The five craziest mortgage deals of all time

In the booming Brown years of the recent past, we borrowed as much as we liked at low rates of interest with hardly a thought of how we would pay it all back. The trillion-pound debt mountain grew as we used our homes, our estimated salaries, even our future bonus-earning potential to ask for even more cash from the banks, who were only too happy to oblige.

The mortgage deals available in these credit-rich years demonstrate just how easy it was to borrow huge sums of money. Here are the five most outrageous mortgage deals available during the decade and a half of excess.

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1) The "Together" mortgage

The notorious Together deal from Northern Rock and other deals like it, which allowed homeowners to borrow up to 125 per cent of the value of their home, have at times been blamed for the entire negative equity epidemic facing British homeowners.

The deals were a combination of a secured mortgage worth 95 per cent of the property's value and a unsecured personal loan for the final 30 per cent. The loan was at the same cheap rate as the mortgage.

Mortgage experts argue that at the end of the 1990s, 125 per cent deals made sense in certain cases. The value of homes doubled in value in the space of a decade and a 125 per cent deal quickly represented only 60 or ever 50 per cent of the property's sale price. However, thousands of homeowners have been caught out. Those who took out these loans at the peak of the housing boom, between 2004 and 2007, now have mortgages which greatly exceed the value of their homes and no other bank, including Northern Rock, will lend to them.

Northern Rock certainly wasn't the only lender who offered 125 per cent deals. Another big provider of the loans was Bradford & Bingley. In the last year both lenders have been nationalised, and 125 per cent deals have disappeared.

2) Eight to ten times your salary

In the midst of the credit boom lenders were happy to lend 8 or 10 times salary. And in some cases, this could include expected bonuses.

Morgan Stanley, the investment bank bought to its knees by toxic sub-prime mortgage-backed securities, was offering 8-times-salary deals though its Advantage brand in the UK. Meanwhile, GE Home Lending, owned by General Electric, the monolithic US enterprise, offered 10 times salary through its First National brand.

3) Foreign currency mortgages

Last year nearly 90 per cent of new loans in Hungary were in a foreign currency, mostly Euros or Swiss Francs. The exchange rate meant that these loans were much cheaper than mortgages in forints, the Hungarian currency.

However, the problem with foreign currency loans is that as your home currency declines relative to the foreign currency, the cost of making your loan payments rises considerably.

The bad news for Hungarian homeowners has been that as the economic crisis ripples across the continent, currencies have been fluctuating wildly. The Euro has soared against the Hungarian forint, reaching a peak of 286 forints last week compared to a low of 229 last July, adding vast sums to the cost of mortgage and loan repayments for ordinary Hungarians who were not warned of the hidden risks behind their low cost loans.

4) Libor mortgages

Borrowers with less than perfect credit histories, known as sub-prime, have always faced prohibitively high interest rates because lenders insist on pricing in the risk that they slip into arrears.

In recent years a number of lenders specialising in sub-prime have bumped borrowers who have come to the end of their fixed rate deals onto a variable rate that is tagged to three-month libor, an interbank money market rate which has soared in recent months as the financial crisis knocked the confidence of institutions in the City.

As Aaron Strutt, of Chase de Vere Mortgage Management, a broker, explains: "Thousands of borrowers who have been coming to the end of their mortgage deals are unwittingly reverting to a margin above libor, which could be as much as 10 per cent".

Libor has been falling in recent weeks, much to the relief of these homeowners, but it is still over a 1.3 percentage points higher than the base rate.

5) The Rover 200 mortgage

A good mortgage deal will sell itself, as lenders have found to their dismay in recent months as a pole position in the best-buy tables results in a deluge of enquires.

But a bad deal? Well, a bad deal requires something more. In the case of West Bromwich Building Society it required a free Rover 200. The deal was partly inspired by geographical logistics, as the ill-fated Longbridge plant which made the car was sited near West Brom's head office.

However, the 200 was more of a curse than a blessing for over-excited homeowners. The model was dogged by problems with reliability from the start. To matters worse, there was scarcely a profit to be made from flogging it, as heavy depreciation and a glut of cars on the second hand market made it difficult to sell on.

And the mortgage itself? Homeowners would have been better off opting for a best-buy mortgage with the most competitive rate and buying a new, more reliable car with the savings.

James Charles

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Comments

interesting

[chetas]

boring.

[Rob]

Are articles no longer proof read at The Times before being put online? Almost every other sentence has some typo in it.

So who's actually to blame here - those who offered these deals or those who took them up without regard for the repayments?

As usual, it's all "their" fault, "they" should have protected us, and now "they" should bail us out.

[Polly Peachum]

Let's not forget the fashionable 1990s practice of keeping back the equity from your previous sale to use as spending money (all those lovely skiing holidays!) and borrowing the full purchase price of your new home. After all, house prices would only go up...

[Bare Jokes]

It's "proofread", not "proof read", Rob. Get it right.

[Dom]

In Poland mortgages are mosty in foregin currency becuse they are cheaper.In swess franks the intrest rate is 3.4% in polish zloty it is 7%. Polish zloty is now very strong so the motgages are cheaper. But it's the banks system which protected Poland form the credit crunch. To get mortgage in Poland it's really hard. It took us 2 months to buy land, and as architects our earnings are quite high. Still the process was long but thanks to that system banks in Poland are safe. English banks could have done the same and we wouldn't be in this mess right now.

[AB]

Lenders swang one way, now they have swung back the other. Overly reckless then overly cautious. How much are they paid for this folly?

[Neil]

If banks lent money to individuals then there would not be a problem as the individual would be able to pay. They lent on the basis of equity or increasing equity. Now there is falling equity and their risky 90% deals do not look very good. In principle there is nothing wrong with the together mortgage but it is not a mass market product, as it was sold, and suits only a few. Northern Rock were too agrresive and should have been stopped by the FSA.

[PityTheFool]

I pity the fools who took out these deals. Same people who are probably now reading ten tips to avoid reposession...

[MB]

Isn't it awful that there are those amongst us who enjoy reading about others losing their homes because they dared to speculate in the property market? If our ancestors had taken only the safe roads in life, we would still be living in caves. Well done to those who dared.

[Mike]

In the US these loans were part of legislation to put poor people into homes they couldn't afford. These loans accelerated in the late 90's and 2000's. The average man saw it as a sinkhole. The politicians are struggling to cover their fannies.

[Frank Upton]

Longbridge isn't really that close to West Bromwich.

[Graeme Brown]

If you are looking at shared ownership I can still get you:
100% LTV, Unlimited adverse (inc bankrupt), No proof of income needed.

Basically if you are a UK citizen with a pulse you can still have a 100%LTV mortgage. The rate will make your nose bleed though....

[Amen]

Y'all ought to know that The Bible, i.e. The Lord's Word, says that having any part in Usury is a Sin and that Sinners gonna Burn.

[Attomole]

I have a together 125%, it brought me a home when nothing else would, So far I still have work and in Positive equity, Many lied about how much they earned on regular 95% LTV's. And the 125% deals dried up when the market started to level

[David]

I bought a house in poor condition for 86k in 2000 with a Together mortgage. I took the full 125% and spent the unsecured part on improving it. It sold in 2004 for 249k. It was a good idea if used properly.

[Graham]

And just remember who de-regulated all the money-markets to start with that have led to this capitalist debacle . . .
Clue: Are there people out there who still have a picture of Thatcher over their fireplace? Sadly, probably yes.
Graham

[Rokola]

In 1988 I took out a mortgage at 8% and by 1992 rates had increased to 16% due to the uncertainties of the money markets and political incompetence. Now, 20 years later, it's all happening again and in another 20 years, it will happen again. All you have to do is get your timing right...............

[Steve]

"Y'all ought to know that The Bible, i.e. The Lord's Word, says that having any part in Usury is a Sin and that Sinners gonna Burn."

Posted by: Amen
And that when Adam ate the apple God said "DOH"

[burns]

Rover 200 not that reliable? I'm sorry to sound overly defensive about our departing motor industry I just think that if we had a bit more 'Longbridge' (even with its problems stemming from the 1970s) and a few less under-researced journalists and worse than useless bankers in their place we'd all be much better off. Economics is the study of allocating scarce resources, and you'd have to admit that we couldn't have got it more wrong over the past years. Starting with the murder of wealth creating industries and ending with the reliance on cutting each others hair, buying stuff we don't need from shops staffed by the disinterested and, of course, relying upon the fantasy wealth created by the obscurantists in 'The City' we have more than done our bit to create the current economic difficulties, which basically stems from a huge imbalance between the 'exporter' and 'consumer' economies. At least the Rover 200 wasn't a clown's car, which is pretty much what we've got from our current economy. ..... and incidentally, not wishing to cast further doubt on your outstanding journalistic credentials, but wasn't it the Rover 25 that was offered alongside this mortgage.

[philip]

Back in the 80's a well-known UK Housebuilder offered buyers of their £300,000 'flagship homes' to pay their mortgage for one year. One enterprising buyer then went to his Bank and got a ONE year £300,000 mortgage ....
The housebuilder complained this wasn't what they had in mind but the Courts upheld it.

[John Heenan]

If banks had kept to maximum lending 95% LTV and 4 x real salary we wouldnt have had a boom of the inevitable bust but a continued strong healthy economy. The regulators should have had a system that punished that breached the above maybe by paying a fine of 5% of turnover into a fund. This would protect the banking industry from failure by punishing the risk takers

[Punit]

I remember some bank offering "50 year" mortgages. Utter idiocy. To those asking who is to blame, it's actually the quarterly nature of our economics. Banks were penalised if they weren't exercising their capital. Better to do it badly than not at all, according to the Stock Exchange. Which we all invest in by way of ISAs, pensions, bonds... So, none of the fixes offered yet will address that very engine of our economy - greed. Nothing new here at all. We are either forever in this boom and bust cycle, or we do something responsible. Can't see the latter happening considering we're borrowing our way out of recession and into the next one already.

[Carole Richards]

If those people who borrowed up to 8 times their salary had not bought their own home, then they would either be relying on renting....hence the need for the private landlord
Or look to the government to house them....hence the need for the private landlord.

So if investors had not taken a risk and bought buy to let.....then someone would have needed to provide housing.I think buy to let investors should be given more financial help ( tax breaks) as they are providing a much needed service to the economy.

Carole

[david]

As someone with a variable rate mortgage with Northen Rock, I would be ecstatic with LIBOR plus 1.3%. Magnificent; my salary is shafted by the Treasury and my take home pay is shafted by Northen Rock, which is owned by the Treasury, i.e. me. It's obviously my own fault