Lord Myners tells us it was "foolish" for banks to offer 100% mortgages.
I haven't had to take out a mortgage in the last six years, so I haven't paid any attention to what seems to have been a pretty chaotic time for both lenders and customers in the mortgage markets.
I imagine the long and the short of it going down something like this:
Bank Manager: We'd be delighted to offer you a 100% interest-only mortgage, sir.
Customer: Excellent! So do we need to pay a fee or some kind of indemnity?
BM: No, no. It's fine. Just sign here and here.
C: But there is some kind of charge, right?
BM: You'll need to have a conveyancing solicitor carry out the standard searches.
C: Sure, but what do you guys get out of it?
BM: Another satisfied customer!
C: Right. But if I were to stop paying my mortgage.... what then?
BM: Well, we all hope that never happens, but if it were to, then we'd be forced to repossess your property.
C: The property you're offering a 100% interest-only mortgage on?
BM: Yes.
C: So if we stop paying our mortgage, you'll effectively just take back the property you've paid for on our behalf?
BM: Essentially, yes.
C: Where do I sign?
Now I know it isn't quite so straight forward as I make out, and that there are penalties for defaulting, but the above isn't a million miles away from the truth. The last time I had to get a mortgage I had to pay a deposit, prove my earnings, swear my devotion to Xenu and join a cult.* If I go into arrears I'll be forced to drink the Kool-Aid.
What the hell kind of business model was being followed giving people 100% interest-only mortgages? People taking up these offers had less to lose than if they were renting - at least then there would have been the threat of losing a deposit. I understand not everyone can afford the deposit on a house, but that doesn't mean you should just rewrite the rules so everyone suddenly can. I guess the current state of the global economy mirrors the durability of said business models.
*The author is not a follower of Scientology, nor any religion and respects the rights of others to worship freely. Nor is he suggesting Scientology or any other religion is a cult, or that Scientology or any other cult would necessarily encourage or demand its members to commit ritual suicide.
No, You Hang Up!
10 years ago