The crisis of living

Dominic Thomas
Dec 2024  •  3 min read

The crisis of living

Sometimes life throws something in your way that forces you to stop to think about its direction. We all tend to have landmark moments and of course the context, timing, and nature of them vary enormously. However, they all tend to pose a version of the same question … “so what now?”

One of the underrated skills of a good financial planner is to consider the things that we don’t want to think about. It would be normal for most to assume that this is the impact of a major economic crisis, financial meltdown, or some disaster to your portfolio. Whilst these things do happen, (regularly!) there is a degree of predictability about them, barring the final moment of global collapse, should that ever happen. These events (barring the apocalypse) are ‘baked in’ to your financial plan, making allowances for market corrections and reductions in capital values.

The real-life challenges are those we witness personally, perhaps experience vicariously or through the arts. These are the crises that we all probably wish away and hope that it doesn’t happen to us. Perhaps a marriage ending, a child dies, an addiction, a business bankruptcy, redundancy, a life-threatening illness, death, loss of loved ones or loss of personal mental capacity and independence.

These are no small matters, and I wouldn’t presume to pretend that financial planning removes the stress of such situations. However, raising such issues enables us to do some planning, but sometimes helps simply to acknowledge the reality that we cannot control very much in life at all. I will also not claim any special skills or talent in this area, it’s a minefield of values, beliefs and emotions. However, experience has taught me to face these challenges personally and with clients. I have improved my ability to ask the pertinent questions over the decades, but of course responses differ and there are no ‘right answers’.

Coming to terms with loss… 

I was asked to speak at a funeral of a friend who died much too young. One of the things I believe is that life is about coming to terms with loss. The majority of the gathered crowd simply stared back at me, looking incredulous. So perhaps I should’ve explained my position rather better. Life is precious, it’s a gift, it’s a miracle that any of us are here. It is also incredibly brief and once you have got over your own infant state of omnipotence (which for most of us happens in early childhood) you realise that everything you have and hold dear will eventually leave you. Whether that’s friends, brain cells, careers, skills, loved ones, money, energy, mind, health and so on… your va-va-voom eventually. Coming to terms with this isn’t always easy, in fact I’d say it’s a lifetime education. However, it will come to us all.

How do you measure a year? Seasons of Love – 525,600 minutes

One of my favourite musicals is Rent by the marvellous Jonathan Larson (who died the night before its premier – imagine that!). He begs the question “how do you measure a year?”. Of course we value your portfolio and consider its returns against markets; this is obviously sensible in the context in which we operate, but frankly, these are not measures of your life. I’m probably two thirds of the way through my lifetime, maybe it will be longer or shorter, but however much time I have left, I am grateful for each day (I’m practicing at getting better at this) and believe that it is my responsibility to get (and give) the most out of it. To experience connection and make meaning, which will almost certainly be forgotten within 100 years or less.

The assumption that tomorrow will be like today is deeply flawed. Carpe diem and all that. I’m not suggesting that we should live in a state of euphoric life maximisation (even if it is possible to do so); but certainly to consider the reality of loss as a built-in design of life. Pretending it isn’t so seems incredibly naive (at best). When such unwelcome challenges arrive at your door, plans have to change, sometimes dramatically.

I know that many of you have had these experiences and at times life is very hard. I cannot promise easy fixes, soft landings or neat solutions; I can simply promise that my team and I are empathetic and very much in your corner.

Your timeline is your own, we will help you to identify many of the key milestones that lie ahead and help plan for them. It is my belief that your financial plan should be rammed full of the things, people and experiences that you truly value.

Links: Rent the musical: https://broadwaymusicalhome.com/shows/rent.htm#gsc.tab=0

Seasons of Love song: https://youtu.be/PgBjMZ4IeKY?si=h0TgWf_BNxc-TfCU

Seasons of Love Lyrics: https://genius.com/Original-broadway-cast-of-rent-seasons-of-love-lyrics

The crisis of living2023-12-07T15:34:02+00:00

Avoidance is not in your Interest

Avoidance is not in your Interest

We have had a sustained and long-lasting (by comparison) level of very low interest rates. This has been bad news for those with cash savings, but good for those with mortgages or loans, at least regular “mainstream” ones. However a lot of borrowers have mortgages that are interest-only mortgages. This means that they are only paying the servicing interest each month, not actually repaying any of the loan. As rates have fallen, many have failed to use this as an opportunity to make some progress clearing the debt.

The credit crunch had lots of far-reaching effects on most of us, we are still living with the official Government response to it, which is one of austerity. An attempt to keep expenditure lower than income, which for you and I make a lot of sense, as a nation it ought to, but of course the Government has lots of ways of “making money”.

Anyhow, there are a whopping 1.67m mortgages that are either entirely or partly interest-only. The regulator is rightly concerned that borrowers are not engaging with the problem and without any plan to clear the loan will utlimately be subject to discovering the joys of Court and perhaps repossession of their homes.

70% Ignore the Lender

The research conducted, reveals that a staggering 70% of borrowers that fall into the category of an interest-only mortgage never respond to requests from their lenders suggesting a proper review. This is collective denial on a massive scale. Everyone is presumably hoping for one of several possible outcomes.

  • That they have a plan in place that will clear the debt, they simply haven’t told anyone
  • That they intend to sell their property and downsize once clearing the mortgage
  • That they have every intention of doing something, just never got around to it.
  • That the lure of gambling or lottery, cryptocurrency winnings will be the answer
  • That they expect the world to end, so who is really bothered…..

As you may have gathered, I’m probably offering thoughts that aren’t written down in the report, though I suspect I’m not far off the truth. Denial is a very powerful force and many people are, frankly taking their future all too lightly.

I will sell up and then rent, what’s the big deal?

Of course selling the property, hopefully for a figure larger than the loan, may work for some, but for others there is unlikely to be much left over to buy a house. So perhaps renting is a consideration, after all, interest-only mortgages are a bit like renting, except the borrower also has all the upkeep and insurance. However, renting is not as easy as you may think. Most agents apply a multiple of secure income (pensions) to determine if the rent is affordable. As a guide, expect to prove that your income is 30x the monthly rent…. most will not be able to do so. If you are over 70, then add in the lack of suitable property and landlords willing to rent to people more likely to fall and hurt themselves… well, let’s just say that renting becomes harder.

As is probably obvious, the regulator is concerned about the lack of engagement. I suspect that this might lead to some new initiatives to “encourage” borrowers to take action. You have been warned.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Avoidance is not in your Interest2023-12-01T12:18:15+00:00

Money Box – Interest Only Mortgages

Money Box- Interest only mortgages

If you follow me on twitter you may be aware that I was raising some concerns about the reporting of an item on BBC Radio 4 Money Box and BBC1 Breakfast about interest-only mortgages. Let me be clear I do not provide mortgage advice – we refer this to someone that does – should anyone require it, we encourage clients to clear off debt and mortgages as quickly as possible.

Paul Lewis relates the story of Christine, a woman now 70 years old, bought her flat in Liverpool in August 2004 at the age (I assume) of 58 with a ten-year mortgage of £151,774. It was an interest only mortgage, meaning that she was only paying interest, not the loan which would need repaying at the end of 10 years. Having had 2 years extra time to repay the money, her lender (Santander) has now given her until 24th November 2016 to do so or face legal proceedings.

There is not enough information (as ever) in the story presented to be able to provide any solid advice. We are told that there is no equity in the property (the value of the flat less the mortgage). This could be because the flat has not increased in value at all since 2004 (which whilst possible seems a little unlikely) or it could be that she has amassed other debt which has wiped out any equity that built up over the last 12 years. The reality is we don’t know and in any event, this is the situation she is now in.

We are told that Christine now (in 2016) has an income from pensions of £1,100 a month and her mortgage costs her £600 a month. It is unclear if she has any other savings. The story is clearly upsetting to Christine, but I am suspicious of what is being reported.

What is missing?

If the angle for Money Box is the possible miss-selling of the mortgage then some better factual information is really required. As I have said I don’t arrange mortgages, but it would be unusual for someone to borrow £151,744 without an income to justify this (typically 3.25x income, which would mean requiring an income of about £46,700. Being 58 at the time she was only 2 years away from receiving her State pension. So what income did she declare? And was the lender really offering a 58-year old a 100% mortgage within 2 years of retirement? Now that would have some grounds for complaint about bad advice. She cannot “recall” being offered a repayment mortgage or anyone asking her how it would be repaid.

But there was a foreign property…

Christine is certainly very unclear about what an interest-only mortgage is, thinking (for a some reason that it would continue) when she knows it wouldn’t (not outstanding until she dies) and of course would be clearly stated on the annual statements and original mortgage offer. Christine provides what appears to be conflicting information, recalling when asked how she expected the mortgage to be repaid, she mentions an intention to sell a foreign property to help do so. Sadly this “crashed” but again merely demonstrates that rather more (and better) questions need to be asked. More information is needed, but is woefully lacking.

Clarity or Charity?

When Christine was asked a direct question “Did you not understand what interest only meant?” she replies “Yes, you were just paying off interest that they were charging on the house itself and not off the property. That is how it was sold to me”. The reporter does not challenge her statement which makes no sense at all unless by “house” and “property” she really means mortgage/loan or capital (read it back to yourself).

The Coming Mortgage Apocalypse….

The only clear thing is that she appears confused, not fully understanding how mortgages work and is certainly distressed. Money Box seem concerned that lots of people are in a similar position, reporting that over 160,000 interest-only mortgages are due for repayment within the next 2 years. Money Box report that about 2million people have interest-only mortgages and that 1 in 8 (12.5%) of them appear to be like Christine, not realising that the money needs to be repaid (though presumably having been asked the question they do now know). Importantly 40% claim that they will struggle to repay the mortgage in full.

This of course is probably the real scare story or anxiety that Money Box wishes to convey and the implication being that this is the fault of unsafe products and a bad industry of bad lenders and bad mortgage advisers…. which will lead to are creating more homelessness. Well as with all things, there are likely to be some, (bad ones) but such generalisations and calling for yet more regulation is a far stretch, when in practice this has more to do with some people not understanding the commitment that they are making or claiming not to understand.

There are more options than you think

Christine is very worried, understandably, she has my sympathy, yet it seems that the only options she has discussed (remember there is a financial adviser “on hand”) is going into an old peoples home or a hostel. It sounds to me as though her adviser is pretty useless if this is the case. A quick search of properties to rent in Liverpool for £600 or less reveals over 2,000 listed as available.

The Power of Denial

It’s a terrible thing that’s happened, that I never thought it would come to this”. Well it is certainly hard, but Christine has £1100 a month of income and can chose how to use it. Renting is a viable option. So I am left feeling that this is more a report on the power of denial – denial of reality. Something has clearly gone very wrong, with poor budgeting and planning. This does not make Christine innumerate, frankly successive Governments fail far more spectacularly and one wouldn’t really accuse them of innumeracy or financial illiteracy, as tempting as it may be.

I’m left with the impression that this is a story of not wanting to understand, rather than not being able to understand, which is perhaps true of Money Box as well. Accusing lenders or advisers of mis-selling is a very lazy approach, when actually Santander has been providing information and already extended the deadline by 2 years.

Paul Lewis ends the piece with a nod to the debt-counselling charity Step Change, which implies an awareness that there is rather more here than simply clearing the mortgage by selling the flat and what is actually missing is a fundamental grasp of a budget and the reality of consequences. Getting out of depth financially is not a sin, it can easily happen to anyone, (and I do mean anyone… even billionaires!) the key is facing the truth and exploring options carefully.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Money Box – Interest Only Mortgages2023-12-01T12:19:03+00:00
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