Nearly one million face mortgage difficulty.

michaels

Thrugelmir wrote: »

The residue of NRAM's mortgage book has been a known fact for many years. The problem doesn't come to roost until after 2020. When the balances outstanding for redemption increase markedly.

Now there is a shock, the majority of mortgages written between 2000 and 2007 when NR tried to get big are not due to be repaid until after 2020...is the pope catholic as well?

Currently most of the borrowers are trapped paying 5% plus and odds are the banks will make this large margin for several years before getting their capital back as they have suitable asset security - nice business if you can get it. Then again the borrowers who have paid less than renting and probably accumulated some equity have probably won too.

Thrugelmir

michaels wrote: »

Now there is a shock, the majority of mortgages written between 2000 and 2007 when NR tried to get big are not due to be repaid until after 2020...is the pope catholic as well?

The problem mirrors the rise in house prices through from 1997 to 2007. NR at the peak was funding 18% of new business. In essence those other lenders wouldn't even consider.

CLAPTON

Thrugelmir wrote: »

Last report I saw showed high LTV across the interest only mortgage book. Around the 80% level for residential and higher for BTL. Though prices have increased since then so there's a little relief. Problem is more the quality of the individual borrowers themselves. As are trapped by the implementation of last years Mortgage Market Review.

well, it depends upon the loan to actual value when the loan becomes repayable as to what exactly the problem is.
if there's equity then they can sell and have a nice little next egg whilst renting

michaels

Thrugelmir wrote: »

The problem mirrors the rise in house prices through from 1997 to 2007. NR at the peak was funding 18% of new business. In essence those other lenders wouldn't even consider.

When the loans were written people were getting mortgage plus personal loan all at cheaper mortgage rate. Now the stranded borrowers are getting mortgage plus personal loan all at the unsecured loan rate. May have been bad news for the lender at the time but sounds like good business now.

missbiggles1

missyrichards wrote: »

How exactly did people not understand that they were taking on a debt that they will have to pay back?

Paying it back when the property's sold (before or after death) is no problem.

the_flying_pig

michaels wrote: »

So all those people who you would have denied the chance to purchase IO and forced them to rent...how many of them would be better off today?

I think we might have covered this just once or twice before, but we're talking about a zero sum game. Lax lending can't create winners without creating losers. We'd still have exactly the same number of houses, but with slightly lower borrowing and prices.a clampdown on io would have hit landlords harder than owner occupiers so we'd probably have slightly higher owner occupation too, albeit possibly not exactly the same set of owners, with the same mortgages, at the same prices.

Thrugelmir

michaels wrote: »

May have been bad news for the lender at the time but sounds like good business now.

Much of the good business has been sold off to other lenders. What's remaining is the not so good. Only time will tell if the taxpayer will come out on top (aka Lloyds) or in the red (aka RBS). As the cost of administration will proportionately increase as the mortgage book becomes more time consuming to wind down. Highly possible that the remnants will be sold to vultures at pence in the pound and let them chew on the bones.

PasturesNew

Maybe they borrowed £100k, house will be worth £400k, they'll sell and trouser £300k and buy a place somewhere nice for £250-300k and live the life of riley mortgage free.

BobQ

Those making an informed decision to accept the risks of an IO mortgage are not the problem.The problem is those who cannot sell the house and afford to buy or rent a property of the size they need in the future.

People are not that clever with big financial decisions and the lenders exploit this. Had everyone who went IO mortgage had to sign a simple statement "I agree that on (date) the lender may evict me and sell my home unless I have repaid the loan by other means" and a copy was sent to them annually, you would have no sympathy. But in practice it never put this way.

I think it was far better when buyers had to provide a financial product secured on the property. Endowments were not perfect but at least they meant that most of the loan would be repaid. Even then, there were often policies that were expensive but Guaranteed to repay the loan and other cheaper ones that did not guarantee repayment and the latter were the ones mostly sold.

But those who have ignored the warnings do not deserve much sympathy. I suspect many of them will also have failed to budget for a pension and will also have enjoyed new cars, extensions and expensive holidays. Equally those who have had such loans have mostly had them for years and seen a lot of capital appreciation. But if they chose to release equity as many will have done, this again is very poor judgement.

BobQ

missyrichards wrote: »

How exactly did people not understand that they were taking on a debt that they will have to pay back?

I think people are becoming more financially aware nowadays. But before people understood the endowment mis-selling there were quite a few who did not appreciate the difference between a repayment mortgage and an interest only mortgage. Particularly so when tied financial advisors wrapped them up in marketing language.