Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 25th Oct 12, 9:55 AM
    • 2,324Posts
    • 971Thanks
    Former MSE Helen
    MSE News: Hope for 'mortgage prisoners' amid lending clampdown
    • #1
    • 25th Oct 12, 9:55 AM
    MSE News: Hope for 'mortgage prisoners' amid lending clampdown 25th Oct 12 at 9:55 AM
    "Mortgage holders trapped on expensive deals because lenders are stricter have been given some hope under new rules ..."

Page 1
    • shortchanged
    • By shortchanged 25th Oct 12, 10:00 AM
    • 5,416 Posts
    • 8,597 Thanks
    shortchanged
    • #2
    • 25th Oct 12, 10:00 AM
    • #2
    • 25th Oct 12, 10:00 AM
    That will do the trick. Job done, housing market sorted.
    Why are we here?......................because we are not all there.
    • Pincher
    • By Pincher 25th Oct 12, 1:30 PM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    • #3
    • 25th Oct 12, 1:30 PM
    • #3
    • 25th Oct 12, 1:30 PM
    "It says banks and building societies must make sure a borrower can afford their mortgage."

    THEY CAN AFFORD IT if you give them a 5 year fixed at 3%.
    • jamesd
    • By jamesd 25th Oct 12, 1:39 PM
    • 23,524 Posts
    • 15,844 Thanks
    jamesd
    • #4
    • 25th Oct 12, 1:39 PM
    • #4
    • 25th Oct 12, 1:39 PM
    Here's the FSA announcement and here's a link to the Mortgage Market Review details link page. The key points summary from the full proposal page 11 is:

    "Key proposals consulted on and position unchanged
    Responsible lending
    • Lender responsible for affordability checks.
    • Income to be verified in all cases.
    • As a minimum, committed and basic essential expenditure to be taken into account.
    • Stress testing against future interest rate increases.
    • Interest-only where credible repayment strategy.
    Distribution
    • All interactive sales (e.g. face to face and telephone) advised, except where the customer is a mortgage
    • professional, or high net worth mortgage customer9, or business borrower10, where execution-only optional.
    • Execution-only allowed for non-interactive sales (e.g. internet and postal).
    • Requirement on intermediaries to assess affordability removed.
    • Every seller required to hold a relevant mortgage qualification.
    • Firms must act in the customer’s best interests.
    Disclosure
    • IDD replaced with a requirement for firms to disclose ‘key messages’ to the customer.
    • The ‘trigger points’ for presentation of the KFI changed to reduce information overload for customers.
    Arrears management
    • The number of times fees for missed payments can be charged limited.
    • The arrears charges and forbearance rules widened to cover all payment shortfalls.
    • The costs which can and cannot be recovered through arrears charges clarified.
    • Lenders prevented from removing concessionary rates because of payment problems.
    Non-deposit taking mortgage lenders (non-banks)
    • Risk-based capital requirement.
    • Increase in quality of capital.
    • High-level systems and controls to manage liquidity risk.
    • Application on a solo-basis and not to firms in run-off.
    Key proposals consulted on and position reconsidered
    Responsible lending
    • Transitional arrangements (see Chapter 3).
    • Record-keeping requirements (see Q14 Annex 1).
    Distribution
    • Need for advice in relation to post-contract variations (see Chapter 2).
    • High net worth mortgage customers and business lending
    • Tailored regulatory approach recognising particular lending characteristics (see Chapter 4)."

    For those who may want to port and overpay there's one key thing to consider. You will need advice to port if the amount of your mortgage increases. The cost of this advice is something that you must consider when deciding whether it makes sense to overpay. In many cases it will be a bad idea to overpay of you expect to port. Offset mortgages and those that let you withdraw overpayments are two workarounds. You can take out the overpaid money to get to the original mortgage level and also use the money to reduce the amount you need from a new mortgage. See pages 14 and 15, Table 2 for a summary of the rules on when advice is and isn't required.

    There is very important protection for those who can't meet current lending criteria and this takes effect now. Lenders can choose to ignore the rules on interest only lending and affordability if they wish, whether it's for one of their own borrowers or a borrower from another lender. The amount borrowed must not increase, except by the amount of any fees and any money needed for essential repairs and maintenance work. See pages 18 and 19. A summary of the rules is in the table on pages 20 and 21.

    "if the existing lender takes advantage of a ‘trapped’ borrower or treat them any less favourably than other customers with similar characteristics – for example, by offering less favourable interest rates or other terms – then this may be relied on as tending to" breach the lender's treating customers fairly obligation. Page A1:18. This takes effect immediately. If your lender seeks to increase your rates because you cannot remortgage, be sure to quote this rule to them and ask them to explain how their conduct complies with their TCF obligation.

    For interest only mortgages there is no requirement for the lender doing a mid-term repayment strategy check to obtain independent documentary proof that a repayment strategy is still in place and remains credible. It's acceptable simply to ask the borrower. Page A1:26.
    Last edited by jamesd; 26-10-2012 at 8:36 AM.
    • jamesd
    • By jamesd 25th Oct 12, 1:51 PM
    • 23,524 Posts
    • 15,844 Thanks
    jamesd
    • #5
    • 25th Oct 12, 1:51 PM
    Interest only and repayment starategy
    • #5
    • 25th Oct 12, 1:51 PM
    The following claim in the story is not quite correct:

    "Borrowers can only take out an interest-only mortgage — where they only pay off their loan when it matures — if they can prove they are making separate plans to repay the loan."

    There is no requirement for the plans to be separate. Acceptable plans can include making capital payments against the mortgage, including doing so from bonus money in future years, even where the exact amounts are not known.

    The key requirements are that the repayment strategy is credible and affordable.

    The old terminlogy of "repayment vehicle", which could have been taken to be something apart from the mortgage and/or some single method, has been abolished and replaced by the "repayment strategy" wording that is far more flexible.
    • harvey115
    • By harvey115 25th Oct 12, 2:06 PM
    • 676 Posts
    • 225 Thanks
    harvey115
    • #6
    • 25th Oct 12, 2:06 PM
    • #6
    • 25th Oct 12, 2:06 PM
    The following claim in the story is not quite correct:

    "Borrowers can only take out an interest-only mortgage — where they only pay off their loan when it matures — if they can prove they are making separate plans to repay the loan."

    There is no requirement for the plans to be separate. Acceptable plans can include making capital payments against the mortgage, including doing so from bonus money in future years, even where the exact amounts are not known.

    The key requirements are that the repayment strategy is credible and affordable.

    The old terminlogy of "repayment vehicle", which could have been taken to be something apart from the mortgage and/or some single method, has been abolished and replaced by the "repayment strategy" wording that is far more flexible.
    Originally posted by jamesd
    Exactly the rodings do look better, however lets see how many allow such strategies i.e. making repayments independently during the course of the mortgage as a plan.

    If it works than quite a few of us would go for it, I would for sure because the level of interest charged in an IO mortgage at the starting years is not calculated the way lenders do on repayment mortgages.
    • fooddestroyer
    • By fooddestroyer 1st Nov 12, 5:33 PM
    • 35 Posts
    • 3 Thanks
    fooddestroyer
    • #7
    • 1st Nov 12, 5:33 PM
    • #7
    • 1st Nov 12, 5:33 PM
    Is there any other "escape" options as we await this new set of rules in 2014?
    • Thrugelmir
    • By Thrugelmir 1st Nov 12, 7:30 PM
    • 65,952 Posts
    • 58,071 Thanks
    Thrugelmir
    • #8
    • 1st Nov 12, 7:30 PM
    • #8
    • 1st Nov 12, 7:30 PM
    The key requirements are that the repayment strategy is credible and affordable.
    Originally posted by jamesd
    Which means that even if an interest only mortgage is taken out. That the borrower has to be able to afford the mortgage as if it was on a repayment basis. So blocks the borrow today repay tomorrow on the basis that salaries\house prices always rise strategy.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • fooddestroyer
    • By fooddestroyer 2nd Nov 12, 6:52 AM
    • 35 Posts
    • 3 Thanks
    fooddestroyer
    • #9
    • 2nd Nov 12, 6:52 AM
    • #9
    • 2nd Nov 12, 6:52 AM
    Our combined net income is around 27k pa. We owe 140k on a mortgage, and our home is just worth about that.

    Were currently "imprisoned" on intetest only SVR with NRAM.

    Is there any options/hope??
    • beecher2
    • By beecher2 2nd Nov 12, 12:28 PM
    • 3,631 Posts
    • 4,653 Thanks
    beecher2
    Our combined net income is around 27k pa. We owe 140k on a mortgage, and our home is just worth about that.

    Were currently "imprisoned" on intetest only SVR with NRAM.

    Is there any options/hope??
    Originally posted by fooddestroyer
    Only option is to start tackling the debt. Overpay as much as you possibly can, take in a lodger, post a Statement of Affairs on the Debt Free Wannabee forums for help with a budget.
    • fooddestroyer
    • By fooddestroyer 2nd Nov 12, 1:05 PM
    • 35 Posts
    • 3 Thanks
    fooddestroyer
    Only option is to start tackling the debt. Overpay as much as you possibly can, take in a lodger, post a Statement of Affairs on the Debt Free Wannabee forums for help with a budget.
    Originally posted by beecher2
    Thanks.

    A friend tells me that it is unwise to transfer over to repayment in case we struggle, and we can't return to interest only. But rather, save and make some capital reductions annually?
    • beecher2
    • By beecher2 2nd Nov 12, 1:25 PM
    • 3,631 Posts
    • 4,653 Thanks
    beecher2
    Thanks.

    A friend tells me that it is unwise to transfer over to repayment in case we struggle, and we can't return to interest only. But rather, save and make some capital reductions annually?
    Originally posted by fooddestroyer
    Yes, you should probably stay on interest only. Overpay as soon as you have the money if your mortgage interest rate is higher than your savings interest rate, save and overpay annually if your savings are at a higher rate (IF you can trust yourself not to spend the money). Save up a buffer first though.
    • fooddestroyer
    • By fooddestroyer 2nd Nov 12, 3:20 PM
    • 35 Posts
    • 3 Thanks
    fooddestroyer
    So NRAM are saying that it'll cost me £739 pm [4.79%] on repayment over the remaining 29 years.

    We're currently paying £554 interest only SVR.

    Over the next 12 months thats a total of £2220 more than usual. A lot of £ for a young family on average income.

    I think the capital option might be better, and then, by 2014, we might be in a position with the "new rules" to negotiate a better deal.

    Comments?
    • jamesd
    • By jamesd 5th Nov 12, 11:42 PM
    • 23,524 Posts
    • 15,844 Thanks
    jamesd
    Which means that even if an interest only mortgage is taken out. That the borrower has to be able to afford the mortgage as if it was on a repayment basis.
    Originally posted by Thrugelmir
    Not so. Repayment basis calculation is only required if the repayment strategy isn't credible and affordable. A plan to repay from pension commencement lump sum when there is already a significant pension balance would be one method that is credible but might not be affordable on repayment basis.

    So blocks the borrow today repay tomorrow on the basis that salaries\house prices always rise strategy.
    Originally posted by Thrugelmir
    Yes, that's blocked to some degree, though not completely for salaries if there is some non-speculative aspect to the increases. House price rises is an example used for an unacceptable strategy.
    • jamesd
    • By jamesd 5th Nov 12, 11:45 PM
    • 23,524 Posts
    • 15,844 Thanks
    jamesd
    So NRAM are saying that it'll cost me £739 pm [4.79%] on repayment over the remaining 29 years.

    We're currently paying £554 interest only SVR.

    Over the next 12 months thats a total of £2220 more than usual. A lot of £ for a young family on average income.

    I think the capital option might be better, and then, by 2014, we might be in a position with the "new rules" to negotiate a better deal.

    Comments?
    Originally posted by fooddestroyer
    Stick on interest only. You need the flexibility and you're not likely to get that anywhere else. But do overpay until you can get to a loan to value that will be more acceptable to other lenders.

    In theory any lender could accept you. In practice I doubt that any others will at around 100% LTV, particularly not on interest only basis.

    Over the long term, relax to some degree about your ability to clear it eventually. Wage inflation will gradually increase your ability to afford to make extra payments and in time you will be able to pay off at a faster than repayment rate, while still having interest only flexibility.
    • Jonbvn
    • By Jonbvn 6th Nov 12, 10:04 AM
    • 5,386 Posts
    • 5,683 Thanks
    Jonbvn
    I would for sure because the level of interest charged in an IO mortgage at the starting years is not calculated the way lenders do on repayment mortgages.
    Originally posted by harvey115
    You pay interest on the outstanding capital amount, regardless of what type of mortgage you have.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,009Posts Today

7,918Users online

Martin's Twitter