Shortfall fears for over 1m interest only mortgage holders

olly300

Thrugelmir wrote: »

Unfortunately with 1 in 8 interest only mortgage holders alone apparently not even aware they would need to repay the debt . The issue is simply to large to be micro managed.

Having it out in the media will get about 30% of the people listening.

Unfortunately the other 70% are the problem.

The FCA needs to get lenders to write a letter to IO mortgage holders with a warning and telling them to contact them if they are over 50.

This will still leave around 30% of people who didn't get the letter or hear the stuff in the media.

olly300

Thrugelmir wrote: »

Pensions, in particular those working outside the public sector are the next big issue.

NEST is suppose to solve this. :rotfl:

Cornucopia

I suppose the solution to this is either:-

1. The banks to rent the homes to the borrowers after the maturity of the mortgage.

2. The banks to facilitate sale of the homes to a landlord prepared to rent them to the borrowers.

I don't see either of these options as particularly unfeasible.

wotsthat

Thrugelmir wrote: »

We all know "somebody". Unfortunately with 1 in 8 interest only mortgage holders alone apparently not even aware they would need to repay the debt . The issue is simply to large to be micro managed.

I don't know if you've used the word 'apparently' ironically but it's worth taking a step back.

'1 in 8 people on IO loans don't realise they have to repay the debt.' - that doesn't get past my credulity filter.

Graham_Devon

Cornucopia wrote: »

I suppose the solution to this is either:-

1. The banks to rent the homes to the borrowers after the maturity of the mortgage.

2. The banks to facilitate sale of the homes to a landlord prepared to rent them to the borrowers.

I don't see either of these options as particularly unfeasible.

Apart from banks are not landlords or charities?

Cornucopia

The Banks are going to end up in possession of the properties - the question is, what are they going to do with them.

olly300

Cornucopia wrote: »

The Banks are going to end up in possession of the properties - the question is, what are they going to do with them.

Sell them and make a profit.

They already have the interest of the original buyer so selling them will add to it.

wotsthat

Cornucopia wrote: »

The Banks are going to end up in possession of the properties - the question is, what are they going to do with them.

Sell them. Most of these properties will come with lots of equity in them so the banks will easily recoup their capital and expenses.

Hardly likely to happen though - lots of equity isn't usually associated with repossession. The more sensible option would be for the householder to sell themselves - their expenses will be lower than those charged by the bank.

Then they rent.

OffGridLiving

Thrugelmir wrote: »

Scary? Not only do I have a wardrobe of teeshirts, but also the scars of war. Somebody has to man the ambulance and where necessary perform the surgery. Recession or no recession. People still make the same mistakes when it comes to finance. After all we all only human.

sorry, I assumed that you were going through your first recession and so everything seemed so dark and menacing to you. As you rightly say, we humans keep making the same mistakes and so the promise of 'no more boom and bust' is never going to be kept. We'll be out of this and well on our way to the next boom (then bust) soon. To coin a Disney phrase, "It's the circle of life".

One observation though, as a fully paid up member of the recession club, shouldn't you be trying to aleviate people's fears rather than (seemingly) stoking them? If you have 'been there and bought the T-shirt' you'll know as well as I do that it will get better again.

OffGridLiving

Thrugelmir wrote: »

We all know "somebody". Unfortunately with 1 in 8 interest only mortgage holders alone apparently not even aware they would need to repay the debt . The issue is simply to large to be micro managed.

I'm afraid I've not seen figures that substantiate the claim that 1 in 8 IO mortgage holders are not aware that they don't have to repay the debt (shocking if true), but this doesn't necessarily mean that these people can't repay their debt or at least service it with pension income (as the poster who you responded to mentioned). I disagree about whether this can be micromanaged. There are two disctinct groups of people impacted, those who bought before the boom and those who bought after. Within these groups, each case will be different and will receive different handling by the individual banks. As I can see, there is no need for high level government intervention, other than to encourage banks to withdraw IO mortgages or monitor them more effectively (as has already occurred).

I have already discussed the options available for those who bought after the boom and they have at least 15 years in which to sort themselves out. It's likely that events will help them, even if they cannot help themselves; as soon as they move house or remortgage, their IO mortgage will be repaid and they will start afresh on a repayment. Please see my previous posts earlier in the thread for other likely scenarios for this group of people.

Those who had IO mortgages before the boom are more likely to have much smaller mortgages, especially those coming to the end of a 25 year term. Some individuals will be looking to sell downsize, solving the problem. Some will use savings and pensions (25% tax free lump sum) to pay off the outstanding loan, solving the problem. For the others, most banks will simply extend their mortgage loan into retirement, with an element of capital repayment in order to reduce the lender's exposure. Either these people will remain in their home until the mortgage is paid off, or until they die and the estate pays off the house once it sells, or the homeowner goes into a home and the house is sold.

Each case will be dealt with on an individual case by case manner by their lender. The main problem has been solved - IO mortgages are dead. It's just a 'mopping up' exercise from here on.