Reform to put millions in interest-only trap
Ok - so what is someone has an interest only mortgage, it might not be the brightest thing to do but if the payment is made on time every month and if its cheaper than renting then as long as the property is sold at retirement to pay off the mortgage what's the problem? Sure you have paid a lot of interest, but in my case its the only way I can afford to house my family, with a house at 50% equity my monthly cost is less than 1/2 the rent.
BTW Malvio - brilliant blog on the mortgage crackdown BTW - you should post a comment on the thisismoney website
Millions of homeowners on interest-only deals risk becoming 'mortgage prisoners' under rules laid out by the financial watchdog yesterday.
Proposals to crack down on irresponsible lending could make it virtually impossible for up to half of the five million interest-only customers to remortgage on to a better deal.
The warning came as the Financial Services Authority published a long-awaited review of the mortgage market.
The FSA, which admitted it had failed to prevent reckless lending in the past, said it was shifting to 'more intrusive and interventionist' regulation.
Applicants will have to prove not only their income, but also their outgoings on everything from utility and food bills to spending on holidays and Christmas presents. But the regulator stopped short of banning controversial 100% mortgages.
Chief executive Hector Sants admitted the move would mean some who were able to obtain mortgages in the boom years would no longer be able to do so.
The FSA said interest-only deals should be regarded as 'high-risk products' as they are far more likely to end in arrears and repossession.
In future anyone applying for an interest-only deal will have to prove they could afford a more expensive repayment mortgage should they be required to do so.
On a typical £150,000 mortgage, at 5% interest, an interest-only deal would cost £625 a month, while a repayment mortgage would cost £877.
On a repayment mortgage, homeowners pay off the capital as well as the interest on a loan, typically over 25 years.
Those with interest-only deals pay off just the interest, leaving them to find other ways of paying off the capital at the end of the loan term. The FSA found that only a quarter of interest-only deals were making provision to repay the capital.
Robert Sinclair, director of the Association of Mortgage Intermediaries, which represents mortgage brokers, said 40% to 50% of those on interest-only deals would struggle to pass the FSA's new affordability tests.
'They may well find themselves trapped on an unattractive variable-rate mortgage,' he said.
A spokesman for the FSA said the aim of the rules on interest-only mortgages was to ensure they are not used as a cut-rate way of buying a house.
Millions on self-certified and so-called 'fast track' mortgages could also face problems in remortgaging after the FSA confirmed it would require banks to check the income and outgoings of all applicants.
These mortgages allowed applicants to inflate their incomes in order to qualify for bigger mortgages and were known as 'liars' loans'.
Proposals to crack down on irresponsible lending could make it virtually impossible for up to half of the five million interest-only customers to remortgage on to a better deal.
The warning came as the Financial Services Authority published a long-awaited review of the mortgage market.
The FSA, which admitted it had failed to prevent reckless lending in the past, said it was shifting to 'more intrusive and interventionist' regulation.
Applicants will have to prove not only their income, but also their outgoings on everything from utility and food bills to spending on holidays and Christmas presents. But the regulator stopped short of banning controversial 100% mortgages.
Chief executive Hector Sants admitted the move would mean some who were able to obtain mortgages in the boom years would no longer be able to do so.
The FSA said interest-only deals should be regarded as 'high-risk products' as they are far more likely to end in arrears and repossession.
In future anyone applying for an interest-only deal will have to prove they could afford a more expensive repayment mortgage should they be required to do so.
On a typical £150,000 mortgage, at 5% interest, an interest-only deal would cost £625 a month, while a repayment mortgage would cost £877.
On a repayment mortgage, homeowners pay off the capital as well as the interest on a loan, typically over 25 years.
Those with interest-only deals pay off just the interest, leaving them to find other ways of paying off the capital at the end of the loan term. The FSA found that only a quarter of interest-only deals were making provision to repay the capital.
Robert Sinclair, director of the Association of Mortgage Intermediaries, which represents mortgage brokers, said 40% to 50% of those on interest-only deals would struggle to pass the FSA's new affordability tests.
'They may well find themselves trapped on an unattractive variable-rate mortgage,' he said.
A spokesman for the FSA said the aim of the rules on interest-only mortgages was to ensure they are not used as a cut-rate way of buying a house.
Millions on self-certified and so-called 'fast track' mortgages could also face problems in remortgaging after the FSA confirmed it would require banks to check the income and outgoings of all applicants.
These mortgages allowed applicants to inflate their incomes in order to qualify for bigger mortgages and were known as 'liars' loans'.
BTW Malvio - brilliant blog on the mortgage crackdown BTW - you should post a comment on the thisismoney website
Comment