"Thousands" with BOE trackers face mortgage interest rate rise

Graham_Devon

Well renoman at least will be glad to know my sympathetic side is now starting to come through!

This has exploded on several websites, and more and more stories are starting to be told, making sense of why people will struggle.

I gotta stop reading all the comments now, but as someone who has been warning of the problems of keeping rates low for some time, of course, it does interest me to start seeing problems associated with those low rates.

So, we have a couple of residential mortgage holders who will be, in their own words, on the breadline or bankrupt as a result of this. You do wonder how as their properties were bought in 2004. But on questionining by several who also wonder how this is possible, the maths and the problems start hitting home.

In most cases, these are interest only loans. For residential purposes people were paying them as they were due each month. Then in 2008/9, rates hit the floor. IO was a problem....the fear of "how are you going to pay your loan off" started hitting the press. (one was slightly different as they MEW'd before 2008 to get into BTL, but for the same purpose).

So, with these particular people now receiving a windfall never expected, the persued a plan to pay off their IO loan. Good on them. Trouble is, their plan was to use their savings to get into BTL. The tenant was supposed to pay the rent and therefore the mortgage with some profits, the house would be sold 15 years later, and therefore the residential IO mortgage would be sorted. (We have the same scenario with people stuck in BTL that state they are not a business, they just couldn't sell their home so rented it instead - this advice is still given religiously on the mortgage boards here).

How many times have we heard the plan on here?

Now the plan has hit home, and YES, I do feel some sympathy as at least they were trying to address the IO "timebomb" thing....they just took the wrong advice, as no one had thought of the problems of interest rates increasing. (Maybe they got the advice from here!?!?).

Anyway, they now have the problem of servicing a BTL mortgage (or two in one case), which makes very little profit (and in one case, no profit as they hadn't factorerd in maintanance etc) as its a recent purchase. Servicing this mortgage was done purely on the savings made by the windfall on the tracker.

Simple as that. As soon as base rates went up, they would have been stuffed, but the idea was that base rates would only go up when the economy was sorted. Instead, their mortgage rate has gone up and they are now screwed, with kids in a house thy bought pre-2004, where no capital has been paid off and they no longer have the money to pay the mortgage as that money has been diverted to a second mortgage which was suppoed to, but isn't. paying for itself.

Yes, they have my sympathies. I wish they hadn't fell for the advice given. BUT, it's every single problem many have been warning about actually hitting home. And this is just the results based on 13,000 people.

How many others have commited any saving from low rates to other things?

Thrugelmir

Graham_Devon wrote: »

I wish they hadn't fell for the advice given.

Anyone taking out a BTL mortgage is taking out a commercial loan. They are running a business so there's no advice as such. The decision is their responsibility. If they cannot make a profit borrowing at sub 5% then the problems with their business skills.

Graham_Devon

Thrugelmir wrote: »

Anyone taking out a BTL mortgage is taking out a commercial loan. They are running a business so there's no advice as such. The decision is their responsibility. If they cannot make a profit borrowing at sub 5% then the problems with their business skills.

Yes, I agree, I think the problem is that they, and they people they turned to for advice do not see it as a business.

People like chucknorris obviously do. But how many times have you seen the comment "I'm not running a business, I just couldn't sell my house" on the mortgage / buying board?

It seems it's truly believed this isn't a business...and it's been sold to them that way....sometimes by members of this very board.

Look how we are both now being accused of creating sockies and being "part of the BOI" simply for suggesting such things on the other thread. Says a thousand words.

I truly believe this is the first time we have seen the actual effects of property programmes, the grand BTL profit scheme and the multitude of advice on how to increase your debt and turn it into profit actually haunting people. I always thought it was going to take bank rates to move upwards to do so, which is why I have taken such interest in this. It's taken 4 years...a lot longer than I thought it would, but thats only compounded the amount with problems. This is just one lender with 13k customers. The problems ratio to the amount of customers (based on words stated on forums) is pretty large.

Graham_Devon

grizzly1911 wrote: »

Moneybox R4 suggested, based on the legal advice they had sought they don't have any redress.

Boulger, as Dev pointed out, was suggesting formal complaints to hinder the process. Apparently it costs, lenders, £750 for each case referred to the Ombudsman. Collectively it may make them rethink but I wouldn't hold my breath.

I just dunno how ray boulger thinks thats going to help the situation. Apparently he's upset that we are having to pay for banks mistakes. Was OK when the taxpayer was paying for QE, FFL, Newbuy, Firstbuy, Lend a hand. But he's now shocked people are having to pay for the mistakes of a bank.

All he's stated is to extend the problem, with absolutely no advice, or even thought on what will happen after that when the problem is compounded.

No one will yet challenge him, he's still saying what people want to hear. Not sure where he will be in 5 years time though as the whole thing unravels and his advice to simply extend has made things worse.

Thrugelmir

Graham_Devon wrote: »

Yes, I agree, I think the problem is that they, and they people they turned to for advice do not see it as a business.

People like chucknorris obviously do. But how many times have you seen the comment "I'm not running a business, I just couldn't sell my house" on the mortgage / buying board?

It seems it's truly believed this isn't a business...and it's been sold to them that way....sometimes by members of this very board.

Look how we are both now being accused of creating sockies and being "part of the BOI" simply for suggesting such things on the other thread. Says a thousand words.

I truly believe this is the first time we have seen the actual effects of property programmes, the grand BTL profit scheme and the multitude of advice on how to increase your debt and turn it into profit actually haunting people. I always thought it was going to take bank rates to move upwards to do so, which is why I have taken such interest in this. It's taken 4 years...a lot longer than I thought it would, but thats only compounded the amount with problems. This is just one lender with 13k customers. The problems ratio to the amount of customers (based on words stated on forums) is pretty large.

Reference to sockies made me smile.

Maybe this is a good wake call. Yes effects 13,000 people directly. In 1998 there were only 30,000 residential property loans. Now well over a million. How many of these people fully understand what they are doing (in a financial sense).

Graham_Devon

Come to think of it, it was Ray Boulger in 2007, stating people should take as much as they can on an Interest Only loan, before it's too late as prices excel.

I've posted the article up before now, but can't be bothered finding it again.

Quick search reveals on IO loans:

"If you calculated mortgage repayments when interest rates could be up to 15 per cent and now, when they could go up to 6 per cent, you can borrow twice as much now for the same monthly repayment as you could then," says Ray Boulger, senior technical manager at brokers John Charcol. "Given that the typical salary multiple then was three-and-a-half times, five times is not even that generous."

BertieUK

Harry_Boyle wrote: »

Graham_Devon, the Lachryphagous Moth of MSE.

I am rather baffled as to who is re-wired, who lurks around like a shadow and always thank's this poster. Because he has never yet made a post of his own.

Could it be his twin brother?

shortchanged_2

We have Martin Lewis MoneySavingExpert and then we have..........

Ray Boulger Champion of the debt junkie.

Thrugelmir

Graham_Devon wrote: »

Come to think of it, it was Ray Boulger in 2007, stating people should take as much as they can on an Interest Only loan, before it's too late as prices excel.

I've posted the article up before now, but can't be bothered finding it again.

Quick search reveals on IO loans:

Working for a large mortgage broker very much a vested interest in property lending.

Not the person you would expect to give proper advice........

chucky

The one-man MSE Internet anti-BTL campaign continues.

God bless Devon, he must have nothing better to worry about. No wait!!