspect that you mentioned isn't permitted. The ISA comparison you made doesn't make sense. You have to take the customer's word about downsizing and the customers word that they won't spend the ISA on a world cruise of fancy car or drugs. Either way you have to accept that the customer does plan to do what they say they plan to do, if that is credible.


Page 95 of that document lists how various things are considered when assessing affordability and may be of interest.

For Railman the following may be of interest:

"4.77 When considering how to remedy the situation, we will expect lenders to continue to treat their customers fairly, as well as complying with relevant regulations such as the Unfair Terms Regulations."

"11.6.34 G (1) The controls in MCOB 11.6.33R(2) may include, where appropriate: maximum loan to value limits; minimum equity requirements; regional factors such as property prices; or other eligibility requirements.
(2) The policy and procedures for safeguarding the interests of a customer under an interest-only mortgage should not permit the mortgage lender to change the interest-only mortgage to a repayment mortgage, extend the term or otherwise change the features of the interest-only mortgage unless to do so is compatible with the duties of the mortgage lender under Principle 6 and any other applicable rules and regulations. A mortgage lender should also have regard to the Unfair Terms Regulations when drafting the provisions of regulated mortgage contracts in relation to changes to their features."

Further, the transitional arrangements in section 11.7 specifically say that it is not necessary to apply the tests in 11.7 when there is an existing mortgage in place:

"11.7.4 R (1) When considering entering into an interest-only mortgage, a mortgage lender need not apply the rules in MCOB 11.6.24R(1), MCOB 11.6.32R, MCOB 11.6.33R and MCOB 11.6.42R(3) if the conditions in MCOB 11.7.1R are satisfied, and if it has established, acting reasonably, that the existing regulated mortgage contract"

"11.7.5 R Before entering into a regulated mortgage contract or home purchase plan in reliance on this section (MCOB 11.7), a firm must communicate to the customer, clearly and prominently in a durable medium, that the new regulated mortgage contract or home purchase plan is being offered as an exceptional arrangement outside normal lending (or financing) criteria, on the basis that the customer has demonstrated that he can afford it by keeping up the payments under his existing regulated mortgage contract or home purchase plan for at least the last year."

Railman clearly has a highly credible repayment strategy in place, with multiple ways that will meet the objective. I do not believe that a requirement to change the mortgage to repayment is compatible with the duty under Principle 6 - to treat customers fairly - in this case.

grey_gym_sock

those regulations appear to be laying down minimum standards for acceptable repayment strategies, but not to prevent lenders from having their own stricter standards. so while a lender might be allowed to accept either (a) overseas property + cash deposits or (b) credible downsizing plan, they don't have to.

TCF sounds relevant if halifax are attempting to change which repayment strategies they accept retrospectively. but it's perhaps a weaker argument if they're now merely attempting to enforce the rules which they already had but failed to enforce. i don't know which of these is the actual situation.

jamesd

Agreed, a lender isn't required to accept a particular repayment vehicle, downsizing is just one that the FSA considers can be acceptable.

It doesn't seem to me that it's TCF when there's a viable repayment strategy in place an an ability to make an exception. Either way an exception would be required to change the mortgage if Railman is correct about not meeting the repayment criteria.

It gets worse because should the lender proceed and try repayment while Railman makes interest only payments I don't see much chance of the repossession attempt succeeding because how's a court going to accept their possession argument for a loan with no arrears and viable plans around with the lender refusing reasonable offers like sale of the property on a reasonable timescale as a repayment strategy? It looks like clear failure of the lender to behave properly that the court should just reject. I suppose a generous to the lender court might grant a suspended repossession order to take effect if the downsizing doesn't happen in some reasonable time.

Railman

Fortunately I'm in a position to be able to pay a repayment basis, and anyway the money will come back to me when the mortgage is closed in a years time. I wonder what will happen to people who are not in a position to pay a repayment basis, presumably they would fall into arrears?

For my part I intend to follow the suggestion of writing to them detailing out my repayment plan, together with its current progress (its 160% ahead of schedule). Then if they write back saying its unacceptable, I'll concede and let them move me to a repayment basis.

Should the FSA make a future rulling about these forced moves off interest only mortgages for customers with a faultless payment history. Then I shall join the queue for compensation at that time. I will by then have a full paper trail showing their reasoning.

Thrugelmir

jamesd wrote: »

For a while competition is easy. 8% for a year on up to £300 a month from the First Direct regular saver.

A regular saver only averages out at 4% per annum.