The dead pledge

mortgage (n)
late 14c., from O.Fr. morgage (13c.), mort gaige, lit. "dead pledge" 
from mort "dead" + gage "pledge;" so called because the deal dies either when the debt is paid or when payment fails.

Any blogger knows that timing is crucial, particularly in dealing with the sort of news story you know is just over the horizon. Too soon and you have a damp squib; too late and someone else has got there first.

This looks like being the week the MSM pick up on what they are already calling a 'ticking timebomb' - the question of interest-only mortgages.

In the property feeding frenzy of the late eighties, houses were snapped up as soon as they became available. In some areas, overnight queues formed outside estate agents whenever a new development was released onto the market.

In a competitive mortgage market, the lending vehicle of choice for many was the interest-only mortgage sold with an endowment policy to pay off the final debt; the monthly repayments were lower and there was the possibility of a cash windfall if the a with-profits endowment policy performed well.

Much has been made since of the mis-selling of these policies, but not all lenders disguised the fact that there was an element of risk. However, unwilling to be left behind by rapidly rising prices, people were buying at what would have previously been an absurdly young age with very little capital behind them; this kind of mortgage enabled them to borrow against future age- and experience-related pay increases.

In a scenario now all too familiar from other areas of banking, the earliest investors saw handsome returns; endowment policies maturing in the eighties and nineties provided a substantial windfall that saw homeowners indulging in new cars and exotic holidays - and unintentionally endorsing for the next generation the salesmen's claims that an endowment policy was a worthwhile investment.

That sense of optimism and security was, as we now know, short-lived; repeated and increasingly pessimistic warnings have been issued that the final lump sum will fall well short of repaying the amount owed. What is not known is the extent of the problem; despite all the publicity there will doubtless be people out there who could not - or would not - take steps to meet that shortfall and there is no way of knowing how many they are.

In the next few years, we can expect increasing media coverage of this story - and, more particularly, of the consequences for those unfortunate or imprudent individuals who have no means of paying the debt other than selling their homes. I'm no Mark Wadsworth, but even with my limited knowledge of the property market, I can see this uncertainty could be a potentially destabilising influence in an already volatile situation.

I only hope that the news coverage will not include attempts to solve the problem by other means: regular readers may remember this post from September 2010:

'Reading on in the business section in the darker watches of the night, an interesting thought occurs; endowment policies are linked to life cover. And while PEPs and ISAs bump around in the shallows, endowment investors have been left well and truly high and dry. 

A policy bought in the 80s to cover an interest-only mortgage of £100,000 might now have a projected shortfall of up to £45,000, according to recent figures. With surrender values at an all-time low, the unfortunate policyholders are stuck paying in, with no hope of realising that £100,000 unless one of them dies.'

"Divorce - never. Murder - often."

I’ve been suffering from insomnia recently, the full-on wide awake at 2am variety – and before you make any suggestions, I’ve eaten more lettuce than Peter Rabbit and had enough milky drinks to float a medium-sized barge but to no avail. The result of this has been much blog-reading in the early hours – thank you all for giving me something to do – and rather too much thinking.

Sometime during every sleepless night, the mind inevitably turns to matters financial, especially when trawling the business pages of the news sites. Like many other people, we have investments whose managers obviously saw ‘the value of your funds may go down as well as up’ as a mission statement.

They’re very proud of themselves; every so often, they send us a nice glossy brochure to tell us what they’ve been up to and how much their bonuses were – with a short footnote telling us the product is now worth rather less in real terms than we paid for it a decade ago.

Reading on in the business section in the darker watches of the night, an interesting thought occurs on the subject of an increasingly present theme; endowment policies are linked to life cover. And while PEPs and ISAs bump around in the shallows, endowment investors have been left well and truly high and dry.

A policy bought in the 80s to cover an interest-only mortgage of £100,000 could now have a projected shortfall of up to £45,000, according to recent figures. With surrender values at an all-time low, the unfortunate policyholders are stuck paying in their monthly premiums with no hope of realising that £100,000 unless one of them dies.

It has long been a source of complaint in the Tavern that modern detective stories draw heavily on abnormal psychology and deviant behaviour for motives. The regulars are pining for the days of good old-fashioned British murder mysteries, where the culprit hoped to benefit from Auntie’s will or achieve some other financial benefit – now here’s a perfect and up-to-date example.

I intend to start work on it as soon as possible. Trouble is, the title 'The Endowment Murders' does lack a certain something, don't you think?

Science fiction fans may recognize the title:

"Haven't you ever thought of divorce?" he had once asked them teasingly. As usual, George was at no loss for words.

"Divorce - never," was his swift reply. "Murder - often."

(Arthur C. Clarke: 2061 Odyssey Three)

Is that £10,000 in your pocket...?

What do you call an Italian with £10,000 in his underwear? Lacking creativity.

No, it's not a joke; UK Border Officers found the cash when they searched the man before a flight from Belfast to Rome. He was, it seems, 'unable to give a reasonable explanation for carrying the cash'.

Is it me, or does that suggest a deplorable paucity of imagination? I mean, if you intend to board a flight with £10K stuffed into your clothing then surely you'd take the trouble to have some plausible cover story ready.

Readers may recall that the woman caught in Holyhead last May with 26,000 euros stuffed into her bra, possibly in an attempt to foil all but the most determined of pickpockets, claimed the money came from the sale of a business in Ireland.

The BBC is, of course, milking this story for all it's worth under the headline 'Italian's Hidden Assets Uncovered' - About £10,000 in hidden cash was recovered from an Italian man's underwear'. In fact, the cash appears to have been stashed rather less sensationally (but more comfortably) in the man's shorts, pockets and wallet.

The Tavern regulars have been discussing what excuse they might offer if caught in the same compromising situation - suggestions via comments would be very welcome.