Interest-only mortgage borrowers forced on to more expensive repayment plans

Generali

ukcarper wrote: »

The article was about switching people to repayment half way through the term if the contract is to pay the loan off at the end of the term have they broken contract yet. I had an endowment mortgage and the policy was assigned to bank did people taking interest only mortgages have to sign saying they had a repayment vehicle in place.

　

Most interest only mortgages have a clause stating that you must have a repayment vehicle in place. If you don't then you're in breach of contract. The bank would probably be within its rights to repossess, enforcing terms on the customer to ensure that the mortgage can be repaid at the end of the term is completely reasonable.

chucknorris

ukcarper wrote: »

did people taking interest only mortgages have to sign saying they had a repayment vehicle in place.

　

I had to when taking out the loans, but after remortgaging to other interest only products there was no requirement to do this. So I was then free to do what I wanted with the endownment policies, I eventually cashed them in.

zzzLazyDaisy

ukcarper wrote: »

did people taking interest only mortgages have to sign saying they had a repayment vehicle in place.

　

That was a lot of the problem - lenders stopped monitoring how the borrower would pay back the loan at the end of the term, and just left people to their own devices. I suspect that even the banks took the view that property always rises in value so they could repossess and get their money back if necessary.

Loughton_Monkey

zzzLazyDaisy wrote: »

That was a lot of the problem - lenders stopped monitoring how the borrower would pay back the loan at the end of the term, and just left people to their own devices. I suspect that even the banks took the view that property always rises in value so they could repossess and get their money back if necessary.

Although no lover of banks, I have to sympathise with them on this one.

1. In the 'old days' they were happy to do IO, but wanted the endowment policies assigned to them.

2. Had they continued with this rule, they would have been 'hung drawn & quartered' and "blamed" for "forcing" people into the Endowment Policy route - when other repayment mechanisms exist....

3. In any case, for a normal length mortgage, there is no possibility whatsoever of 'loss' by the bank provided they invoke their legal rights and simply kick out the owner who doesn't stump up the capital in 20 years time, sell, put all the expenses on the account, and throw the balance at the [former] owner.

4. In practice, however, we have a namby-pamby society which fully protects the 'pig-ignorant' who choose not to put a repayment vehicle in place, and choose to spend all their earnings for 20 years, and then go running to the consumer lobby complaining about 'small print', 'mis-selling', and 'greedy bankers conning me....'

So banks are damned if they do and damned if they don't.

shortchanged_2

Generali wrote: »

I think that the problem now is that people abused I/O mortgages, often with the tacit approval of banks. As the borrowers never gave any thought to how the mortgage was going to be repaid they now expect that the rules be changed so that they are renting the house off the bank indefinitely. When they retire, if any thought has been given to this, presumably they expect the Government to pay their mortgage for them indefinitely.

This is absolutely not what the bank signed up for as now they are expected to take on a political risk, that the Government will pay mortgage interest. Furthermore, the holders of Mortgage Backed Securities will need to be repaid. Where does that money come from after this default?

But there are many on here who think this is a perfectly acceptable situation.

StevieJ

Generali wrote: »

Clearly there are many who seem to think, 'we bailed out the banks, they need to sort their own problems out'. Well this is part of the process of banks reducing risk; unwinding some of the lending excesses of the early C21st. It's not possible to have lax lending standards and the new ultra-low risk bank model.
.

Where is the risk with £20k loan on a £100k+ property?

Generali

StevieJ wrote: »

Where is the risk with £20k loan on a £100k+ property?

The risk is that banks start to repossess a lot of these properties and then some politician comes along and says, 'We can't have these horrid banks being beastly to [STRIKE]fraudsters[/STRIKE] homeowners' and stops the banks from enforcing contracts. Anyway, who's to say that the mortgage will be £20k on a £100k property? Lots of areas are down 20% on the peak so will need to rise 25% in the next 20 years just to be even. That's far from a given in those places where you could buy a burned out terrace for a few hundred quid in the late nineties that would sell for the high tens of thousands or more by 2007.

The main problem is that it costs banks a lot of time and money to repossess a house. I don't know if you've ever run a business but all these side issues take up a huge amount of time and energy that could be much better deployed on other things. Banks don't want to repossess houses mainly because it's a colossal effort.

Generali

shortchanged wrote: »

But there are many on here who think this is a perfectly acceptable situation.

There are I agree. People want things all ways round:

- No more bailouts (i.e. no more high-risk lending)
- No more casino banking mixed with retail (i.e. no more diversified income streams = higher risk)
- More lending to small businesses and FTBs (i.e. more high risk lending)

And that's the intelligent side of the debate. Popular opinion is, "We bailed 'em out so why should I pay late fees on my credit card?" or "String 'em up".

Frankly the last argument is the only one that really holds any water. At least it's internally consistent.

Graham_Devon

I can see an argument where the bank revalue the house, and charge interest only / rent on that. Afterall, it's a new contract. Though I still don't see why the banks would even want to.

But I can't see the argument for letting people continually pay token interest rates on a house price from 25 years ago.

If a renter wanted to do that to their landlords, most of those suggesting there is nothing wrong with the idea would be scoffing at the idea that a renter should be able to pay the equivalent rate that they would have 25 years ago.

It's all a nonsense from people who want others left in their homes purely so that this interest only problem doesn't knock on to house prices when more and more try to sell.

Conrad

StevieJ wrote: »

Where is the risk with £20k loan on a £100k+ property?

£20k equity.

Repo costs;

1. Many lost man hours
2. Extra admin costs such as delivering by hand a notice
3. Lock smith
4. Balifs
5. Police attendance
6. Damage - folk often gut the entire property in revenge
7. Boarding up
8. Court costs
9. Loss of interest
10. Selling agents
11. Lawyers costs to sell the place
12. Lawyers costs to act for lender during repo

£20000 equity is diddly squat.