It's getting close.... the great IO mortgage miss-selling scandal

Generali

AIUI, the argument goes like this.

Using an 'affordability' measure of lending, some banks some of the time were apparently happy to offer a larger loan to people taking out an IO loan. These people were mis-sold to on the basis that the only reason they could afford the larger IO loan is because they didn't have a repayment vehicle in place.

In effect banks were encouraging people to break the terms of their own contracts!

If this is true then I have some sympathy with this argument although I would say that the better solution would be a criminal/civil charge against the seller of the loan. It is hard to see how someone who was complicit with the bank in borrowing more than they could hope to repay deserves compensating.

I have no idea if this is true BTW, it's just what I've seen put forward as an argument. It's also worth noting that if there is a significant chance of a material loss, a bank is required to put a liability into it's accounts. As far as I am aware no bank has yet set aside 'money' in order to make good on mis-selling claims for IO mortgages.

michaels

Plus what loss have they actually suffered? They have probably had use of a property at a cheaper price than renting and if they put in little equity, given the bankruptcy laws, they have also had a free option on house price increases.

Generali

michaels wrote: »

Plus what loss have they actually suffered? They have probably had use of a property at a cheaper price than renting and if they put in little equity, given the bankruptcy laws, they have also had a free option on house price increases.

I suspect that is immaterial: it suits the Bash the Banks narrative and I guess that trumps pretty much anything right now.

FTBFun

shortchanged wrote: »

Well we now have a very well established compensation culture in this country so anything's possible.

Only if you believe everything you read in the papers.

Graham_Devon

michaels wrote: »

Plus what loss have they actually suffered? They have probably had use of a property at a cheaper price than renting and if they put in little equity, given the bankruptcy laws, they have also had a free option on house price increases.

It's the same with lots of compensation though. You don't have to have lost anything, all you need to be, is named as the victim.

I think an IO scandal will suit the government, the BOE and the banks down to the ground. It makes it relatively easy to come up with a solution for all those trapped on IO with no way of paying.

Although they may get fined, the fines will be minute compared to the order of fallout if this problem needs to be cleaned up without intervention and people are placed onto repayment mortgages which leads to a very quick default.

The interest only "time bomb" could very soon be sorted. The "time bomb" is not something only plastered across newspapers....I've heard very high up people in banks, economists etc using the words....mainly because it is a real problem. Martin Lewis was only speaking of it yesterday in the same sort of vein. Even Mervyn King has referred to it.

Maybe it's just my consipriacist theory mind in overdrive, but I honestly can't see the government letting interest only homeowners fall, after all the support they have placed under the housing market.

dunstonh

Maybe it's just my consipriacist theory mind in overdrive, but I honestly can't see the government letting interest only homeowners fall, after all the support they have placed under the housing market.

I would take a guess that an equity release style product will become available for those meeting a criteria. That way, the homeowner doesnt get kicked out and can stop making payments to the mortgage but doesnt avoid paying their debts. The lenders will just have to wait for the money but as they can still charge interest on it, they probably wont mind (especially if the alternative is having to write off loads). In theory, current equity release schemes would work for over 55s but I suspect there will be some scheme created that is virtually the same but has a cap on interest and Govt backing.

Loughton_Monkey

dunstonh wrote: »

I would take a guess that an equity release style product will become available for those meeting a criteria...

.. then I hope it's good, and that I qualify!

After all, I've been a"victim" of this massive Interest Only scam [or to put it more accurately, I have fully enjoyed the benefits of interest only mortgages all my life and profited hugely from them. And unlike many, it seems, I actually understood them].

In 5 to 10 years, I may well want a drawdown lifetime mortgage. These are available now, but the rates are quite high. But if the Government can somehow keep them down - at the expense of taxpayers - to my benefit, then I am not going to complain.

Kennyboy66

Generali wrote: »

AIUI, the argument goes like this.

Using an 'affordability' measure of lending, some banks some of the time were apparently happy to offer a larger loan to people taking out an IO loan. These people were mis-sold to on the basis that the only reason they could afford the larger IO loan is because they didn't have a repayment vehicle in place.

In effect banks were encouraging people to break the terms of their own contracts!

.

Did people legally have to have a repayment vehicle in place ? (I have genuinely no idea).

I can understood how people were mis-sold PPI and endowments (both being an add on to the actual thing you are buying ie a loan or a mortgage).

However, what exactly is confusing about the words 'interest only'.

It may have been dumb of both the lender and borrower to enter into a IO loan, but I struggle to see how it was possibly mis-sold.

coastline

What if you invested in an ISA plan to pay off your mortgage...similar to an endowment ??....I know at least 2 people who look like being well short.

Thrugelmir

coastline wrote: »

What if you invested in an ISA plan to pay off your mortgage...similar to an endowment ??....I know at least 2 people who look like being well short.

Much could depend upon whether they were sold this product (in house bank advisor on commission) or whether it was their own choice.

Aside from that. The borrowers should be monitoring the situation and making adjustments accordingly. As unlike endowments. ISA's had no investment projected returns.