Each week, we pick the best letters to the editor and online comments to the hottest stories to give you a flavour of what the industry is really thinking.
You can take another look at the week’s news and our round up of the stand-out, most thought-provoking, or unmissable comments.
Comment on any Mortgage Solutions story and next week, you could appear in Mortgage Mutterings.
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UK “on cusp” of second banking failure 04 October 2010
Separating the banking roles
Given the tidal wave of sentiment in favour of the separation of banks into basic ‘boring’ lending institutions and Vince Cable’s ‘casino operations’ can we please just get on and do it rather than wait for a review to tell us some watered-down version of the same thing 18 months hence?
Michael
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CML: 3.8m mortgages would not have been lent under MMR 05 Oct 2010
Well said CML, but……
….the truly terrifying aspect is that most of those 51% of borrowers will be wanting to remortgage or move home in the future. The MMR proposals would force many of them not to do it, so keeping them imprisoned with their lender and in their homes until somebody up high says: “Um, we had better change this…..why didn’t anyone tell us that we were getting it wrong again?”
They do not seem to grasp the sheer volume of casualties that there will be if borrowers are left at the mercy of unscrupulous, profit-hungry lenders.
Stuart Duncan
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AMI hits back at FSA proposals to stamp out interest-only 05 Oct 2010
FSA proposals to stamp out interest-only
Comment one
The FSA is Right
I am afraid to say this, but Harry you seem unclear on when an interest only (I/O) mortgage is suitable advice. The good news is that there are many good uses for I/O so let me educate you on a couple. Let’s say you buy a property under value which needs some significant work in doing-it up to make it habitable. Because I/O loans have significantly lower monthly payments than a full repayment mortgage you could buy a property under value, pay just I/O in the interim and use the savings towards the renovation costs; then once the deal has completed you could move over to repayment.
As an investor, you could buy an investment property, pay I/O and make the mortgage more affordable in the short-term. Then you can renovate before letting it out (still paying just I/O) and once rented out, move to overpaying the loan – i.e. the mortgage remains on I/O – but you choose to overpay and reduce the balance of loan as it suits you (quicker than the repayment period) rather than be constrained by a capital repayment term. Because it is an investment property you might choose to sell it, well in advance of the end of the mortgage term (hopefully for a profit), and whilst you may on reflection have paid a little more for the I/O loan, it was the capital gain you were after.
The FSA understandably needs capital to be repaid back to the banks (how else will bank bonuses be funded, tee hee!!), but I/O will not achieve this. Also, they want borrowers buying a home (I expect the ones they intend to live in), on I/O, to avoid falling into a trap of believing the payment is both capital and interest (advisers beware).
And finally, they want to avoid borrowers ending their loan term with no way to repay the debt. For those people with more than one property, who demonstrate an understanding of risk, who understand that they have an obligation to repay the debt and a solid plan in place to do so (and by this I mean low overall debt to asset value), I see no problem with I/O.
My conclusion is that by removing I/O mortgages, the FSA removes the problem they forsee. Interestingly enough, and sadly for many, some people will still get to a position where, part way through the term, they fall into arrears, get repossessed and become homeless. In the real world this is a fact of life; my fear is that the regulator follows a health and safety agenda with debt and believes that all debt problems are avoidable – they are not.
The answer is Harry not to ban I/O, but educate the populus about finance and interest, let them make their own decisions, ensure good, low cost financial advice remains available and accept that along the way there will be some casualties.
Chris Ridgeway
Comment two
Oh dear
Chris I regret to say that it precisely your attitude that needs correcting. This is the type of advice that has got us into our present trouble. Each of your examples clearly show that the purchaser couldn’t really afford what he/ she was buying and other examples were mainly spurious. How long would it take to make renovations? A year? If the difference between I/O and repayment is then that crucial I would contend that you couldn’t afford it in the first place and furthermore you have added an extra year onto the loan. The banks love that. Indeed I am guessing that you are a mortgage broker and not an IFA qualified to level 4, because I couldn’t envisage an IFA misunderstanding how banks make profits and thence pay bonuses. I’m afraid your piece is an eloquent example of why there needs to be full equivalent (to COBS IFAs) regulation of the mortgage market.
Harry Katz
Comment three
Funny thing is Harry. I believe you are a very good IFA as I believe I was. I spent 18 years in this industry before finally giving up this year. When I moved into doing mortgages in 1996, I realised something – I always previously thought as an IFA I was better then a mortgage broker. Once I was a broker (who was still an IFA) I realised, that as an IFA the truth, I was a jack of all trades and master of none. As an IFA, I know you will not appreciate this comment, but that is what you are – “a jack of all trades”. Chris on the other hand sounds like a master of the one. Yes you can be qualified to all the levels you want, but lets look at my brother who has 9 A levels, bachelors, masters degrees etc… but guess what, at the age of 34 he still lives at my parents and earns a meagre £30,000 pa. Before you think I am just a trumped up “broker” I should point out that my income prior to the recession had another two 0’s attached to my brothers income – AS A BROKER. As an IFA, I used to sell endowments, because I was told endowments were good, what about the pensions misselling, we can go on here. Then when it didn’t suit anymore, I had complaints, admittedly it was only 5 or 6 of which only one was upheld. This was because Sesame had lost all my paperwork. A broker in the plain form is not authorised to sell investment products – it was the IFA who sold these, therefore I/O was the fault of the IFA as the IFA should have converted the loan to a repayment. So would I be correct in saying that all IFAs are to blame with all their qualifications. Your argument about qualifications has no merit. At present we are all struggling and the FSA are making life even harder by imposing silly rules – just read up about Tesco.
Josh
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Tesco mortgages to launch in 2011 06 October 2010
Tesco Mortgages
I wonder if the same over packaging will apply to Tesco mortgage products as they do to their other ranges – all to do with marketing and nothing with substance. While I welcome any good quality company – who acts with professionalism or integrity to provide quality products and helps their customers – I fear the appalling service and untrained employees of tesco – will be the new Allied Dunbar Abbey Life and TSB salesforces of the future – where sales and marketing is embellished – in return for the massive profits – of the pile it high sell it cheap philosophy of Tesco (and some insurance companies) – ignore customers and benefits – whilst they go chasing their next profit centre. Having destroyed small shops – who served the community, we have Tesco selling over priced, Two for One deals ( Bacon, chickens etc.,) in their marketing exercise of OVER SELLING poor products.
Ian Lees
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Market Watch: Mortgage complaints – Where is the industry going wrong? 06 October 2010
Record keeping, record keeping, record keeping.
This is a cracked record that has been playing for years.
Some in the industry have taken this on board but when the regulator comes to visit, the ‘wrong’ information has been kept thereby the complaint (vexatious, claims management led… whatever) is upheld.
The only defence the industry can turn to is its records of the transaction.
If you are uncertain whether your records are sufficient to defend the business have them reviewed before the complaints come in. This is the only way that the ‘complaints culture’ we live in can be managed going forward.
Richard Farr
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Have a great weekend.
From the Mortgage Solutions team
