Ascii, on 27 March 2012 - 08:22 PM, said:
Kind of my point. It only makes sense to apply an arbitrary £50k minimum when you are borrowing say £250k+. Interest as it stands on that in simple terms at 5% is only £12.5k or a little over a grand a month would would be unaffordable on your arbitrary £20k pa. The same logic doesn't apply if you are borrowing a modest multiple hence why a sensible minimum for IO would be very similar to the 2.5x to 3.5 salary we see touted around so much
I have to confess I have a vested interest as I have an IO mortgage albeit at about 0.7x salary in a good year or 3x salary in a bad year. It's currently offset by over the amount lent (one of those "One" type mortgages) and I have a repayment vehicle that will cover about half of the value in 8 years (mortgage term itself is about 25 years from now). I've been (I think) duly diligent and only borrowed what I think I can afford on my salary (not counting the missus' salary as that's beer money). So in real terms I'm paying no interest and have a healthy amount I can draw down for whatever I see fit (business ideas really).
Anyway, I digress. IO mortgages have there place but I would have thought that a modest one is no more of a risk than a modest repayment vehicle. The problem isn't IO lending itself (or for that matter repayment mortgages), the problem is risky lending; the clue itself being the the "r" word.
As long as multiples are sensible in either case (which of course hasn't been the case in recent history) and sensible deposits are taken (in my case deposit now represents about 65% of the property value) I don't see a need for an arbitrary £50k minimum; it makes no sense but for a possible hidden agenda.
Oh yes it is. Even if people chose not to lie through their teeth on the application form, and actually did have a "vehicle" in place.
That vehicle if taken out in the last 10/15 years is upside down and on fire with its legs in the air right now.
I ditched my endowment in 2000 when after various telecoms and dot com booms, my "fund" still wasn't worth what i'd paid in.
I took L&G to the Ombudsman and got my money back with interest. This was my original HPC epiphany. years before coming on here.
That system is bust. So IO is a HUGE problem my friend. Huge. What do you think all these buyers since the early Noughties have been saying on their forms? One of my best friends bullshitted an RBS IO loan.
He borrowed £145k with a £7k deposit. His flat is now at least £20k under water, and hes not cleared a penny. Hes ******ed.
And its not flahsing red on ANY RBS terminal anywhere yet. They will never see the money back. His plan ( im not sure he even had a plan) of capital growth to clear the loan has failed. As it will with thousands, maybe millions, of others, in time.
I'd say this applies to a sizeable chunk of loans since 2004/5.
This post has been edited by shindigger: 27 March 2012 - 08:47 PM