Interest-only deals could be the next mis-selling scandal
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I remember when interest-only mortgages were surcharged at between 0.5% and 1% because they were less profitable for lenders.
Indeed, the chief executive officer of one society wrote a paper for the Building Societies Gazette showing that even 1% was inadequate to cover the profit differential.
The reason interest-only became popular is that many lenders paid a healthy commission on the sale of endowments to the extent that leeway was given on price and, as might be expected, attitudes gradually relaxed.
My concern on the interest-only front is that these loans are destined to become the next mis-selling scandal as too many borrowers are likely to come to the end of their terms without having made any provision for the repayment of capital.
No doubt ambulance-chasers will see this as a nice little earner.
But I’m also bound to say that there have been some pretty strange statements made on how borrowers will repay capital.
I like the one about the inheritance a couple was going to get when their parents died. Shame they didn’t realise that the survivor was going into long-term care and the state would end up with the bulk of the cash.
But even that might be better than those who assume their parents will be dead by their mid-60s.
And the fact is that many don’t even think about making provision for paying off the capital.
GREY-HAIRED UNDERWRITER
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