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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 29th Nov 12, 11:13 AM
    • 2,324Posts
    • 971Thanks
    Former MSE Helen
    MSE News: Interest-only mortgage market dries up as Coventry pulls plug
    • #1
    • 29th Nov 12, 11:13 AM
    MSE News: Interest-only mortgage market dries up as Coventry pulls plug 29th Nov 12 at 11:13 AM
    "The mutual announced this morning it will axe these deals from Monday, after RBS said the same this week ..."

Page 1
    • Conrad
    • By Conrad 29th Nov 12, 11:45 AM
    • 31,494 Posts
    • 55,821 Thanks
    Conrad
    • #2
    • 29th Nov 12, 11:45 AM
    • #2
    • 29th Nov 12, 11:45 AM
    Int only is dead. It was very useful in terms of affordability. For example where people had young children and wanted to keep costs down until they were both back at work.

    This is yet another boost for the waiting hoardes of landlords ready to snap up all the would be borrowers that are now priced and regulated out of the mortgage market.

    One of the most common issues I find is older borrowers having gotten divorced being offered a short and thus unaffordable mortgage. In the past they could resort to int only and then one day down size / get back on feet / meet a new partner with thier own money etc. 99% of those people did sustain the mortgage but now the FSA wont even give them a chance.

    Great day for fairness, the landlords await all these excluded people.
    • kingstreet
    • By kingstreet 29th Nov 12, 12:20 PM
    • 35,053 Posts
    • 19,084 Thanks
    kingstreet
    • #3
    • 29th Nov 12, 12:20 PM
    • #3
    • 29th Nov 12, 12:20 PM
    Landlords with their BTLs all on interest-only!
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • brit1234
    • By brit1234 29th Nov 12, 12:38 PM
    • 5,191 Posts
    • 11,968 Thanks
    brit1234
    • #4
    • 29th Nov 12, 12:38 PM
    • #4
    • 29th Nov 12, 12:38 PM
    I welcome this. It was just being used like self cert/liar loans to over borrow. Rather than help it just allowed house prices to be pushed up.

    Now we need to clamp down on buy to let interest only with strict repayment vehicle compliance. I suspect most don't have any.
    Scams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
    • michaels
    • By michaels 29th Nov 12, 1:10 PM
    • 22,411 Posts
    • 103,173 Thanks
    michaels
    • #5
    • 29th Nov 12, 1:10 PM
    • #5
    • 29th Nov 12, 1:10 PM
    I welcome this. It was just being used like self cert/liar loans to over borrow. Rather than help it just allowed house prices to be pushed up.

    Now we need to clamp down on buy to let interest only with strict repayment vehicle compliance. I suspect most don't have any.
    Originally posted by brit1234
    Surely as a not landlord.you rent from the bank and make your profit on the turn when the rent you receive is higher than the interest payable, the profit being a reward.cor.running a capital risk. Why would.you want or.need.a repayment vehicle, the loan security is the repayment vehicle.
    Cool heads and compromise
    • UnionGirl
    • By UnionGirl 29th Nov 12, 1:29 PM
    • 180 Posts
    • 508 Thanks
    UnionGirl
    • #6
    • 29th Nov 12, 1:29 PM
    • #6
    • 29th Nov 12, 1:29 PM
    I think it's a shame as interest-only was a useful product if used correctly and responsibly by the borrower.

    My first mortgage (1999) at 22yrs old was interest only for 4 years due to that being all I could afford then, c/w endowment policy.

    However, I knew that after 4 years I would be earning a bit more and would swap over to capital & repayment (which is exactly what I did).

    This product does seem to have been 'abused' (is that the right word?) more in the recent years since then. Combination of bank lending and customer borrowing irresponsibly perhaps.
    As my Mum always said "Look after the pennies and the pounds will look after themselves"
    • JimmyTheWig
    • By JimmyTheWig 29th Nov 12, 1:48 PM
    • 11,848 Posts
    • 11,390 Thanks
    JimmyTheWig
    • #7
    • 29th Nov 12, 1:48 PM
    • #7
    • 29th Nov 12, 1:48 PM
    Now we need to clamp down on buy to let interest only with strict repayment vehicle compliance. I suspect most don't have any.
    Originally posted by brit1234
    A landlord being forced to sell a BTL property if they can't afford to repay a mortgage isn't a huge problem. Completely different kettle of fish to a residential mortgage that can't be repaid.
    • regbrown
    • By regbrown 29th Nov 12, 2:01 PM
    • 70 Posts
    • 135 Thanks
    regbrown
    • #8
    • 29th Nov 12, 2:01 PM
    • #8
    • 29th Nov 12, 2:01 PM
    I welcome this. It was just being used like self cert/liar loans to over borrow. Rather than help it just allowed house prices to be pushed up.

    Now we need to clamp down on buy to let interest only with strict repayment vehicle compliance. I suspect most don't have any.
    Originally posted by brit1234
    Yeah thanks for that.

    I am one of those people on an interest only mortgage for the simple reason that we plan on having kids very soon and it gave us added flexibility when we go down to the one wage.

    We are extremely responsible and have already paid off capital in this last year equivalent to three years on a repayment mortgage.

    Next year our tracker comes to and end and we were hoping to fix on an interest only for the simple reason it takes off some of the pressure when going down to a single wage for a couple of years.

    We can of course afford it but it would have been much preferable if we had the choice to make capital payments each month (as we currently do) or just pay the interest for a short time to cover the increased expense of a new sprog.

    So while I get the whole issue, do not punish us all as some of us are extremely capable and responsible. My brother has been doing the same for the last few years while his children are very young, alas I fear we may have just missed out on having the same flexibility when our kids come along. Not good, hope some are still about when we come to fix.
    • kingstreet
    • By kingstreet 29th Nov 12, 2:08 PM
    • 35,053 Posts
    • 19,084 Thanks
    kingstreet
    • #9
    • 29th Nov 12, 2:08 PM
    • #9
    • 29th Nov 12, 2:08 PM
    TBH I think this is preparation for the MMR.

    When lenders find themselves having to give advice, for which they will be accountable, they don't want issues like interest-only in the way to trip up their advisers.

    They were happy to do it when brokers were advising or the borrower was buying "execution-only" without advice and no responsibility accepted by the lender.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • Percy1983
    • By Percy1983 29th Nov 12, 2:24 PM
    • 4,990 Posts
    • 7,824 Thanks
    Percy1983
    Yeah thanks for that.

    I am one of those people on an interest only mortgage for the simple reason that we plan on having kids very soon and it gave us added flexibility when we go down to the one wage.

    We are extremely responsible and have already paid off capital in this last year equivalent to three years on a repayment mortgage.

    Next year our tracker comes to and end and we were hoping to fix on an interest only for the simple reason it takes off some of the pressure when going down to a single wage for a couple of years.

    We can of course afford it but it would have been much preferable if we had the choice to make capital payments each month (as we currently do) or just pay the interest for a short time to cover the increased expense of a new sprog.

    So while I get the whole issue, do not punish us all as some of us are extremely capable and responsible. My brother has been doing the same for the last few years while his children are very young, alas I fear we may have just missed out on having the same flexibility when our kids come along. Not good, hope some are still about when we come to fix.
    Originally posted by regbrown
    To counter this we are on a repayment mortgage and bought well within our means to which we can afford children and stay on a repayment mortgage quite easily (if we have children that is).
    Have my first business premises (+4th business) 01/11/2017
    Quit day job to run 3 businesses 08/02/2017
    Started third business 25/06/2016
    Son born 13/09/2015
    Started a second business 03/08/2013
    Officially the owner of my own business since 13/01/2012
    • Thrugelmir
    • By Thrugelmir 29th Nov 12, 3:46 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    Their are wider issues to consider.

    I suspect this is in part one of them.

    UK banks may need more capital, Bank of England says

    http://www.bbc.co.uk/news/business-20540693
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
    • regbrown
    • By regbrown 29th Nov 12, 4:08 PM
    • 70 Posts
    • 135 Thanks
    regbrown
    To counter this we are on a repayment mortgage and bought well within our means to which we can afford children and stay on a repayment mortgage quite easily (if we have children that is).
    Originally posted by Percy1983
    Well that's great I prefer the flexibility, as do many who are responsible.
    • GMS
    • By GMS 29th Nov 12, 4:18 PM
    • 5,354 Posts
    • 2,774 Thanks
    GMS
    Interest only can work but has been totally ruined.

    For instance a couple with 4 children buy a 5 bed house with an I/O mortgage. Kids leave home, parents sell house and buy a small house/flat to live in. Plausible use of interest only. Kids grow up with own rooms and parents downsize.

    Compare to a 1 bed flat on interest only. No chance of downsizing so not plausible, assuming sale of property as repayment vehicle.

    To do away with Interest Only is overkill. Proper underwriting of it would have been the way forward but rather than do that the 'sledgehammer to crack a nut' approach is taken as it is easier.

    Plenty of responsible people took and managed their I/O mortgages. Pity we live in a society where most people accept no responsibility for their actions.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Thrugelmir
    • By Thrugelmir 29th Nov 12, 4:25 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    Well that's great I prefer the flexibility, as do many who are responsible.
    Originally posted by regbrown
    Extend the mortgage term, whilst maintaining a repayment mortgage. Is another option.

    The issue for lenders is that its impossible to determine who is responsible. Nor which of their borrowers are going to suffer the loss their job, suffer loss of a partner, lose income through health issues or even divorce/separate. All of which have an impact on personal finances.

    So far easier for lenders to take a conservative approach. Rather than incur the cost of administering whether a borrower is going to repay the debt at the end of the term. Interest only mortgages with no repayment vehicle is a fairly recent development which has failed.
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
  • jamesd
    Meanwhile, Santander have relaxed their interest only criteria, from only 50% LTV introduced early in 2012 up to 75% LTV now when taken out via a broker using Abbey for Intermediaries. Only 50% can be interest only, the additional 25% must be repayment.

    When lenders find themselves having to give advice, for which they will be accountable, they don't want issues like interest-only in the way to trip up their advisers.

    They were happy to do it when brokers were advising or the borrower was buying "execution-only" without advice and no responsibility accepted by the lender.
    Originally posted by kingstreet
    The MMR doesn't mandate that all sales have to be advised.
    The issue for lenders is that its impossible to determine who is responsible.
    Originally posted by Thrugelmir
    People with repayment strategies already in place and being well funded might well be considered to be responsible.
    • kingstreet
    • By kingstreet 29th Nov 12, 4:40 PM
    • 35,053 Posts
    • 19,084 Thanks
    kingstreet
    The MMR doesn't mandate that all sales have to be advised
    Originally posted by jamesd
    Mortgage profs and HNWs are excluded, true, but for most of us it will apply.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • kriss_boy
    • By kriss_boy 29th Nov 12, 4:41 PM
    • 2,098 Posts
    • 965 Thanks
    kriss_boy
    Is this for new applications- or is it likely existing interest only customers could be forced to repay in the future?

    We are interest only because we only pay 1.7%.... so we save instead at get around 2.8% on our savings.

    Its a no brainer.
    • Thrugelmir
    • By Thrugelmir 29th Nov 12, 4:47 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    People with repayment strategies already in place and being well funded might well be considered to be responsible.
    Originally posted by jamesd
    How can this be verified on a regular basis in an economic fashion?

    Life is a roller coaster. Few will see a 25 year strategy through to fulfilment.
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
    • Thrugelmir
    • By Thrugelmir 29th Nov 12, 4:51 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    Meanwhile, Santander have relaxed their interest only criteria, from only 50% LTV introduced early in 2012 up to 75% LTV now when taken out via a broker using Abbey for Intermediaries. Only 50% can be interest only, the additional 25% must be repayment.
    Originally posted by jamesd
    So not really a relaxation of interest only. Given balance is repayment.
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
    • Percy1983
    • By Percy1983 29th Nov 12, 5:16 PM
    • 4,990 Posts
    • 7,824 Thanks
    Percy1983
    Well that's great I prefer the flexibility, as do many who are responsible.
    Originally posted by regbrown
    But you could argue I was more responsible in planning for these things when buying the house so therefore don't need said flexibility.

    The problem is interest only has been used by many to get houses they can't actually afford, as with all things the reckless few ruin it for the rest.

    You just have to adapt and continue.
    Have my first business premises (+4th business) 01/11/2017
    Quit day job to run 3 businesses 08/02/2017
    Started third business 25/06/2016
    Son born 13/09/2015
    Started a second business 03/08/2013
    Officially the owner of my own business since 13/01/2012
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