Coronavirus Mortgage Problem

Jeremy535897

k12479 said:

Jeremy535897 said:

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In the latter case the risk of your loan book would start increasing. You'd then have to either accept returns that are inappropriate for the risk or you'd have to start increasing rates, becoming uncompetitive for lower risk customers, which will then increase the risk of your loan book further...

Then don't pretend it has anything to do with "affordability". A debtor isn't going to be able to afford to pay a debt back more easily because the amount to pay goes up.

ItsComingRome

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

Jeremy535897

ItsComingRome said:

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

You miss my point. I am not saying that the customer has not become a higher risk. I am saying that calling this an affordability check is illogical.

Tokmon

Jeremy535897 said:

ItsComingRome said:

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

You miss my point. I am not saying that the customer has not become a higher risk. I am saying that calling this an affordability check is illogical.

So you agree with the process and why it's needing from a risk perspective but just disagree with what they call it?

Jeremy535897

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

You miss my point. I am not saying that the customer has not become a higher risk. I am saying that calling this an affordability check is illogical.

So you agree with the process and why it's needing from a risk perspective but just disagree with what they call it?

It's a bit more than that. I am not convinced by the arguments that allow them to reassess risk during the period of a long term loan, but it appears that's the price paid for more competitive rates for those who are at a lower risk. It is a very crude tool, as if there is plenty of security, the additional risk is largely limited to the costs of having to foreclose.

I seriously object to banks using an (admittedly idiotic) government based reason that somehow it makes sense to look at whether the debtor can afford to service the loan, and if they can't, to put the price up.

Tokmon

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

You miss my point. I am not saying that the customer has not become a higher risk. I am saying that calling this an affordability check is illogical.

So you agree with the process and why it's needing from a risk perspective but just disagree with what they call it?

It's a bit more than that. I am not convinced by the arguments that allow them to reassess risk during the period of a long term loan, but it appears that's the price paid for more competitive rates for those who are at a lower risk. It is a very crude tool, as if there is plenty of security, the additional risk is largely limited to the costs of having to foreclose.

I seriously object to banks using an (admittedly idiotic) government based reason that somehow it makes sense to look at whether the debtor can afford to service the loan, and if they can't, to put the price up.

But this isn't what is happening; When you take out a mortgage you are taking out a 25 years mortgage for example with a 5 year fixed period at X% interest and then 20 years at the lenders SVR.

So at the start of the mortgage they assess you based on that and then you can happily stay on that deal for the entire 25 years without any more affordability assessments. 

But after the fixed period people want to try and get a lower rate and look at taking out another deal based on their current fixed rates. So they are changing the deal and "re-mortgaging" so it makes sense for the lender to re-assess their circumstances based on their current lending criteria. If the bank decide they don't meet their criteria then they can't get the new deal, but they can stay on their original deal (which in my example would be 20 years at the SVR after the fixed term).

onashoestring

When you agreed your mortgage deal you agreed to a standard rate with an initial discounted rate - the initial discounted term is up and as agreed you are moving to the standard rate . 

Nothing illegal or unfair about this .

Other posters have made some suggestions on how you might reduce the arrears that you owe as this is the only way that any mortgage provider will consider offering you a remortgage. 

The sooner you are able to start reducing your arrears the sooner you will be able to remortgage .

Bear in mind that many remortgage deals require fees upfront so if you are struggling to pay a the increased monthly payment - how will you pay the upfront fees ? 

ItsComingRome

Jeremy535897 said:

ItsComingRome said:

Jeremy535897 said:

Tokmon said:

Jeremy535897 said:

ItsComingRome said:

Baxter100 said:

I always find this aspect of mortgages so bizarre.

"I'm sorry, you cannot show that you are financially viable so we are unable to offer you a new mortgage deal. In the meantime, even though we don't think that you are financially viable, we have moved you onto our significantly more expensive standard rate. Please carry on paying as you have been. Thanks x".

I get it of course, but if you tried to explain the logic to an alien you'd have a hard time.

It's no different than any other form of lending, those who are at a higher risk of defaulting need to be charged a higher rate of interest to cover the cost of those who do default.

The alternative would be charging people who are a lower risk more money, which would fall down flat immediately because they have so many more options.

I disagree. As a lender, you have two very different situations:

• you are choosing whether or not to lend a new sum of money to someone. The choice is whether to lend or not. You check whether you think the borrower can afford to repay the loan. The riskier the borrower, the higher the interest you want
• you are choosing whether to offer a continuance of more generous terms for an existing loan than the standard rate. You are already at risk. There is absolutely no logic in repeating the affordability test. 

In its haste to avoid the mistakes of the past, the government imposed a blanket requirement to check affordability even where the borrowing was not to be increased. This has now been slightly relaxed, but there are still many people trapped in expensive mortgages.

When the bank offer their products at a fixed rate for X number of years they determine they are able to offer that rate as long as their customers meet a specific risk profile. If customers become a higher risk due to losing a job for example then if they offer the lower rate to them there is too high a chance the customer will default and they won't make their money back after all the costs of repossessing.

If the customer remains on the higher rate then they will get extra money from them over time to cover this higher risk. So it makes perfect sense they won't just continue to offer the lowest rates to existing customers without any checks.

That only makes sense if the risk has not already been taken. We are talking about an affordability check here. A mortgage becomes less affordable if the interest rate is increased, so the likelihood of default rises.

No, the risk of the customer defaulting has increased, so taking more interest to cover this is the sensible course of action.  Whilst the cost of the mortgage increasing increases the risk of default, this is almost certainly not at a 1:1 rate.  The alternative then is perhaps to give all the high-risk customers interest-free loans and mortgages? After all, that will reduce their chance of defaulting, surely?

You miss my point. I am not saying that the customer has not become a higher risk. I am saying that calling this an affordability check is illogical.

I never said it was an affordability check, I said it was an assessment of the risk the customer now poses.