'How do you solve a problem like Maria?'

Just when I though 'Expenses: the Musical' was distant history, along comes more inspiration in the form of the menacing Mrs Miller. Don't be fooled by the winning smile; she clearly knows where the bodies are buried.

Parliamentary commissioner Kathryn Hudson had found Mrs Miller over-claimed by £45,000 [half of the total amount she claimed] for expenses towards mortgage interest payments and council tax on a house which she shared with her parents. 

But the House of Commons Committee on Standards [in some cases, judgement by her peers indeed] decided she only needed to pay back £5,800 to cover over-claiming of mortgage expenses, resulting from her failure to cut her claims when interest rates fell.

As it happens, the media silence on the subject of MPs forgetting to alter their claims when mortgage interest rates went down was raised here in the Tavern back in May 2009, when Elliot Morley and David Chaytor - remember them? - admitted that they submitted their claims in annual bundles and had both overlooked the small matter of their mortgages having been paid off already.

Ms Miller's 'second home', on which she claimed almost right up to the maximum allowance of interest subsidy for several years, was mortgaged for £525,000, despite having been originally purchased for a mere £237,500. There is something very disturbing about a system that has allowed those whose decisions may profoundly influence the housing market to profit from price increases through effectively interest-free property loans.

The commissioner believed she should only have been able to claim expenses for interest payments on the original 1996 mortgage of £215,000. The committee, made up of MPs and lay members and which has the final say, disagreed. 

I feel this calls for a song...

How do you solve a problem like Maria?
Shouldn't this bring a cabinet minister down?
How should the voters view the way Maria
Borrowed against her residence in town?

Many a thing you know you'd like to tell her;
You have to admit it looks quite underhand,
To make the public pay
When you've mortgaged all the way
Then added on at least 300 grand.

Oh, how do you solve a problem like Maria?
And MPs expenses getting out of hand?

Her answers were confused,
The committee was bemused
By her efforts to procrastinate and jam
The enquiries asking whether
She had fleeced us; altogether,
Its quite obvious she didn't give a damn.

She managed to invest
In a comfy London nest
And she moved her aged parents in as well,
While claiming all the while
Basingstoke was more her style;
The whole thing has a very nasty smell.

How do you solve a problem like Maria?
How do you stop her throwing her weight around?
How do you find a word that means Maria?
I can think of a few, but they all have an ugly sound!

Many a thing the voters want to tell her
Many a thing she ought to understand
But Cameron says she can stay
And the MPs have got their way
A swift apology and all's in hand.

Oh, how do you solve a problem like Maria?
How do you make her pay back forty grand?

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)

The Rich Are Different

Here in Newgate we know a thing or two about debt, so it was with interest that we read about the repossession of luxury homes in Dorset's Millionaires' Row, Sandbanks. In fact the total number of repossessions was two and, since one is owned by an investment company and the other is a third home, it's a safe bet that nobody is being left homeless.
The Times included this helpful quote from the author of several well-known guides to house purchase and buy-to-let;
"High borrowing is not just the preserve of the poor or those on modest incomes. The wealthy or aspirational have often taken on the biggest mortgage they could get....it can all come crashing down if a job is lost or bonuses vanish, and it can be even more distressing because of the previous perception of wealth."
Even more distressing than what, we ask? The impact of repossession on the 'poor or those on modest incomes'? How does one measure distress? Do the 'wealthy and aspirational' feel disappointment more? Was Scott Fitzgerald right; are the rich different?

Meanwhile, I am grateful to jonny mac's finely honed intellect for pointing out that the city traders mentioned in my last posting must have been on minimal salaries for their kind. It would indeed appear that they were aspirational rather than wealthy, and, what's more, bad enough at arithmetic to be completely surprised by the size of their monthly repayments, which probably goes a long way to explaining why neither received a bonus this year.

Mortgages...two and two make eight.

"We are victims of irresponsible lending" - the words of a couple forced this week to sell their home because they could not keep up with mortgage repayments. This unhappy story is being played out up and down the country, resulting in much hardship and distress. However...

The couple in question are city traders who 'needed' £1.5 million to fund the purchase of a 'dream Sussex farmhouse'. A broker arranged a loan for the full amount (eight times their regular income) which was agreed by the bank without any salary check. Four months later, the couple are selling because they cannot make ends meet on the mere £1,300 they have left after paying the mortgage each month.

This is worthy of comment in so many ways that I shall leave it to you, dear readers, to muse at leisure on the matter. Meanwhile I shall refrain from comment on the issue du jour except to say that far from the 'adultification' cited in my previous post, the radio equivalent of two little boys shouting obscenities through someone's letter box and running away is a perfect illustration of the infantilisation that permeates contemporary society.