The Financial Conduct Authority (FCA) has been accused of scaremongering when it comes to dealing with outstanding interest only mortgages.
You may remember that Spotlight reported that the FCA warned that almost half the 2.6 million or so UK property owners that have interest only mortgages would not have savings or other […]
The Financial Conduct Authority (FCA) has been accused of scaremongering when it comes to dealing with outstanding interest only mortgages.
You may remember that Spotlight reported that the FCA warned that almost half the 2.6 million or so UK property owners that have interest only mortgages would not have savings or other funds to cover the final bill at the end of the tenure.
Interest only mortgages represent approximately 33% of all UK mortgages.
With Interest only mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is £71,000 (GBP) per person, according to the published FCA research.
The FCA, the new watchdog for the sector taking over from the Financial Services Authority (FSA), commissioned the research to provide a clear indication of what mortgage borrowers could face when their Interest Only mortgages mature between now and 2041.
Property investors and Buy-To-Let landlords are still wise to select interest only mortgages, rather than waste money by opting for capital repayment mortgages from the outset.
Landlords choose interest only mortgages to purchase rental properties because they are the cheapest option and may choose to switch to a repayment option at any time once the rental income is coming in.
Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA),said: “By confirming that nine in every ten interest only (IO) borrowers have a repayment strategy in place, the FCA’s research should put an end to misguided reports of a mis-selling ‘scandal’ when the market boomed between 2002 and 2007. Having said that, as both the Experian report for the FCA and the GfK report shows, there are issues for the industry to deal with.”
Market research firm GfK NOP questioned 1,103 interest only borrowers to consider how prepared they were to repay their loans.
The study found that 37% of interest only mortgage holders faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.
But the FCA believes that many people underestimated the financial problem and it believes 48% of interest only mortgage holders will face a shortfall.
Martin Wheatley, Chief Executive of the FCA, said: “My advice to borrowers is not to bury their head in the sand over interest only mortgages. This report is a call to action.”
Over 1 million landlords and homeowners with interest only mortgages could face financial difficulties when reach the end of their tenure and they have to pay them off, according to the Financial Conduct Authority (FCA).
The FCA estimates that around half of the 2.6 million or so UK property owners with interest only mortgages, which represents about […]
Over 1 million landlords and homeowners with interest only mortgages could face financial difficulties when reach the end of their tenure and they have to pay them off, according to the Financial Conduct Authority (FCA).
The FCA estimates that around half of the 2.6 million or so UK property owners with interest only mortgages, which represents about a third of all UK mortgage holders, will not have savings or other funds to cover the final bill.
With these mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is £71,000 (GBP) per person, according to FCA research.
The FCA, the successor of the Financial Services Authority (FSA) as the sector’s watchdog, commissioned research to give a clear indication of what borrowers face when mortgages mature between now and the year 2041.
Market research firm GfK NOP questioned 1,103 interest only mortgage borrowers to consider how prepared they were to repay their loans.
The study found that 37% of borrowers with an interest only mortgage faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.
But the FCA believes that many people have seriously underestimated the severity of the financial problem and believe the true percentage to be around 48% of all residential property owners with interest only mortgages will face a shortfall.
The vast majority of interest only mortgages were taken out by property investors and residential homebuyers before the financial crash, according to Martin Wheatley, Chief Executive of the FCA, who stated: “It’s just that people were optimistic about the future. My advice to borrowers is not to bury their head in the sand. This report is a call to action.”
The interest-only mortgage time bomb is a serious problem for property investors without an exit strategy and potentially terrifying for homeowners who have no means in place to repay the capital of the original loan.
The media have already stirred up a fervour of anguish with overemphasised coverage on the negative aspects of taking out an interest only mortgage, almost as if they are acting in the interests of the mainstream mortgage lenders attempting to get property owners to switch to repayment mortgages immediately.
The media coverage suggests that interest-only mortgages are a disaster waiting to happen for property investors and residential homeowners with at least 60,000 borrowers facing capital repayments by 2020 without any means of being able to pay back the loan and another 260,000 facing the same financial crunch over the next 30 years.
Graham Lock of House Network said that the FCA is guilty of scaremongering, stating: “People use interest-only mortgages to get on the ladder and they can choose to switch to a repayment option at any time once it becomes affordable. Wage inflation will take care of most of this added with the fact that most of us will work until we’re 70 means there is plenty of time to switch to repayment in the future.”
Executive Director of the Intermediary Mortgage Lenders Association (IMLA), Peter Williams, added: “By confirming that nine in every ten interest-only (IO) mortgage borrowers have a repayment strategy in place, the FCA’s research should put an end to misguided reports of a mis-selling scandal when the market boomed between 2002 and 2007. Having said that, as both the Experian report for the FCA and the GfK report shows, there are issues for the industry to deal with.”
The Help To Buy mortgage indemnity scheme proposed by Chancellor of the Exchequer, George Osborne, in the budget announcement made last week is expected to raise both property transaction levels and property prices.
The Help To Buy mortgage indemnity scheme which kicks in next January is designed to generate £3.5 Billion (GBP) of new lending, […]
The Help To Buy mortgage indemnity scheme proposed by Chancellor of the Exchequer, George Osborne, in the budget announcement made last week is expected to raise both property transaction levels and property prices.
The Help To Buy mortgage indemnity scheme which kicks in next January is designed to generate £3.5 Billion (GBP) of new lending, could be administered by ‘bad banks’ Northern Rock Asset Management and Bradford & Bingley, now in the umbrella of UK Asset Resolution.
Lenders would have to pay to participate in the scheme, but the price has not yet been set.
Estate agents expect Help to Buy to enable people to buy both existing properties and new build homes with 95% mortgages.
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I read about this at the weekend and as I have been considering investing my pension fund in overseas property, I thought it wise to share this with other property investors who may have already considered what originally looked like a superb investment opportunity.
The Financial Services Authority (FSA) has issued an ‘alert’ about Harlequin […]
I read about this at the weekend and as I have been considering investing my pension fund in overseas property, I thought it wise to share this with other property investors who may have already considered what originally looked like a superb investment opportunity.
The Financial Services Authority (FSA) has issued an ‘alert’ about Harlequin Property and the Serious Fraud Office (SFO) has been asked to investigate.
Up to 3,000 UK based property investors have poured up to £250 Million (GBP) of their savings into a controversial Caribbean property scheme which is now facing the threat of legal action.
Many investors say they fear financial calamity after being persuaded by pension advisers to put large sums into projects run by Essex-based Harlequin Property, who promised to build 6,000 luxury villas in St Lucia, St Vincent, Barbados and the Dominican Republic.
So far only 300 have been constructed.
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Quick Property Sales Fraud Risk
The FSA has warned homeowners in financial difficulties who are looking to sell their home fast to beware of committing fraud.
The financial regulator says it has evidence that some below market value (BMV) or distressed property sales may involve fraud, where the buyer (a company or an individual), asks […]
Quick Property Sales Fraud Risk
The FSA has warned homeowners in financial difficulties who are looking to sell their home fast to beware of committing fraud.
The financial regulator says it has evidence that some below market value (BMV) or distressed property sales may involve fraud, where the buyer (a company or an individual), asks the selling homeowner to state that the property has been sold for its full open market value, rather than the agreed purchase price.
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New Rules For UK Lenders
The Financial Services Authority (FSA) have outlined new tough measures for mortgage lenders in a bid to shake up the UK mortgage market
New mortgage lending rules effective from April 2014 are intended to prevent irresponsible lending and means that borrowers can only take up deals that they can prove […]
New Rules For UK Lenders
The Financial Services Authority (FSA) have outlined new tough measures for mortgage lenders in a bid to shake up the UK mortgage market
New mortgage lending rules effective from April 2014 are intended to prevent irresponsible lending and means that borrowers can only take up deals that they can prove they can afford.
The long-running review by the FSA aims to bring common-sense and responsibility back to the UK mortgage industry following the meltdown observed since the property crash in 2008.
One new measure that will come into effect today (1st November 2012) means UK lenders will not be able to take advantage of borrowers unable to get a mortgage elsewhere.
The new ruling is intended to protect borrowers already trapped in mortgage deals with their current lenders, as well as those who may end up stuck when the new rules come in to force.
The FSA want to get lenders to treat all borrowers the same and want to avoid lenders treating new applicants less favourably than other similar customers, e.g. Offering them a higher interest rates or worse repayment terms.
From 2014, mortgage lenders will have to consider an applicant’s income and outgoings and mortgages that are on an interest-only basis will only be offered to borrowers with a solid repayment plan, rather than relying on UK property prices rising (capital appreciation).
Mortgage lenders will also have to factor in any impact that future interest rate rises could have on repayment costs.
The new rules will affect over 9 Million mortgaged UK households and will also have a serious impact on would be buyers who are currently trapped in the private rental sector (PRS) because they are unable to afford to buy a property due to higher mortgage costs and the extortionate cost of deposits.
Need a Mortgage Broker? – Full UK listings here
Mortgage fraud is estimated to cost the UK economy £1 Billion (GBP) every year, according to the National Fraud Authority (NFA).
MyPropertyPowerTeam.com takes a look at the steps some bridging lenders are taking to mitigate fraud and how they vet the solicitors and valuers that they work with.
It is important to ensure that […]
Mortgage fraud is estimated to cost the UK economy £1 Billion (GBP) every year, according to the National Fraud Authority (NFA).
MyPropertyPowerTeam.com takes a look at the steps some bridging lenders are taking to mitigate fraud and how they vet the solicitors and valuers that they work with.
It is important to ensure that all mortgage lenders’ procedures and vetting measures are consistently in check, particularly for those lenders who outsource their professional services regularly.
In light of the increasing number of products and services being offered by lenders entering the short-term lending sector, the FSA are keeping a close eye on any poor practices.
But, are the systems and controls in place to detect and prevent mortgage fraud robust enough in the industry?
Banks and mortgage lenders are being extremely vigilant when looking at how vulnerable their own systems and controls could potentially be and in what places they can be improved.
The FSA are also keen to crack down on poor practices and in December 2011, they published a guide, entitled Financial Crime: A Guide For Firms.
This document provides guidance to firms on steps they can take to reduce their financial crime risk and is designed to help firms adopt a more effective, risk-based and outcome-focused approach to mitigating any financial crime risk, which includes examples of good and poor practice.
Many Bridging lenders have made substantial investments in ensuring that they mitigate fraud and are using both automated systems and human intervention to detect fraud.
Good bridging companies choose solicitors that they deal with very carefully and will have carried out due diligence to mitigate the risk of solicitor fraud.
New systems actively search and cross reference data from all lender members and multiple government agencies for any indications of fraud including identifying and investigating potential fraud as well as money laundering and the identification of Politically Exposed People (PEP).
Want to avoid Mortgage Fraud? Find a reputable mortgage broker here
The Financial Services Authority (FSA) have warned landlords and homeowners about ‘property hijacking’, the practice whereby fraudsters attempt to raise mortgages on empty properties that they do not own.
The FSA says it has observed a notable increase in cases of UK property hijacking.
The warning has gone out to all UK mortgage brokers, but […]
The Financial Services Authority (FSA) have warned landlords and homeowners about ‘property hijacking’, the practice whereby fraudsters attempt to raise mortgages on empty properties that they do not own.
The FSA says it has observed a notable increase in cases of UK property hijacking.
The warning has gone out to all UK mortgage brokers, but agents and landlords should also be aware of the potential for fraud.
In its smaller firms regulation round-up for April 2012, the FSA warned UK mortgage brokers that: “There have been attempts by fraudsters to raise mortgages on unencumbered properties which they do not own – property hijacking. This demonstrates the importance of undertaking appropriate due diligence when engaging in new relationships, to ensure that you know who you are dealing with and can identify any trends or anomalies in the business being offered.”
The Financial Services Authority (FSA), are urging people seeking mortgage advice to ensure they obtain the correct type of mortgage product for their residential property purchase.
The FSA have said that Buy to Let Mortgage applications are rising, but a growing number of applications are […]
The Financial Services Authority (FSA), are urging people seeking mortgage advice to ensure they obtain the correct type of mortgage product for their residential property purchase.
The FSA have said that Buy to Let Mortgage applications are rising, but a growing number of applications are fraudulent.
Would be homeowners and borrowers who, for whatever reason are unable to meet the strict lending criteria now demanded for a UK residential mortgage, are attempting to fraudulently use Buy To Let (BTL) mortgages as a means to purchase property, despite having no intention of being a landlord or ever renting the property out to tenants.
Buy to let mortgages are not regulated in the same way as residential mortgages and the borrowing criteria are more relaxed.
This means that buyers who fail to meet the income and credit check requirements of a residential mortgage can still get approval for a similar sized buy to let mortgage.
The FSA believe that intermediaries and financial advisors are involved in the fraudulent applications.
When asked about the rising levels of deception an FSA spokesman commented: “We are seeing anecdotal evidence of unregulated buy-to-let mortgages being used fraudulently as a replacement for regulated residential mortgage contracts, as borrowers and intermediaries seek to circumvent more stringent income and affordability checks.”
Intrusive measures are being employed by banks in a bid to penalise personal financial extravagance!
Applicants with families, who buy expensive birthday and Christmas presents or take luxury foreign holidays could now face being turned down for a mortgage following the introduction of intrusive new guidelines.
The new rules from Spanish bank – Santander, one […]
Intrusive measures are being employed by banks in a bid to penalise personal financial extravagance!
Applicants with families, who buy expensive birthday and Christmas presents or take luxury foreign holidays could now face being turned down for a mortgage following the introduction of intrusive new guidelines.
The new rules from Spanish bank – Santander, one of the biggest banks in the world and the UK’s second largest lender of mortgages, will penalise any applicant it deems to be financially extravagant.
Santander may be the first to introduce the intrusive guidelines, but some experts fear other banks and building societies will soon be following suit. The UK’s biggest mortgage lender, Lloyds Group, (inc Halifax and Bank of Scotland), have already imposed similar sanctions on interest-only mortgages.
Spokesman for Priced Out campaign group for affordable homes, Matt Griffith said: “This is ridiculous – no one fails to repay their home loan because they buy gifts for their grandma. Banks are constricting lending to first-time buyers while concentrating on the richer pickings of equity-rich homeowners and investors. As banks scrabble to preserve cash, it seems like we are on the verge of another mortgage crunch.”
The Spanish bank’s questions on occasional spending are far in excess of what is officially deemed fit by the Financial Services Authority, (FSA), after it concluded that only regular spending on essentials and bills needed to be taken into account following the uproar over its original proposal to analyse every aspect of household spending.
Santander’s decision will put a further squeeze on mortgage lending at a time when obtaining a mortgage is already difficult for many.
New mortgage applicants must reveal:
• Salary: 3 months of pay slips or 3 years accounts for the self employed
• Regular Spending: Based on 3 months bank statements including clothing, school fees and energy bills.
• Benefits: Tax credits, pension or maintenance payments
• Credit Record: Detailing if bills are paid on time and going back up to 6 years. Banks also use this to check for truthful submissions.
• Family: Borrowers with children or other dependants will be deemed to have a higher than average monthly expenditure
Santander also check
• One Off Spending: Checks on spending for birthdays, holidays, outings and Christmas presents.
The Spanish bank has already taken steps to slash cheap mortgage deals by telling those who want an interest-only mortgage to come up with 50% of the property’s purchase price.
The bank has issued its brokers with new forms requesting that applicant homebuyers detail all regular expenditure such as bills, school fees, transport, entertainment and clothing.
It also asks for non-regular expenditure, which it specifically sets out as subscriptions, holidays, miscellaneous goods and services, religious festivals and birthdays, to be detailed in a separate column.
Prospective property buyers are not allowed to enter a zero, as this will see their application rejected. The previous application process didn’t ask for any such details.
Santander claims it has been making checks on ‘one-off spending’ for several years. However, experts say the announcement about making more onerous checks was only made last week.
A Santander spokesman said: “The changes will enable us to collect more information upfront about borrowers’ monthly expenditure. This will also make it easier for people to provide all of this information when submitting cases to us”.
A spokesman for the Council of Mortgage Lenders (CML) said: “It’s up to each mortgage lender to decide what information is important from the borrower in order to make a decision on affordability.”