FCA: Interest-only mortgage crackdown "gone too far"

dryhat

I haven't read all the replies to this thread, but I hope the general consensus is ...



IO mortgages are not the preserve of "savvy investors"

They are taken out by people who could not otherwise afford to buy a house/flat.

100% guaranteed.

DervProf

HAMISH_MCTAVISH wrote: »

Mortgage lending pre crash was at £360bn a year. It's been 5 years now at around 100bn a year.

That's a TRILLION pound shortage over 5 years.

So a few tens of billions for these schemes so far is as far away from "loads of money" as you can imagine.

Could it be that the £360bn a year mortgage lending "pre-crash" was what helped to leave Northern Rock, HBoS, Bradford and Bingley etc rather "exposed" to what the naughty Americans were getting up to ?

The "shortage" in mortgage lending would not be such a shortage if property prices were lower, or hadn't been increased so much by pre-crash lending practices.

grizzly1911

HAMISH_MCTAVISH wrote: »

Actually it sounds like they have learned that while the pendulum may have swung too far towards abnormally easy credit by 2007, it has swung too far towards abnormally tight credit today.

A happy medium is what is required.

Looser than today, but tighter than 2007.

You take the position that today is too far to one side of the swing perhaps this is actually closer to the middle ground. No lending at all being the other side.

HAMISH_MCTAVISH wrote: »

Which hasn't even come close to filling the gap left over after the credit crunch.

They haven't shovelled "loads" of money at it, they've dipped their toe in the water with tiny, ineffective token gesture schemes so far.

Mortgage lending pre crash was at £360bn a year. It's been 5 years now at around 100bn a year.

That's a TRILLION pound shortage over 5 years.

So a few tens of billions for these schemes so far is as far away from "loads of money" as you can imagine.

If sensible lending had been followed before the crash there wouldn't be a gap to fill. The gap would never have been created.

Perhaps it isn't a trillion pound short but actually normal. We may have simply allowed in a trillion too much in the first place

HAMISH_MCTAVISH wrote: »

You can do what regulators and government are supposed to do.

Fix the broken and dysfunctional lending markets.

Whether that be through regulation, incentivisation, provision of wholesale funding, or whatever else. Other countries seem to be using a combination of all three, with promising results. Looks like we're heading down the same path.

Should government be interefering in a free market over and above ensuring properly priced liquidity is available?

I think tight regulation is required if the tax payer is expected to pick up the pieces.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Interesting that you call this "fixing".

Theres 2 meaning to "fix". I'm assuming you mean fixing as in meddling with the market and changing the outcome by force?

Fix as in repair something that is broken so that it resumes normal and proper functioning.

HAMISH_MCTAVISH

grizzly1911 wrote: »

Should government be interefering in a free market over and above ensuring properly priced liquidity is available?.

Well they've spectacularly failed to do even that so far.

marathonic

By the way, my opinion isn't that they should give out I/O mortgages to people that can't afford a repayment mortgage. By all means, underwrite the application as if they were going for a repayment style mortgage (and perhaps even a little tighter), but do give people that meet the criteria the option.

At the end of the day, a well underwritten I/O mortgage provides as much, if not more, return on capital to the bank as a repayment style mortgage

The mortgage I obtained last year was 66% of the maximum that the bank were willing to lend to me. It was 63% of the total value of the house. There's no reason the bank should have considered a mortgage at that level as very risky if given on an interest only basis - especially if that interest only loan was given on a reviewable basis where it could be reviewed and switched to repayment at set intervals (which they've already underwritten for and ascertained that it's within my affordability criteria).

Thrugelmir

marathonic wrote: »

At the end of the day, a well underwritten I/O mortgage provides as much, if not more, return on capital to the bank as a repayment style mortgage

However it doesn't guarantee straight forward repayment of the debt. Given the low margin on mortgage lending. From a lenders point of view this makes the risk not worth taking unless an additional margin is charged. Far better to have the capital recycled, i.e. repaid so can be relent.

marathonic

Thrugelmir wrote: »

However it doesn't guarantee straight forward repayment of the debt. Given the low margin on mortgage lending. From a lenders point of view this makes the risk not worth taking unless an additional margin is charged. Far better to have the capital recycled, i.e. repaid so can be relent.

Yeah, I totally understand where you're coming from. But is there any reason that, like the current "you may lose your home if you do not keep up with repayments" warnings, they couldn't provide similar, but more serious warnings for I/O mortgages.

I'm just trying to determine how it might work in practice for those of us who are financially savvy. For example, say my plan was to pay off the mortgage with my pension lump sum. If the rules were to allow forced sale of the property, even if I was keeping up with repayments, upon retirement if my lump sum couldn't cover the mortgage, is there any reason why the bank shouldn't lend to me on an I/O basis if I fully understood those risks?

Perhaps such I/O mortgages are a good idea if they were only available through an IFA channel. That way, not only are the mortgages underwritten by the bank, but there would be repercussions for the IFA if they were to advise them for people who's overall financial situation made such mortgages considered a mis-sell.

If this were the case, an IFA would be able to view my current pension pot of 1.7 times my salary (given my large contributions during my twenties) and see me as a potentially viable case for such mortgages.

The bank could put a requirement in place that the IFA review the financial standing of the mortgage holder every five years and, without their approval, switch them to repayment.

Not simple stuff but there has to be a way that I/O mortgages could be available on the market and not give rise to similar issues as we've faced in the past.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Well they've spectacularly failed to do even that so far.

Why do you want so much money put into lending?

It's a simple question. How does it effect you? You don't have kids that want to buy, so it's not that. You don't need lending, so it can't be that. So why, when you have A) no desire to borrow and no desire to see family borrow does it bother you so much that people are finding it harder to borrow?

Why would you want the taxpayer on the hook considering your position?

dryhat

The only reason people take out an IO mortgage is not because they are "savvy", it's because otherwise they could not "afford" the house they are "buying".

Combined with liar loans, this is why house prices boomed during the last decade.

It's as simple as that.


Anyone who thinks otherwse is an idiot and not worth arguing with.