Nearly one million face mortgage difficulty.

wotsthat

Thrugelmir wrote: »

Isn't life simple. Write a letter to someone and the matters resolved. What if someone simply throws the letter in the bin. There's no obligation to respond. The sending of the letters was a requirement of the FCA put onto the lenders.

This is a simple matter as far as I'm concerned. I couldn't give a monkey's if people don't have the means to pay of their IO mortgage - I don't want to be on the hook.

It's pretty clear what interest only means but the banks have spent some time and effort covering their backsides to ensure the absence of doubt. That means I'm unlikely to have to fund a 'scandal' whereby people on IO loans get state funding so they can pass on the equity to their offspring tax free.

BobQ

antrobus wrote: »

Why, what bad things do you think might happen, and what do you think should be done to prevent those bad things happening?

I have to confess that when I received a letter asking me about my plans to repay an IO mortgage in 2022, my first thought was "you granted me the mortgage, what the hell has it got to do with you until I default", my second thought was to ignore it, but thinking about it for a few minutes I wrote them a letter explaining my intentions. Now in my case I have the cash to pay and a very good loan rate with an unspecified duration.

However, many people are trusting to luck and others are just digging their heads in the sand and that cannot be right. So what can be done? A large part of this problem happened when endowments came into disrepute and borrowers were allowed to take IO loans without having any firm strategy for repayment. So I would say:

(a) require people to convert their mortgages to repayment mortgages unless they can demonstrate a strategy for repaying by other means.
(b) Require those who keep IO mortgages to assign any endowments they originally took out for the purpose to re-asign them to the lender, and then make overpayments to clear the gap.
(c) Require those who have IO loans on their place of residence who do not follow the above to assign other assets to the lender in the event they default. So if an owner occupier has been investing in BTL they would be required to assign part of their BTL property to pay the IO loan.
(d) Require those not doing any of the above to certify that they will have sold the property by the end of the term or to acknowledge that the lender is empowered to do so.

I would make (a) the default position and put the onus on owners to prove that another approach will reduce the loan.

The above will be difficult for those who are close to retirement and close to the end of the loan, so they many need a longer repayment term or to assign the house to the lender when they move out or die.

BobQ

wotsthat wrote: »

This is a simple matter as far as I'm concerned. I couldn't give a monkey's if people don't have the means to pay of their IO mortgage - I don't want to be on the hook.

It's pretty clear what interest only means but the banks have spent some time and effort covering their backsides to ensure the absence of doubt. That means I'm unlikely to have to fund a 'scandal' whereby people on IO loans get state funding so they can pass on the equity to their offspring tax free.

You make a fair point, although I doubt any of current owner occupiers with IO mortgages deliberately set out to cause you this difficulty.

I suspect that for those that have no requirement for housing at the size they "own", there will be increased demand for 1/2 bed flats with the houses sold. For those that do need properties of the size they have, they will stay put and continue to pay IO. Those that cannot afford to stay will need a subsidy of some kind. I doubt we will justify making 70 year olds homeless.

michaels

BobQ wrote: »

I have to confess that when I received a letter asking me about my plans to repay an IO mortgage in 2022, my first thought was "you granted me the mortgage, what the hell has it got to do with you until I default", my second thought was to ignore it, but thinking about it for a few minutes I wrote them a letter explaining my intentions. Now in my case I have the cash to pay and a very good loan rate with an unspecified duration.

However, many people are trusting to luck and others are just digging their heads in the sand and that cannot be right. So what can be done? A large part of this problem happened when endowments came into disrepute and borrowers were allowed to take IO loans without having any firm strategy for repayment. So I would say:

(a) require people to convert their mortgages to repayment mortgages unless they can demonstrate a strategy for repaying by other means.
(b) Require those who keep IO mortgages to assign any endowments they originally took out for the purpose to re-asign them to the lender, and then make overpayments to clear the gap.
(c) Require those who have IO loans on their place of residence who do not follow the above to assign other assets to the lender in the event they default. So if an owner occupier has been investing in BTL they would be required to assign part of their BTL property to pay the IO loan.
(d) Require those not doing any of the above to certify that they will have sold the property by the end of the term or to acknowledge that the lender is empowered to do so.

I would make (a) the default position and put the onus on owners to prove that another approach will reduce the loan.

The above will be difficult for those who are close to retirement and close to the end of the loan, so they many need a longer repayment term or to assign the house to the lender when they move out or die.

Why do we care about how much equity owners with mortgages have but allow renters to have zero equity with impunity.


If I had a deal with a bank to pay the interest until some point in the future when I had to pay the capital back you would need to take me to court to unilaterally change the deal to one where I had to repay the capital a a new schedule - then again for the banks it could be a huge profit maker to unilaterally break an interest rate contract.....

However I do agree with your first sentiment, as long as the collateral remains sufficient the rest of my financial plans are none of the banks business.

wotsthat

BobQ wrote: »

You make a fair point, although I doubt any of current owner occupiers with IO mortgages deliberately set out to cause you this difficulty.

I suspect that for those that have no requirement for housing at the size they "own", there will be increased demand for 1/2 bed flats with the houses sold. For those that do need properties of the size they have, they will stay put and continue to pay IO. Those that cannot afford to stay will need a subsidy of some kind. I doubt we will justify making 70 year olds homeless.

There's already a subsidy of many/ some kind for people who have made no provision for later life.

Just because a 70 year old is in a correct sized home, spent 25 years paying no capital and has no means to repay the mortgage as agreed is no reason why they should stay there for life.

If they can come to an agreement with the bank to keep paying IO that might be the best solution especially, as I suspect at least, the numbers end up being tiny. The state should keep out of it.

wotsthat

michaels wrote: »

However I do agree with your first sentiment, as long as the collateral remains sufficient the rest of my financial plans are none of the banks business.

Exactly, why should anyone worry about other people repaying their debts when they've got the collateral to repay.

The default position should be that IO houses are to be sold to repay the debt unless the homeowner finds another way to pay. They might need to find somewhere new to live - I'd assume that was their long term plan if they'd made no effort to repay the capital rather than turn it into a moral argument about throwing people on the streets.

Graham_Devon

wotsthat wrote: »

This is a simple matter as far as I'm concerned. I couldn't give a monkey's if people don't have the means to pay of their IO mortgage - I don't want to be on the hook.

It's pretty clear what interest only means but the banks have spent some time and effort covering their backsides to ensure the absence of doubt. That means I'm unlikely to have to fund a 'scandal' whereby people on IO loans get state funding so they can pass on the equity to their offspring tax free.

Doubt it's made a slight bit of difference to any compensation issues down the line.

The issue is always in the selling. Warning afterwards doesn't make a blind bit of difference.

Which are currently looking into IO miss sales.

Mistermeaner

wotsthat wrote: »

Exactly, why should anyone worry about other people repaying their debts when they've got the collateral to repay.

The default position should be that IO houses are to be sold to repay the debt unless the homeowner finds another way to pay. They might need to find somewhere new to live - I'd assume that was their long term plan if they'd made no effort to repay the capital rather than turn it into a moral argument about throwing people on the streets.

That is what will happen. If the government steps in to help anyone then noone will bother trying to repay.

Mistermeaner

Graham_Devon wrote: »

Doubt it's made a slight bit of difference to any compensation issues down the line.

The issue is always in the selling. Warning afterwards doesn't make a blind bit of difference.

Which are currently looking into IO miss sales.

Genuine question how can anyone be so stupid as to not understand interest only?

Somewhat related but I hate when you look at mortgage rates they declare the APR as they are obliged go by legislation despite it being meaningless - ie 3 year fix at 2% which then defaults to the banks vanilla product at 5% will declare an APR of ~4% based on paying 5% for 22 out of 25 years despite fact that people will re mortgage onto a different product and/or the vanilla product will change - legislation intended to help but just makes things confusing

Onus should be on people to educate themselves or you encourage them to be thick and helpless

michaels

Graham_Devon wrote: »

Doubt it's made a slight bit of difference to any compensation issues down the line.

The issue is always in the selling. Warning afterwards doesn't make a blind bit of difference.

Which are currently looking into IO miss sales.

I'm will swear until I am blue in the face that I was miss sold my IO if there is any compensation in it:)