Short Term Fixed Rate Mortgages - Were they Mis-Sold?

A_Nice_Englishman

We are hearing a lot about people who took out mortgages at a low rate fixed for two or three years being unable to afford the increased payments required when the fix ends and they have to go on to SVR.

Could the banks and/or mortgage advisors involved be accused of mis-selling or irresponsible lending if they did not check the borrowers could afford the SVR?

ajaxgeezer

I can't imagine so, that's what the V stands for. A lender or broker can't be expected to know what the rates will be in x years time; not even Mystic Meg knows.

It was all out in the open when the mortgage was signed up for.

Indeed, the SVR is the real cost of the mortgage. Any discount in the first x years is exactly that - a discount.

A_Nice_Englishman

ajaxgeezer wrote: »

Indeed, the SVR is the real cost of the mortgage. Any discount in the first x years is exactly that - a discount.

That was my point. Should the mortgage have been taken out if the borrower couldn't afford the real cost without the discount (based on interest rates at the time, of course)

ajaxgeezer

"Should the mortgage have been taken out if the borrower couldn't afford the real cost"

... that really is a question for an individual borrower. The best a lender or broker can do is say :

- your rate is x
- when the rate of x finishes you will go onto y
- if the interest rate goes up by 2% then your payments will be z

The borrower has to have total responsibility past that, surely to god?

No advisor can predict what anyone's circumstances will be in 2 or 5 years time. What's next? "I got made redundant and my broker didnt tell me this would happen so therefore I've been mis-sold?"

wymondham

A_Nice_Englishman wrote: »

That was my point. Should the mortgage have been taken out if the borrower couldn't afford the real cost without the discount (based on interest rates at the time, of course)

Lots of people will be asking themselves this question now I suspect!

barrymoney

You'll probably all disagree with me (!), but I think there *could* a more subtle problem of lenders implying that more fixed rates would be around after yours runs out, making people 'ignore' the SVR.
e.g. during one conversation I had with a lender, after they described the discount + SVR rates they said "but of course you can get another deal in 2 years time". I think its that kind of loose talk which could get some lenders into hot water, but it'll probably never happen.

I think the FSA hold most of the blame for letting lending go crazy.

minimike2

Since M day affordability of a mortgage when being sold should be worked out on the SVR at the time of the sale.

SVRs two / three years ago were a lot lower, so might have been affordable then, but a 1-1.5% more than what they were they might now not be. Thats unfortunate, but not mis-selling.

KFIs also state the potential cost for a 1% rise in interest rates, but that "interest rates could rise by much more than this".



So no, its practically impossible to raise a complaint of mis-selling in this way

Bismarck

Nice try though.

I think a lot of people will be squirming now as the ride comes to an end. Wonder what stunts the government's going to pull now to convince us that everything's Ok.

At least they don't have to print more money if it's mostly numbers on statements...

A_Nice_Englishman

Let's look at some figures. According to http://www.moneyextra.com/dictionary/Interest-rate-history-003455.html
the Halifax SVR for new borrowers is/was

6.75% in April 2005
6.50% in April 2006
7.25% now

So the monthly interest on a £100K mortgage at SVR now would be £41.67 more than it was in 2005 and £62.50 more than it was in 2006. That really doesn't sound too bad, so perhaps the stories of mass defaults and reposessions are exaggerated (assuming that affordability really was calculated on the SVR).

minimike2

Or maybe between taking out the mortgage and now, people have gone out and got £25k loans, secured loans, cars on HP etc and now have outgoings £400 a month more than when they made thier mortgage application.

Trollfever

..............or/and bought BTL "investment" properties.