LTV mortgage cap consultation begins – Treasury
By limiting LTV the only protection this is going to give is to the lender. A far better solution is to ensure affordability.
As long as the borrower can afford the monthly payments there should be no problem and by limiting income multiples, there shouldn’t be out of control spiralling property price increases. LTV means very little as someone could have a 50% mortgage but the monthly mortgage payment could be unaffordable.
On the other hand, a borrower could have a 95% mortgage and the monthly mortgage payments easily affordable. It’s quite a pity that the FPC don’t live in the real ‘normal’ world but operate in the lofty towers of ‘Eaton Land’!
Mike
18 Sep 2012 | 22:10
Over 1m interest-only mortgages have ‘no repayment plan’
It would be of great help to customers and brokers alike if some research could be published as to the stance lenders will take when presented with a mortgage loan coming to the end of its normal term, on an interest basis where there is no repayment vehicle in place. Will they seek repossession?
Will they extend the term? Will they treat customers fairly and engage with them to consider a repayment solution? Will they give them reasonable time to keep repaying interest-only on a longer term basis? Or insist on a sale?
If I am to properly advise clients in this situation I could do with knowing lender’s views now.
Andy Wilson
20 Sep 2012 | 11:06
Appreciate where Andy W is coming from, but surely this is only an issue where a borrower can’t afford to continue with mortgage payments?
Lenders make money from interest charged on the loan. If the customer can afford to continue payments (incl. into retirement) then why would a lender insist on repayment at the end of term? Particularly given that doing so may raise accusations of irresponsible lending when cases come to court.
Borrowers may be in a position to down-size to pay off the debt. Over 20 years, inflation is likely to have reduced the scale of the outstanding debt – particularly if property values continue to rise. Only if the customer doesn’t have ability to repay AND can’t afford to continue payments AND is unable to downsize is there a problem.
It’s highly likely this is a much smaller problem than hype suggests – although not one to completely ignore. Lender response has been entirely rational; stop new lending from occurring and manage the back book issue.
Michael5
20 Sep 2012 | 11:32
I know many brokers think interest-only is great, especially compared to renting and market growth and I am sure some have examples of where it has worked out OK.
Sadly, this is endowment mortgages all over again. Where endowment was OK for a small proportion of borrowers, it was sold to the majority through financial incentives. As with IO, too many people have these and, while at the time of purchase understood them, have now put this concern to the back of their mind.
Most IO borrowers could have afforded full repayment on purchase, but were persuaded IO was cheaper – not in the long run by any calculation. A respondent asks what lenders have been doing with these cases on retirement. Most borrowers see their income drop to 50% to 60% of their working income.
Where their mortgage payment was 30% of their net income, it can now represent over half. Yes they can afford it, but their standard of living in retirement plummets. Less than 15% opt to downsize as promised on the application as they love their homes and neighbours.
In some cases (undisclosed by lenders), they have had to encourage/enforce sale of the property and risk the bad press of kicking OAPs out of their home. Others have reverted to a low tracker or SVR and live in fear of when rates finally start going back up.
Most brokers arguments for IO are completely naive and they should review all their clients immediately. I speak as both a broker and ex-bank manager and so I do hope scaremongering will finally persuade people to do something now about this mammoth problem.
Arron Bardoe
20 Sep 2012 | 14:42
It’s not always greed why people want to avoid paying tax… Many self-employed people put blood and sweat into their businesses to get them off the ground and make them a success.
Working 18 hour days to make this happen. Why should these hard working people fund the millions in the country that can’t be bothered to get off their bums and contribute to society.
Change the system and maybe people won’t mind paying tax, knowing that it’s actually going to good causes, such as education, instead of into the hands of people who are nothing but a drain on society.
BMH
21 Sep 2012 | 10:29
Interesting comments BMH. Not every self-employed person is a saint. Not every person receiving State Benefits is a good for nothing scrounger. HMRC are tasked with gathering taxes as and when due and this case at least clarifies one “grey area” to describe this type of scheme charitably.
A K Narey
21 Sep 2012 | 12:51
