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

Thrugelmir

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?

There's a fundamental difference between arguing and having tangible proof though.

HAMISH_MCTAVISH

This really is a storm in a teacup.

My current house would have sold in the mid 80's for around 35k.

If an I/O mortgage for 35 k came due today on houses worth 200k, I can't see many people struggling to find a way to fund it. Even with mortgage rationing.

It'll be the same thing 10 or 20 years from now as well.....

Loughton_Monkey

mcc100 wrote: »

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.....

You simply cannot legislate for stupidity. The need to pay off the capital somehow couldn't be clearer on application forms, leaflets, and the mortgage contract. People who cannot (or will not) read have no higher recourse to application of contract law than the rest of us.

Go over to the Pensions forums and see the number of people who think they can 'cash in' their pensions (before age 55) and that even then they can take it all (not 25%).

Do you think pensions have been mis-sold for this reason?

Generali

HAMISH_MCTAVISH wrote: »

This really is a storm in a teacup.

My current house would have sold in the mid 80's for around 35k.

If an I/O mortgage for 35 k came due today on houses worth 200k, I can't see many people struggling to find a way to fund it. Even with mortgage rationing.

It'll be the same thing 10 or 20 years from now as well.....

Maybe. If someone bought post 2004-5 outside London the chances are that their house is worth at best what they paid for it and that their wages are only up 1 or 2% after inflation.

It's a big assumption to make that house prices and wages only go one way.

HAMISH_MCTAVISH

Generali wrote: »

Maybe. If someone bought post 2004-5 outside London the chances are that their house is worth at best what they paid for it and that their wages are only up 1 or 2% after inflation.

It's a big assumption to make that house prices and wages only go one way.

Sure, but those recent mortgages are mostly irrelevant. Worst case scenario they sit there for 25 years.

And it's not a big assumption at all to suggest that in an inflationary monetary system, nominal values will be vastly greater in 25 years than they are today.

Even with zero real terms HPI, paying off or refinancing a far smaller inflated away in nominal terms mortgage 25 years later is not going to be hard for most people.

Pobby

Is it true that many BTL`s were purchased on IO mortgages back in the day?

michaels

Pobby wrote: »

Is it true that many BTL`s were purchased on IO mortgages back in the day?

I presume they still are with the banks protected by the borrowers hefty chunk of equity. Are you suggesting that this is an issue for that business model?

Pobby

michaels wrote: »

I presume they still are with the banks protected by the borrowers hefty chunk of equity. Are you suggesting that this is an issue for that business model?

Possibly. I know at least a couple of people who came in very late in the game. That to me is the key. One is sort of breaking even at best, rent covers the mortgage. That is without all the other stuff, repairs, yadda yadda.

With benefits to be capped it may well reflect on the btl situation.

grizzly1911

Loughton_Monkey wrote: »

You simply cannot legislate for stupidity. The need to pay off the capital somehow couldn't be clearer on application forms, leaflets, and the mortgage contract. People who cannot (or will not) read have no higher recourse to application of contract law than the rest of us.

Go over to the Pensions forums and see the number of people who think they can 'cash in' their pensions (before age 55) and that even then they can take it all (not 25%).

Do you think pensions have been mis-sold for this reason?

Makes you wonder why some people are allowed to borrow money in the first place. Never used to surprise me, in previous life, the number of people that couldn't even fill in a basic budget planner.

Graham_Devon

And another to add to the bandwagon...

In the case of Mr and Mrs Hughes, they have been stranded because they took out an interest-only mortgage.

For decades these loans were popular because they allowed borrowers to keep their repayments low. However, they repaid only the interest on their mortgage, but none of the original sum borrowed.

Essentially, this meant that when the mortgage term ends, they still owe precisely the same amount as they began with.

Tony, now 72, claims this was never clearly explained to him when he paid £35,000 for a three-bedroom house in Tunbridge Wells, Kent, in 1981.

Yet, they took out an endowment, to cover the shortfall, even though they didn't understand there would be one.

They understood why they were remortgaging and extending the loan (as they couldn't pay the balance) but now it wasn't clearly explained.

You can just see it all emerging!

http://www.thisismoney.co.uk/money/mortgageshome/article-2225427/The-50s-mortgage-trap-Older-owners-face-losing-homes-struggle-meet-repayments.html

And more..

Mr Wallis was a company director and could have afforded a capital repayment mortgage, but he was promised by his financial adviser that the endowment with Scottish Provident — later taken over by Phoenix Group — would not only cover the £80,000 mortgage, but would probably also give the couple £40,000 to spend in their retirement.

‘Like millions of other borrowers, I was told an interest-only mortgage would be more beneficial and rewarding, but this advice turned out to be totally wrong,’ says Mr Wallis

Further down the article, the moaning starts that their investment plans didn't go quite to plan and after extending and pretending, they may now have to sell as a slight loss and that's their pension gone.

The "We were told we could have had a new car every year, 4 but to lets and a 2 world cruises each year if only we took interest only mortgages...and we only got a place to live" shows the intent.