Ward gives a potted history of interest-only, especially the boom in endowment or pension-backed products in the 1980s and the gradual decline in standards.
“Interest-only lending has its place but is an undeniably higher risk product for lenders and one that should rightly remain as a niche rather than mainstream product,” he concludes. “That’s how it started, the market just lost sight of that.”
When I worked for a major lender in the 1970s, it used to charge an extra 0.5% for interest only-loans, as did all lenders at the time.
Market forces compelled them to drop that as endowments became more popular. Lenders have hated interest-only ever since.
From a business point of view the product has never made sense. Lend money over 25 years and wait 25 years to get your capital back – where’s the value in that?
For this reason lenders have been trying to get rid of it for years but interest-only makes sense for a lot of borrowers, especially when house prices are rising. So lenders have been compelled to continue such lending by market forces.
Now, with a changed market, they can at last act and use the excuse of protecting customers. Consumers are more savvy than lenders, or so the Financial Services Authority thinks, and the reality is that in the last 40 years, there are no genuine cases where a borrower has not realised after 26 years that they still owe the capital on the loan.
Interest-only is being got rid of for one reason alone. It never made sound business sense to lenders and now they can end it, on the basis of acting in the public interest.
Name and address supplied
Why lenders cannot win in the complex interest-only debate
The interest-only debate is complex and since lenders started making major changes to their criteria there has been a host of comments on the subject looking at it from long-term and short-term positions.
But no solutions to the problem have been offered. There are undoubtedly too many borrowers in their 60s, 70s and even 80s who have not thought how they will clear their mortgage.
Some borrowers believe that, no matter what, no-one will kick them out of their house provided they pay their mortgage. They ignore the contractual nature of the loan and expect to be bailed out.
I am getting a lot of enquiries for the remortgage of interest-only loans that have come to the end of their term. The Mortgage Conduct of Business rules require us to lend responsibly and the FSA has ideas about lending into retirement.
How do these issues square with helping older borrowers who don’t have the income for short-term capital repayment?
It’s a nightmare, but lenders will be expected to resolve the issue or risk being vilified for making an elderly person homeless.
We then go to the start of an interest-only mortgage – so full of good intentions but so bereft of ongoing advice.
I have had so many first-time buyers who were going to transfer to capital repayment in two years but who seem to have forgotten.
Then in five years they look at the subject again but the rise in the payment because of the 20% or more reduction in the mortgage term scares the heck out of them.
So do we force them into an untenable situation where there may now be a young family in the background?
There is no win/win here but at the same time there are people for whom interest-only is right. Somehow we just have to find a way to satisfy them in a format that is acceptable to all.
NatWest’s behaviour makes brokers into unpaid introducers
I read Nigel Hakkak’s letter in the February 20 issue of Mortgage Strategy on his experience with NatWest Intermediary Solutions and feel I have to share mine.
Two weeks ago my firm spent a whole morning talking through a case with a helpful broker consultant from NatWest.
It was particularly challenging as one of the applicants was aged 60 and his pension income had to be taken into consideration. He had an existing mortgage with another lender.
We obtained a decision in principle and informed our client immediately. Within an hour, our client, who banks with NatWest, phoned us to tell us he had received a call from a NatWest mortgage adviser covering his area, who claimed to be working through a client prospect list.
Our client told her that he had just received a DIP from NatWest via his mortgage adviser but she informed him that she could offer a better rate in branch and without the £999 arrangement fee.
As professionals we had to tell our client that we could not match what it offered direct and that he should proceed via the branch.
Our client has been with NatWest for over 30 years and has never once been contacted by telephone until this occasion.
We raised our concerns and asked for the case to be investigated only to be told by a customer services adviser that it was a coincidence that our client was approached so soon after we had obtained the DIP.
The investigation only involved talking to their own mortgage adviser and not our clients as this would be unprofessional in its view. How is this a fair investigation?
At this rate mortgage advisers are acting as unpaid introducers and it is only a matter of time before certain lenders will try to squeeze honest, professional advisers out of business.
KM Financial Consultants (Wessex)
Stagnant base rate will drive lenders to hike their SVRs
I was not surprised to read last week that Halifax has increased the cap on its SVR from 3% to 3.75% above the base rate for borrowers who took out a mortgage before September 2007.
I suspect Halifax will be the first of many to do this. Lenders have been increasing their fixed and tracker rates all year.
Lenders have accepted the 0.5% base rate will be around for another five years and have had enough. To be fair who can blame them.
I assume my Nectar points will count as income, Abbey
Of the changes Abbey has made to its affordability criteria, the lender says realistic information must be entered for expenditure for things such as Christmas and birthdays.
It adds that entering zeros in these fields will elicit a decline.
I would be interested to know what Abbey thinks is an acceptable Christmas spend.
I always felt I was too generous so if I could get something in writing from Abbey I might be able to reduce the presents I buy.
Regarding birthdays, will Abbey allow me to provide gifts to friends as well as relations? Do I have to include those I only buy a card for?
Also, a couple of aunts give me £10 on my birthday – I assume this can be included in my income along with my Nectar points.
Is there anybody out there in regulator/lender land who’s not cowering under the desk until this recession’s over or running around in circles screaming “the end of the world is coming”?
Here’s a radical thought for banks – when times are good don’t lend money to anybody who just about has a pulse and when times are bad don’t force everybody to prove they can pay back the mortgage at a moment’s notice.
It’s time lenders thought of long-term plans for lending people money to buy their home and stopped messing up lives.
Whingers seem not to have read MMR or responded to it
I was surprised to read some of the comments on Mortgage Strategy Online last week about Abbey for Intermediaries’ decision to ask customers to account for one-off costs like Christmas in their expenditure assessments.
Some of the writers sounded like they had not read the Mortgage Market Review. Brokers had the chance to submit their responses to the regulator but it seems many are whining after the event.
Is it that lenders are just fed up with the regulator closing the stable door too late and have decided to bolt their own stable while the horse sleeps?
Abbey may be trying to expose the inanity of FSA’s regulations
Reading through some of the comments on Mortgage Strategy Online regarding Abbey’s changes to its criteria, I had to question whether many of the contributors to the thread have actually passed their CeMAP qualification.
Clearly what Abbey is doing is the first bite of tighter regulation and whining about it won’t change a thing. Could it be that Abbey is trying to show to the regulator how inane and unworkable its recommendations are?
If Abbey shuts its doors to business, how long until smaller lenders fall over under a mountain of applications?
name and address supplied
White’s diatribe on timber and damp specialists is wrong
I could barely believe the tone and language in the column by Simon White, director of London’s Surveyors, last week.
He wrote that timber and damp specialists are no more than salesmen but this is just his view.
The preservation industry is neither institutionally dishonest nor populated exclusively by opportunistic salesmen.
There are good and bad practitioners in all professions but White’s condemning diatribe is insulting and plainly wrong.
I invite White to attend one of the training courses hosted by the Property Care Association and gauge first-hand the quality of the instruction that is delivered by the industry, to the industry.
The companies and individuals who are members of the PCA are both honest and ethical.
If his experience is as he describes, I suggest he reviews his list of recommended firms, rather than condemning a respected, established and skilled sector of the construction industry so lightly.
Property Care Association