How did we end up with retired people without repayment vehicles for their interest-only mortgages
Thursday, October 10th, 2013

In the last few weeks, we have seen an alarming piece of research about mortgages and the elderly yet I have heard very little from the financial services industry. It may be somebody else’s problem but is that because of a failure of regulation.

A report by the Personal Finance Research Centre and the International Longevity Centre UK suggests that one third of the over 70s with mortgages have interest only mortgages with no repayment vehicle.

Four in ten of the oldest mortgaged households have at least one interest-only mortgage without a linked investment to repay the loan, compared with six per cent among the under 55s – a reflection of changing times and changing policies.

There are other results in this survey that suggest a failure of the mortgage industry or a failure of a banking system for allowing people to keep remortgaging into higher debt which at best saw borrowers marking time on these loans, when they should have been getting closer to paying them off as they got older. (Something for the Help to Buy generation to think about at least).

Yet what is missing is adequate help. I would contend that this may be because of the history of regulation of interest only mortgages and of the associated endowments.

One could argue that along with the national newspapers, the FSA allowed an atmosphere to develop where people believed it was best to cash in their endowments, take their advisers to cleaners over shortfalls and ultimately forget that the loan component, which dealt with the interest only really worked when  associated with some sort of repayment vehicle.

It is clear that the economics turned on the idea of meeting the capital sum in some way. Of course, the blame does not just lie with regulation. The marketing, investment and actuarial departments of the life sector did not slam the brakes on fast enough when it became clear endowments might not necessarily pay out. Some advisers may have continued to recommend the products for too long into the crisis.

But the furore, the naming of it as a scandal, when arguably it wasn’t, created an environment where people were excluded from investment advice when it was needed. And they believed they could get a decent price for their second hand endowment policy and then spend it on a holiday or other sundry expenses of luxuries and somehow then be okay when it came to the mortgage.

What could have been allowed but was never countenanced by the powers that be, was for investment advisers and fund managers needed to offer their asset management capabilities as explicit repayment vehicles to meet the gap. But with the flashing of regulatory traffic light letters, the urgings of the TEP market and the understandable wariness of investment advisers one can see how we got here.

Now we have a bad outcome for consumers for whom it may all be a little too late even if IFAs were prepared to service them post RDR.

As I said earlier, one can blame the mortgage industry, insurers and IFAs to some degree. But when it comes to the investment component, there is an argument to say that the failure rests with the regulator beset by the national newspapers for preventing investment advisers and the investment industry doing its job and now we have pe0ple in their seventies not able to pay off the capital sum. Oh dear. As always comments welcome.
Could a journalist ever have cracked what was going on at HBOS?
Friday, April 5th, 2013

So this HBoS thing. What kind of journalist could really have found out what was going on? None I think. Unless an Irishman, an Australian, an Englishwoman, an analyst (well maybe a US-based one who understood mortgage securities (scrub that actually), a former, reformed trader who had found God perhaps, a forensic accountant (any gender), a compliance expert (and a lawyer to deal with the privacy and libel stuff) got together and surveyed the whole bank to find out what was going on. It’s just not practical even with Google+ to hand out in and discuss matters. So it’s back to isolated journalists or news desks.

For example, UK journalists could question the lending policies or the market share. I did. No really. Many journalists did. Well we asked, but did we arm ourselves with the correct financial information beyond the blunt “What about the fact you have almost a third of the mortgage market?” Tricky you see, when institutions are so vast.

“Well, HBOS would  say, we are managing that market share down a little bit, prudently of course. We are now building our share of investments and savings to our natural market share.” Blah. Blah. Etc.

So could we find experts to help – experts who understood mortgage funding and the quality of mortgage backed securities. You see we were told about that too but it was tricky to write. Some very small sub prime lenders were protesting the strength of their mortgage books days before they crashed, sometimes even after tranche one had hit the rocks, they were still protesting about how tranche two was different. Indeed, some journalists warned about overheating in the institutional market. But really was it anyone’s main business? Did any paper run stories on the front page? Actually I do recall Abbey getting a front page pasting for its lending policies but not HBOS though I could stand corrected on that. And imagine if any title had written even one tenth of what said by the Banking Standards Commission in its report today in a newspaper or magazine. Guess what. They would have published and been damned. Utterly damned. (Something Lord Leveson possibly missed while he was listening to Hugh Grant. Oh well.)

So journalism probably can’t catch this sort of thing. Not even outstanding journalists like Gillian Tett or Robert Peston. So it’s up to regulators or the market. Oh dear.
Can we get advice to interest only borrowers?/this week’s columns/ trade news round up
Friday, March 16th, 2012

Given regulatory boss Martin Wheatley’s comments about interest only mortgages this week, I have found myself wondering what those who may feel themselves at risk of being caught out could do. There are suggestions on some of the trade comment boards that the FSA mortgage crack down has trapped this group further which surely is something the FSA needs to keep monitoring and adjusting its regulations for.

Of course, this group could seek the services of an IFA though that might cost quite a bit because it requires an assessment of a host of issues. Everything from a fact find of the borrower’s and their family’s finances to what their plans are for living in the house long term, what the options for downsizing and a question of whether they dare select an investment plan to run alongside the mortgage. There are a host of advice pitfalls but it seems that advice is what is needed. However except for those paying a fee, I struggle to see how the current regulatory set up will allow them to be advised in a cost effective way. And whatever else they can do, they won’t be able to sort things out on an, ahem, execution only basis. I wonder if this issue is covered in the exams?

Meanwhile on FundsNetwork, I suggest that the Retail Conduct Risk Outlook from the FSA actually may show them getting to grips with things. You may beg to differ. There is of course scope for your opinions on this site. Feel free to supply them below.

In this week’s Investment Adviser I wonder if it might be better to adviser charge the legacy business and if you do why exactly would that be 0.5 per cent?

Finally here is the week’s news round up on Adviser Home – Hector, RCRO and all that jazz.