Mortgage Prisoners, or our lives in perpetual interest only debt

There’s calls for British victims of usurious mortgage debts to be compensated by the taxpayer. There’s a good case for and against – but it’s a lesson for us to heed about the stranglehold that debt can put in us and how, just because you’ve paid your interest, if you don’t pay your capital, you’ll never be financially free (let alone independent).

Apologies for posting a link to the Torygraph, but this recent article really piqued my interest as it has all the ingredients of a great story:

• Property
• Moaning boomers
• Sad face poses and
• dollops of schadenfreude

Basically, this is a story of a few hundred thousand people took out mortgages back in the good old days of Northern Rock, before the GFC, and how life’s turned out for them as they were hung out to dry by a government sell-out, now paying extortion money on the houses, or losing them after paying for years.

But let’s go back in time to around 20 years ago…

This was before Take That reformed, Coldplay was everywhere and everyone was playing snake on their Nokia’s. Houses were cheaper back then.

T’was a great time, when if you wanted a mortgage, you just needed to crawl an X on a self-cert mortgage form and you’d get the house of your dreams at 125% LTV, all for an easy monthly sum.

After 2 years, you could remortgage, borrowing more on the house and getting your hard earned winnings in cash to spend. For everyone was a winner baby!

With lax lending and oh so low interest rates and not enough houses being built. (And arguably a shift in building for people and instead building for investors) house prices were shooting up!

Property became the only show in town – property was your pension – you couldn’t go wrong with bricks and mortar – and you couldn’t turn on the TV without being bombarded with property porn all day and evening.
And if you want to understand GFF, understand that this was happening while I was 20.

Mortgage Prisoners

The debts that people were racking up on property put the whole world economy at risk. The Big Short is a good movie to watch for a perspective on how things were in the UK – how everyone got rich from rising house prices and riskier and riskier lending.

But the magic money tree only worked if house prices kept rising and people kept paying their mortgages. But the party came to an end and the government did whatever it could to ensure that debtors were spared losing their homes and at great expense, nationalised banks to contain the damage.

Interest rates were floored to keep the economy alive and if you had a big mortgage, kept your job and held assets – the last 15-20 years have been golden for you. I really mean that – millions have spent more on alcohol a month than on their mortgage payments – all while their house earns more money than they do.
BUT there are losers – like Yorkshire man Chris Fleming.

Gurrrr!

His family home that he lived in with his family for 36 years until 2023 was repossessed.

His interest only mortgage was with a bank that got nationalised and in 2015 his mortgage was sold to a vulture capital firm called Landmark who decided to triple his mortgage payments from £670 a month to £1,760 a month.

Without much equity in the property, he couldn’t remortgage and with high monthly payments, he couldn’t reduce the debt. He even tried suicide. It’s a sad story.

In the end, the bank took the house in 2023 and sold it for a reported £100,000 less than he had it valued at and left him with just £50,000 to show for 36 years of mortgage payments.
The whole article is worth a read – especially the comments (in case you think I’m unsympathetic.

Something Must Be Done

But some things just don’t add up.
For a start, if he bought the house 36 years ago, that puts it around 1987. He’s had plenty of time to do something about his debt. And just claiming that “I paid my mortgage for 36 years” won’t cut it when you were just covering the interest. And given how, when you were getting the mortgage, you were told to say that you a) knew it was interest only and b) had some sort of plan to pay back the capital, you can’t say that you are the victim here.
To rip-off Mervyn King, mortgage payments are a matter of opinion, debt is real.

The moral hazard is that people who outbid on houses that they could never afford are granted a get out of jail free card (and £50k tax-free) at the expense of the public, if they are compensated.

“I’m not a bad debtor”

Another bad debtor is Debbie, unable to understand the words “interest only.” She’s 54 and f**ked. Her mortgage payments are currently 9.5%, with a repayment jumping from £600 to £1,400 a month over the last year. That works out at a £175k mortgage – assuming she’s still interest only. Even still, it’ll take a miracle (or inheritance) for her to clear it before the state pension age.

No wonder she looks pissed. But I bet you that the house that she never paid for is nicer than 80% of the houses that those who are 20 years younger are paying for.

Live, laugh, love

Is Cheap Credit a Fundamental British Right?

If the medicine is your mortgage rate, then the illness is house prices.

The absurd situation that many people are in where they can afford £1,500 a month to pay someone else’s mortgage (aka paying their rent) but the “computer says no” when it comes to getting a mortgage that will cost them hundreds of pounds less.

That’s an injustice right there.

The other injustice that these mortgage prisoners have is that they can’t remortgage to get a better rate because of their lack of equity (the high LTV scares prudent lenders), so they are stuck on high interest rates – and anything over 6% is high in my book. I’m not too pleased with my own at 4.45%.

Limiting borrowing to a certain multiple of your notional salary is one solution, but it can often just push people into the clutches of renting forever as houses remain overpriced, as in Ireland. And can exasperate inequality by having the rich Bank of Mum and Dad give their offspring an unfair advantage over less well-off offspring.

And when access to housing close to good opportunities for work, career and life, it perpetuates inequality.

Look at this map of houses prices – notice anything? Where all the jobs are, it’s expensive. So if you want a nice job you pay – unless you want to be hiding out with GFF in the frozen wastelands beyond Hadrian’s Wall – somewhere so shit abd cheap it doesn’t even get shown on the map!

I for example, am the finest person in my line of work – well, I’m joking, but I’m not shit. But I can’t afford to take a job in London (where the opportunities and big bucks are) because I can’t find the cost of living. See what I mean?

But, I am responsible and property is not my pension and it is becoming less and less important in terms of my net worth.

GFF, making property less important

Bail Out?

So, hundreds of thousands of borrowers have been paying extra thousands of pounds a year in interest to banks and vulture funds. The cost is in the billions in extra costs that seem unfair.

These people were often just doing the right thing. Buying a forever home, taking a chance to remortgage at a better rate, wanting to start a family so buying a house that they could grow into. But 200,000 mortgages at an extra £300 a month for 10 years = £7.2 billion pounds. Maybe more.

We socialising the losses but privatising the gains? It seems like these vultures are making millions of pounds from hapless prisoners – so why aren’t they paying.

Prosperity Built on Perpetual Debt.

The 25 year experiment of ever increasing house prices has left more losers than winners. More interest paid on the same property – and when people couldn’t buy, the rents just kept rising to feed the beast – meaning less money for hinterland, intergenerational unfairness, a crippling of a generation who have stagnating wages and rising costs.

Same scale BTW

Even the oft vilified “gentrification” process is being supplanted by gent-AirBNBification of what was left after BTLers ripped the heart and soul of neighbourhoods across the country.

We should all accept that we can afford less? – truly afford and not just have someone else pay for it (house prices always go up), or run things down (crumbling infrastructure) or have the next generation pay for it (state pension increasing anyone?)

Call for Action?

I don’t agree with the call for helping these mortgage prisoners. I have sympathy but they shouldn’t be compensated for they are unfortunate to have gambled and lost – and as unfair as the outcome seems, they should take responsibility.

Blame the banks, the government, Kirsty and Phil, the vultures, the everyone – but don’t ask us to give them a pass on this – you CAN go wrong with bricks and mortar.

Personal Financial Responsibility.

Some of you might rightly say that as a serious person who takes responsibility for their own life and financial decisions, that you should not have to pay out for the fecklessness of others.
Think of the money lavished out for mis-selling PPI, or demands for WASPI women to get their cake (and to eat yours too), or the coming car finance “we woz robbed” story, or diesel cars.

Closely related are things like insurance fraud that push up prices for the rest of us.

Why should those that realise that buying a car that costs more than your salary at a monthly rate that is a sizeable slice of your monthly salary is unaffordable, and you settle for something cheaper? (Not to mention the harm that buying a bigger car has on everything from your wallet, the environment, the pavement (where you have to park since you’re now significantly wider) and the safety and wellbeing of everyone else).

Prudence sometimes pays, but the duped sometimes hit the jackpot. After all, those PPI payouts were a nice full refund at a return of 8% a year. In many cases, people used their PPI money to buy (read rent) an unaffordable car that they’ll soon get bailed out again to the tune of billions and 8% a year.

Punching Down?

I don’t want to punch down. But often these prisoners priced out others – and do homeowners deserve special protection under the law of public sympathy?

The position that many people find themselves in is not ideal. Often, you need a car to be a functioning member of the workforce. Not having a car (like I did for many years) means you quality of life is lower – just imagine how it feels to be standing at the side of a busy dual carriage way on a dreich and dark Scottish evening waiting 20 minutes for a bus.

Same with buying a home. Renting is throwing money away, and at least buying (or renting from the bank) gives you a bit of piece of mind that you won’t be evicted, or have your rent increase, or put up with poor insulation, cheap fittings, damp, mould and landlords who treat you – the paying customer – as renter-scum.

But in the cases that I’ve read about these mortgage prisoners, I don’t think that they had it that bad. Certainly, if I was in negative equity and paying a high interest rate on my debt, I’d do everything that I could to make overpayments.

You can’t honestly say, “I’ve had 36 years to do something, now it’s too late, and it’s all someone else’s fault.” 36 years – and in that time, they probably paid tens of thousands of pounds less than someone renting and still get £50,000 as a golden handshake.

The whole thing doesn’t make sense, does it?

The humbling affect of a pincer movement of soaring house prices, tumbling yields and stagnating wages – with a good dose of regional differences has meant that many people in their 40s, 50s and 60s are quids in – but as time goes on the winners start giving way to the losers. And the differences are not insubstantial.

I bought and sold my first flat with impeccable timing and doubled my money. A good friend of mine manage to do the same – only a year or two apart and lost money. The difference? Timing, skill? Luck? Sticks in a vase? GFF’s a genius?

Humbled

Ermine tried his hand with property and had it bitten off! And without being rude, he’s of an age where you’d expect to be winner. 
My fundamental belief if that you probably need a million pounds to call your own to be financially independent. But tying up multiples of your PRE-TAX salary in a house is dangerous, and the unofficial government policy of ever out of reach house price is immoral.

I’m fortunate to own a house that is more than I need, that costs me a fraction of my salary to pay-off and is just a sliver of my net worth.

I’ve gone Interest Only (didn’t need to be told that that meant no capital was being repaid), I’ve stoozed, I’ve MEWed cash (to invest, not spend) and I’ve sold to rent when the time was right.

I’ve made it work for me and I’ve had to work for it (current house is unlikely to pay me to live in it).

But fundamentally, if you work back from how much you’ll earn in your lifetime (say you earn, after tax £40,000 a year and will work for 40 years) your £1.6m needs to pay for everything – including the guts of a million for retirement – it doesn’t leave much left for the average £285,000 house in the UK, because with interest payments it’s £473,000 (at a modest 4.45%, the rate I pay).

That’s how you do it

If you add on student fees and loans, nursery fees, council tax, the cost of running a car (or two), clothes you might wear, food you might eat (foodbanks are always an option for the middleclass paupers), heating, electricity and all of the other of life’s luxuries – it’s not hard to see how there’s too much month left at the end of the money.

You can always postpone pensions, extend your work life until you die or move somewhere cheaper – and put up with reduced life chances and opportunities.

You can’t even move anywhere cheaper anyway, since all property is priced at the highest amount that any one person is willing to pay – a necessary system to ensure that everyone is priced out or consumed by their mortgage.

Don’t let this get you down. There’s alternatives and things that you can do. And they don’t come in the form of a “free course” – just try reading, observing and make some changes for the better.

Get efficient with your money and with your time. We are all prisoners of one sort or another. Don’t expect a bail-out and don’t accept your fate.

Waiting 36 years before doing anything is ridiculous and take control of your life now!

Thanks, GFF.