A simple solution to mortgage problems?

[mcaul]

Any comments on this suggestion to alleviate probelms for those who purchased at the top of the market.

Concept based on following.

1. Easing burden of those who purchased at peak (2005 - 2008)
2. Ensuring those who do not require help do not feel hard done by
3. Ensuring bank pay a penalty for reckless lending

Concept = Life Loan.

Basics - Institution which holds mortgage offers up to 35% of current outstanding mortgage as a "Life Loan". (percentage would depend on circumstances & when the mortgage was started) This Life loan would be set against the current mortgage thus reducing monthly payment by up to 35%.

The Life Loan would be secured as a floating charge against main residence but can be transferred to another residence or even a thrid party's property if receiver of loan wishes to move abroad (e.g. Parent's property)

The life loan would attract an interest of 1% or less for the remaining term of the current mortgage, but would attract interest of ECB + 1% once the current mortgage term expires.

The life loan may be repaid at any stage, but can also not be repaid until the passing of the owner of the main residence. (both parties in case of joint borrower).

The principal value of the Life Loan would be guaranteed by Government.

The life loan will be ignored for the purposes of obtaining a new mortgage on a decreasing scale.

The benefits -
People will be able to move house without having to pay off the Life loan before obtaing a new mortgage.

More disposable income will allow people live a better quality fo life.

Buffer against upcoming interest rate increase.

Those who do not need help won't see it as them paying for other's mistakes.

Banks will bear the cost of interest on the Life Loan for the duration of the mortgage term with just a small margin afetr the term ends.

Negatives

It passes the problem onto the next generation.

Will not free up credit with banks.



I have no financial expertise and not connected in any way with building, politics, finance, and above concept wouldn't apply to me as I purchased in 2001 - just an idea to take the pressure off many friends I see in difficulty due to the banks throw money around like confetti.

 

[Brendan Burgess]

I think it's always good to have new ideas, but I am struggling with this

The Life Loan ... can be transferred to another residence or even a thrid party's property if receiver of loan wishes to move abroad (e.g. Parent's property)

Why not just get the parents to remortgage their home to pay off the mortgage on the child's home. I don't think that this solves anything.

The life loan would attract an interest of 1% or less for the remaining term of the current mortgage, but would attract interest of ECB + 1% once the current mortgage term expires.

This is just a complicated way of saying "Force the banks to reduce the interest rate for those in negative equity"

The life loan will be ignored for the purposes of obtaining a new mortgage on a decreasing scale.

This would be irresponsible lending to ignore a borrower's existing commitments.

 

[mcaul]

I think it's always good to have new ideas, but I am struggling with this


Why not just get the parents to remortgage their home to pay off the mortgage on the child's home. I don't think that this solves anything.


This is just a complicated way of saying "Force the banks to reduce the interest rate for those in negative equity"


This would be irresponsible lending to ignore a borrower's existing commitments.

Point 1 - I've put into my retirement planning that x amount will come from estate of my parents when they pass away. Morbid, but it was my father who said it to me. - Its suggested as an option if someone needed to move abroad and who could not pay off total mortgage.

Point 2 - only reduce rate on the portion of negative euity - not the entire loan and only for the remaining term of the mortgage. The bank lent this money recklessly and should take some of the pain.

Point 3 - The loan would be considered in all lending except that of a new mortgage and then on a decreasing scale, thus allowing some people trade up / down as they may require. If this wasn't included, someone in a 2 bed apartment with 3 kids, couldn't move to a 3 bed house.

Again its just something to throw out there and would only be used for those in genuine difficulty and it would help both the banks and the mortgage holder to have a better relationship and avoid many reposessions. - Also it would require no legislation or any other long winded process to implement.

 

[Brendan Burgess]

Point 2 - only reduce rate on the portion of negative euity - not the entire loan and only for the remaining term of the mortgage. The bank lent this money recklessly and should take some of the pain.

Ah. I had missed that. There is a sort of appeal to that. Reduce the rate on the bit in negative equity. It's worth thinking about, but it would disincentivise people to pay down capital. It would be better to reduce the overall rate.

If this wasn't included, someone in a 2 bed apartment with 3 kids, couldn't move to a 3 bed house.

I am not against designing a system to help people who are struggling. But I would be very much against a system which encouraged people to trade up or buy a new home. A good result for someone in serious negative equity at the moment would be that they would be allowed to sell their home and pay off the deficit at the mortgage rate.

Brendan

 

[minion]

I like this idea OP.
Well thought out.
It doesnt really pass the problem on to the next generation, as it should be taken from the estate before any inheritance. People shouldnt be counting on inheritance anyway.

Recessions dont last forever either. People should be well able to pay back the loan soon enough. It just needs to get them over the current hard times.

 

[Joey99]

I like the innovation of the idea but I can't agree that this transfer of debt to third parties is a good idea. By all means take your negative equity when you move but stand behind your commitment.