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

ukcarper

Graham_Devon wrote: »

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.

What token interest rate, the rate they pay is the rate in force at the time and for interest only could be higher than rate on a repayment mortgage.

Or are you suggesting they should pay interest on the part of the property they own I'm not sure they would be able to do that legally let alone with out causing very bad press. You could see the headline now bank charges pensioner 50% interest.

Banks are quite happy to allow pensioners to pay interest only they even go further by not taking any monthly payment and just recoup the entire cost when house is sold.

Emy1501

ukcarper wrote: »

What token interest rate, the rate they pay is the rate in force at the time and for interest only could be higher than rate on a repayment mortgage.

Or are you suggesting they should pay interest on the part of the property they own I'm not sure they would be able to do that legally let alone with out causing very bad press. You could see the headline now bank charges pensioner 50% interest.

Banks are quite happy to allow pensioners to pay interest only they even go further by not taking any monthly payment and just recoup the entire cost when house is sold.

Banks allowed people to take out IO mortgage for the term of the mortgage. At the end of term the money was to be paid. People are now reaching the term of their mortgage and deciding they do not want to pay the capital back.

People can't have their cake and eat it. Either they sell up or pay back on what ever terms the banks are willing to allow.

ukcarper

Emy1501 wrote: »

Banks allowed people to take out IO mortgage for the term of the mortgage. At the end of term the money was to be paid. People are now reaching the term of their mortgage and deciding they do not want to pay the capital back.

People can't have their cake and eat it. Either they sell up or pay back on what ever terms the banks are willing to allow.

So do you think the banks are likely to foreclose on a pensioner owing say £20k on a house worth say £160k or allow then to stay and pay the interest.

Graham_Devon

ukcarper wrote: »

What token interest rate, the rate they pay is the rate in force at the time and for interest only could be higher than rate on a repayment mortgage.

Or are you suggesting they should pay interest on the part of the property they own I'm not sure they would be able to do that legally let alone with out causing very bad press. You could see the headline now bank charges pensioner 50% interest.

Banks are quite happy to allow pensioners to pay interest only they even go further by not taking any monthly payment and just recoup the entire cost when house is sold.

I'm honestly struggling to figure out why anyone see's this as morally right, let alone something we should expect the banks to reasonably do.

What people are suggesting is that interest is continually paid, until such time that the pensioner either passes away, or decides they want to leave the house.

They expect the banks, who basically own that house, to charge them interest on the price paid 25 years ago, even though the contract started 25 years ago has now ceased.

All I'm saying is that it's reasonable to expect the bank to re-value their asset, and charge the going rent on that. They do that for all other lending activities (as do all companies), so why expect them to charge interest on the price 25 years ago when contracts have ceased? It's a complete and utter nonsense.

Secondly, how is it reasonable to expect the bank to keep a liability on their sheets, and their own money stored within that liability for a period of which the borrower can choose to end at any point? Either through death, or a sale.

Seriously. I can't see why people think this is a reasonable suggestion. None of us would expect banks to treat us in the same way, with no fixed contracts and liable reign in as much or as little as they choice...when they choose.

StevieJ

Conrad wrote: »

£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.

Maybe but my example had £80k+ (or 80% equity), you are a mortgage broker?

Emy1501

ukcarper wrote: »

So do you think the banks are likely to foreclose on a pensioner owing say £20k on a house worth say £160k or allow then to stay and pay the interest.

Down to the lender to decide. They have made offers of a new term. If the owner is not happy then either find another lender or sell up.

I know someone with a BTL who had 30k left on a 200k house. They were Told 4 weeks before term to pay up or the lender would look to repossess

ukcarper

Graham_Devon wrote: »

I'm honestly struggling to figure out why anyone see's this as morally right, let alone something we should expect the banks to reasonably do.

What people are suggesting is that interest is continually paid, until such time that the pensioner either passes away, or decides they want to leave the house.

They expect the banks, who basically own that house, to charge them interest on the price paid 25 years ago, even though the contract started 25 years ago has now ceased.

All I'm saying is that it's reasonable to expect the bank to re-value their asset, and charge the going rent on that. They do that for all other lending activities (as do all companies), so why expect them to charge interest on the price 25 years ago when contracts have ceased? It's a complete and utter nonsense.

Secondly, how is it reasonable to expect the bank to keep a liability on their sheets, and their own money stored within that liability for a period of which the borrower can choose to end at any point? Either through death, or a sale.

Seriously. I can't see why people think this is a reasonable suggestion. None of us would expect banks to treat us in the same way, with no fixed contracts and liable reign in as much or as little as they choice...when they choose.

The banks asset is not the house but the amount of mortgage. The banks make money by lending money and charging interest so what is the advantage of foreclosing on the loan, I believe interest only loans have an higher interest rate so they would make less money.

I personally would not take out a interest only loan with out a repayment vehicle. I actually took out an endowment sold and recommended to me by the bank which did not cover the mortgage fortunately I was able to make up the shortfall but some people may not have been able to.

StevieJ

Graham_Devon wrote: »

I'm honestly struggling to figure out why anyone see's this as morally right, let alone something we should expect the banks to reasonably do.

Are you for real? nothing to do with morality more to do with a nice little earner for the bank backed by a ultra secure asset. Just to confirm, I am not referring to someone that has equity released up to the full value of the house, but someone who has enough equity to cover all eventualities for the bank.

Graham_Devon

ukcarper wrote: »

So do you think the banks are likely to foreclose on a pensioner owing say £20k on a house worth say £160k or allow then to stay and pay the interest.

That's ultimately up to the banks to decide, but they should...there are other options for the pensioner....and there were other options when the pensioner signed up too.

Looking at the moral hazard for a second of what you are suggesting....

Peter lives at number 1. Paul lives at number 2.

They both bought at the same time, identical houses, identical prices.

Peter bought his house on a repayment mortgage, and has struggled at times to pay his way, losing out to other experiences due to lack of disposable income due to higher mortgage payments each month. At the end of 25 years, Peter has a house to live in for the rest of his life.

Paul bought his house on an interest only mortgage. He was able to go on holidays as his payments were not as high as peters, however, peter was sacrifycing holidays to have a secure home later in life. Paul doesn't act on saving up to pay off the debt he owes.

Paul then get's told he can stay in his house, until he decides, and continue paying interest on the price of the house 25 years ago. Paul says "thankyou very much" and goes on holiday.

Peter now has a house that he too can stay in, but only because he's paid it off, paying thousands of pounds more for the same house.

Square that one up for me please carper. You gonna suggest Peter should be grateful, as the lack of forced sales keeps his house price higher than where it would have otherwise been? What use is that to Peter?

StevieJ

Dev, you are rambling