What’s piqued my interest this week?
This week the BoE raised the base rate to it’s highest level in nine years, 0.75% (1). All the newspaper business sections went into meltdown and a slew of commentators popped up to foretell doom. My opinion of the whole thing largely follows Monevator’s, this is still historically very very low (2). Rather than repeat Monevator, this week I’ll focus on something else that caught my eye.
A couple of weeks back I posted a link to a BBC article about a couple who didn’t understand their interest-only mortgage, had some bad life circumstances, and subsequently were trying to complain to the regulator about their bank so they didn’t have to leave the home they hadn’t made repayments on (3). This prompted YFG into a rant on people who want something for nothing, definitely worth a read (4). Some scraping script must have clocked me viewing these stories, as I was directed to a company which claimed ‘you could be owed thousands if your interest-only mortgage was mis-sold’ (5). From their website (5):
• 1.9 Million people have been led into an interest only mortgage
• Lenders and brokers may have mis-sold mortgages to thousands of customers
• Many of the people affected by this have no idea they could be due compensation
• Nearly 2 Million have been left repaying a mortgage that was inappropriate and unaffordable
• Interest only mortgages holders are being refunded thousands of pounds
Well dear readers, bricks were shat. I had to go and wash my head in a bucket with a bit of casual screaming thrown in to calm down. If you are making the biggest purchase of your life, how do you sign onto something that you know is ‘unaffordable’? Are people seriously not reading the small print? I completely get the something for nothing types who signed up to IO-mortgages expecting their house value to go up, and the added equity to provide them with something for the next re-mortgage. I understand it but don’t agree with it. But how do you sign up to an IO-mortgage when you can’t afford to also put something by in another investment vehicle, or where you don’t expect to move at the end.
Hey look, here’s another couple who are losing “their home” because they can’t remortgage what was an IO-mortgage (6). Concerns from the FCA that people have not put money away or planned for the end of their IO-mortgage have been a recurring theme in the press (6, 7). Depending on your source somewhere between 1.6 and 1.9 million people currently have IO-mortgages, and the FCA expects 600,000 to expire in 2020 (7, 8). As some people clock onto the fact they may suddenly lose their home, the claim sharks have started to circle.
Just a few months ago, the concerns around IO-mortgages seemed to have led to a decrease in their number. Or perhaps their utility was lost as house prices slowed. Either way, the number of IO-mortgages was falling, with one source reporting they had halved (6, 8). This appears to have now reversed. Thirty-three lenders now offer IO-mortgage products, a modest increase of eight in the last couple of years, but nowhere near the 73 of 2008 (9). It is likely these products are only available in specialist circumstances (10)
The argument from the claims people is that in some cases the mortgage products were mis-sold; bad advice was given by brokers/ lenders suggesting that IO-mortgages would be the most affordable (11, 12). Which? even offers a template letter for complaints rather than going through a claims company (12). The Financial Ombudsmen, much more helpfully, actually gives case studies of when and where mis-selling occured, and when it’s your own damn fault (13). The Financial Ombudsmen Service has broadly upheld one-in-five complaints, around 300-400/year (11). The fear is that as more IO-mortgages mature, customers who are not prepared will turn to claims of mis-selling for compensation (11). Two reasons why this infuriates me:
- If you’re the sort of person who doesn’t read the T&Cs on the biggest purchase of your life, doesn’t understand the product, and doesn’t make any effort to save or prepare for an end point, why is it someone else’s fault?
- The average shortfall on IO-mortgages is estimated to be >£70k (6). A few thousand compensation is not going to bail you out of the sordid hole of your own making.
And with that, I’m off for a lie-down.
Have a great weekend,
- Travis Perkins gives profit warnings for it’s subsidiary Wickes (14)
- Apple is (briefly) the first trillion dollar company (15)
- The property market for castles is booming in Scotland (16)
- ‘Amateur’ buy-to-let landlords selling up could lead to pension fund windfall (17)
- Men are spending an average of £1483 on engagement rings (I didn’t!) (18)
- YFG guest posts at Monevator on how to open a broker account (19)
- And posts in his own domain about Last Chance U and financial independence (20)
- Weenie updates us on her July (21)
- As does Ms Zi You (22)
- Who also thinks about what we leave behind (23)
- The Fire Engine thinks about the ways we make massage our FI numbers (24)
- And finally for this week, Quitting Teaching, which I’ve just started reading so I’m catching up on (25)
What I’m reading:
An exam textbook (le sigh)
Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor
Enchiridion by Epictetus – Bedside reading for a bad day