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

Generali

Kennyboy66 wrote: »

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.

AIUI it's a contractual rather than a legal requirement. Part of the T&Cs is that you are setting aside money in some way to repay the mortgage.

If there is no repayment vehicle then you're in breech of contract. The remedy will be specified in the contract and appears in many cases to be a forced switch to a repayment mortgage which seems wholly reasonable to me.

Loughton_Monkey

Generali wrote: »

AIUI it's a contractual rather than a legal requirement. Part of the T&Cs is that you are setting aside money in some way to repay the mortgage...

I took the opportunity to check on my last three mortgage applications. In all cases, it leaves me in no doubt that I am totally responsible for having suitable arrangements to repay in full on the end date.

In addition, it requires me to supply (if asked) proof of the means with which I intend to repay it.

I have never been asked. I wonder if I might receive some form of call or letter on the subject before too long?

dryhat

Anyone with an IO mortgage should be sent a letter with just one question on it:

" did you take out this interest-only mortgage because the lower monthly payment was the only way you could afford to 'buy' your house"

YES/NO delete as applicable


Job done.

Generali

Loughton_Monkey wrote: »

I took the opportunity to check on my last three mortgage applications. In all cases, it leaves me in no doubt that I am totally responsible for having suitable arrangements to repay in full on the end date.

In addition, it requires me to supply (if asked) proof of the means with which I intend to repay it.

I have never been asked. I wonder if I might receive some form of call or letter on the subject before too long?

I suspect you will.

Thrugelmir

Loughton_Monkey wrote: »

I have never been asked. I wonder if I might receive some form of call or letter on the subject before too long?

The FSA Mortgage Market Review is still ongoing. One aspect is for all lenders to "evaluate" their i/o mortgage books. So the FSA can ascertain the extent and nature of the problems that exist. As seems no one currently has the answer.

Loughton_Monkey

dryhat wrote: »

Anyone with an IO mortgage should be sent a letter with just one question on it:

" did you take out this interest-only mortgage because the lower monthly payment was the only way you could afford to 'buy' your house"

YES/NO delete as applicable


Job done.

An alternative letter....

When your Interest Only mortgage expires in [date] which of the following will apply?

Tick one only:

• I will have paid the outstanding amount in full.
• I will have vacated the house and left the keys and a forwarding address for you to send any remaining equity.
• I will still be in the house and wish you to go through normal repossession procedures. I have read the attached list of repossession charges, penalty interest, sale charges, and our lack of obligation to get the best price.

dryhat

Loughton_Monkey wrote: »

An alternative letter....

When your Interest Only mortgage expires in [date] which of the following will apply?

Tick one only:

• I will have paid the outstanding amount in full.
• I will have vacated the house and left the keys and a forwarding address for you to send any remaining equity.
• I will still be in the house and wish you to go through normal repossession procedures. I have read the attached list of repossession charges, penalty interest, sale charges, and our lack of obligation to get the best price.

Or ...

• I do not know.

I don't think people's future intentions or hopes are going to be figuring much in any "investigation" into the mis-selling of IO mortgages.


Whereas their prior motives for obtaining such mortgages will.

mcc100

mcc100 wrote: »

I'll probably get shot to pieces by some posters, but below is an email I sent to Clinton Manning (Daily Mirror) on 16/9/2008 with my views on interest only mortgages.

Dear Mr Manning

Virtually everyone given an opportunity to air their views on television and radio is blaming the credit crunch for the sudden downturn in the housing market. However one of the real reasons is being hushed up, particularly by those involved in mortgage lending.

In 2005 the housing market had reached its peak due to the fact that the bottom end of the market had risen to a certain value whereby first time buyers had reached the limit of affordability. Normally the market would have stagnated and probably gradually fallen over a period of time.

However greedy mortgage lenders realised what was happening and as they were unwilling to lose business in the mortgage market they took the extraordinary decision to offer interest only mortgages to first time buyers without having to provide evidence of having a savings account/ insurance policy etc to pay off the mortgage at the end of its term. By doing so it meant that these first time buyers were able to afford to buy houses at a higher price than previously possible. The effect of this was to push the housing market beyond its natural peak to a level that was artificially inflated by 2007.

For example a first time buyer able to afford £600 per month would only be able to afford a repayment mortgage of £102000 over 25 years at an interest rate of 5%. The same first time buyer with an interest only mortgage would be able to afford a mortgage of £144000.

There are basically two types of first time buyers, those in their twenties and thirties who had never owned their own properties, and those older ones who had split from their spouses and were buying on their own for the first time. When offered interest only mortgages, those who queried the sensibility of them were told that they should look at it as being a better alternative to renting a property as after say five years they could walk away with several thousand pounds when the property is sold at a higher value. Those who did not query them were mainly the younger ones who had no understanding of mortgages and still believe that they will own their properties after 25 years.

Every first time buyer I know since 2005 has been offered an interest only mortgage and in my opinion it is mis-selling on a scale to compare with the endowment mortgages sold in the eighties and nineties. At least then, however badly performing the endowment policy, at least there would be some cash available to pay of the mortgage. Now there is none and the mortgage lenders have done nothing to ensure that the first time buyers have a means of paying off their mortgage. The outlook in a rapidly falling housing market for these first time buyers is grim to say the least.

Regards

X xxxxx

One of my previous posts reiterates my view of mortgage lending a few years ago .....

ILW

Is anyone going to be able to argue that they did not realise that interest only meant they would have to find a way of repaying the capital at the end of the term?

Generali

ILW wrote: »

Is anyone going to be able to argue that they did not realise that interest only meant they would have to find a way of repaying the capital at the end of the term?

I'm sure many will. The world is full of mongers of BS.

I should know, I've been car shopping today!