Friday, Aug 21, 2009
One in three mortgage-holders may have made inadequate provision to pay off the capital...
Times Online: Repayment crisis threatens millions of homeowners
“At the top of the market it was the case that for a lot of borrowers, interest only was the only way they could afford to buy. For these borrowers it becomes increasingly difficult to pay off the capital as time goes on.” Quite. The significant number of people who took out IO mortgages are not just burdened for 25 years of their working life - it is an eternal burden until death! Must be quite depressing finding yourself trapped living in an inner-city slum (and trapped in your job as you can't move house), making interest-only payments you can ill-afford, with no possibilty of parole!
Posted by doom&gloom @ 11:40 AM (1170 views) Add Comment
21 Comments
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1. mrflibble said...
Is that the faint sound of violins I hear?
No doubt the taxpayer will end up lumbered with this toxic sludge just like we've ended up with all the other manky deals no one else wants.
2. shining wit said...
It is hilarious that, only now, are people waking up to the nightmare of interest only mortgages. The rely SOLELY on a rising market to remain a viable way to pay for a property. In anything other than a rising market the ability to repay the initial sum becomes almost impossible.
On the other hand, ridiculously low interest rates does mean the prudent can start to significantly reduce their borrowing and get themselves out of this mess.
Like endowments and now pensions, which rely on the astute investing of a third party to ensure adequate comepnsation, interest only mortgages are just another crass way of pumping up the debt ideology that is now endemic in our soceity.
Anyone for a 3 way bet on my scratchcard?
3. will said...
That's why I feel poor - I forgot to take out an interest only mortgage and buy a massive house. Never mind, at least I have finished paying for my modest home.
4. timmy t said...
If you can't afford a repayment mortgage then the house you are buying is beyond your means IMO.
5. bluebeach said...
I'm feckin sick of this.... more bail outs on the way, paid for by those who have saved, and listening to smug tw@ts thanking Merv for making their low mortgage payements a doddle after loading themselves to the hilt with plasma, turbo and shag piled debt. I thought savers now out numbered borrowers by 7 to 1 ?.... why bother.... why fecking bother eh... just turn over and take it Ha!!!!!! Toxic sludge...exactly...
6. James In London said...
Would this still have happened if the poor deluded sheeple had been brainwashed into believing that they simply 'had' to get on the 'ladder' at any cost?
I ask this because I note the admission of any media and vested interest culpability in this is conspicuously absent. Particularly in the comments, which themselves are conspicuously moderated by The Times themselves! Ahh... the illusion of free speech, hey??
7. str 2007 said...
In my view all mortgages should be repayment and a max 20years or 5 years prior to retirement age whichever is sooner.
But all mortgages should have the provision of upto 5 years interest only payments.
This would allow a family to get through a recession, redundancy, berievement of main earner etc. without getting repossessed.
The big problem is that people have been allowed to take out IO mortgages with no structured repayment method atall.
8. James In London said...
Why did folk take out I/O mortgages - and overstretched themselves in doing so - in the first place? Is it because they were convinced it was only way they could get a foot onto the so-called "property ladder"?
These people, like sheep, were seduced by the lie of never-ending house price inflation.
I don't like knocking the media because the best outlets should offer some balance, as this article demonstrates.
That said, what of all the pornographic TV shows, stating that bricks and mortar would never go down in value? That property investment would be a great pension? That prices would go up for ever and ever amen?
It is a tragedy that there are those who took out an I/O mortgage but there should be legislation to prevent the media promoting property as a one-way bet.
After all, this is certainly the case with other investments, lest there be claims of insider trading.
I didn't note those TV shows making any comment on the risk inherent to any investment, but to lose money on an asset you took out a 100% I/O mortgage is not only financial ruin, but a geographical shackling and a stunted life - nay, slavery - for anybody unfortunate enough NOT to know better.
9. house said...
I have said this to number of my friends, IO mortgages means that many when they retire will have capital unpaid means that the state will have to subsidise the mortgage interest through social security payments. This is no different from people living in housing association homes. I am I right or am I barking up the wrong tree.
Any comments on this.
10. mark wadsworth said...
@ House, I had an argument on similar lines recently - he said that e.g. selling of council houses at a massive discount was A Good Thing and reducing interest rates to transfer money from savers to borrowers was A Good Idea (despite my protestations to the contrary). He would not doubt also say that "helping elderly home-owners" is A Good Idea (despite I would have said exactly what you said - how is it different from letting people stay in a council house at a low rent, or even for free?).
11. alan said...
The article doesn't make any consideration of inheritance payments. Lots of twentysomethings who took out a big mortgage in 2004/5/6 had dads and granddads who owned property or other realisable assets.
Lots of folk I know own property outright, having paid up their 25 year mortgages and put a bit by for old age (things were different in the 50s and 60's when they arranged their mortgages). These folk are now dying off (I'll do it someday, but not yet) and leaving windfalls to their children/grandchildren.
This isn't the whole of the "interest only" story, but taking on a big mortgage knowing you are backed up by the family was a consideration among a number of folk I'm in contact with. Things aren't as bleak as the article suggests.
Euthanasia will be part of the party political conferences in a few weeks time, I'm sure.
12. will said...
Alan @ 11
People who rely on their parents home to fund their retirement is fraught with danger. The parent's home usually goes to pay for care home costs in the end and invariably is shared between one or more siblings, and many elderly are surviving into their 90s. I have seen many several families reach retirement with little left to them by their own apparently wealthy parents.
Current annuity rates pay around £3,300 per annum for £100,000 invested in a pension, £500,000 will give you only £16,500 per year.
Yours parents or Grandparents houses are not realisable assets until they are dead. Get saving now.
13. uncle tom said...
Another piece written by a semi-literate Times hack, pulling together some quotes of the bleedin' obvious in no particular order..
Dear Rupert - sorry, but I ain't paying for this standard of drivel..
"The proportion of loans that are being repaid on a capital and interest basis has fallen from 53.1 per cent at the end of 2007 to 51.7 per cent, indicating that switching to an interest-only loan has continued."
Now then luv, has it entered your tiny mind that this could be because 25 years ago, (probably before you were born..) almost everyone took out a repayment mortgage, whereas today, hardly anyone can afford to do so?
So some old repayment mortgages have finally been repaid, and some new interest only ones have been taken out.
Evolution dear - not switching...
14. 51ck-6-51x said...
Shining Wit said, "Anyone for a 3 way bet on my scratchcard?"
- That is brilliant mate. Living up to your namesake. Can we structure it into tranches too?
15. Smiling said...
the bitterness is endearing
16. 51ck-6-51x said...
I must point out that I believe some people have used IO mortgages sensibly.
If one's expected income stream easily covers the repayments yet one's income stream is inherently volatile then IO mortgages are certainly the way to take ownership of a house.
My father, a case in point, has always had IO mortgages on his one and only home, always with flexible repayment feature. He runs his own business and when the money comes in he pays down his debt; during worse times he is renting from the bank. This is fairly sensible in my opinion.
( An alternative would have been to rent and save then buy in cash - but this comes down to the complex analysis of cost of servicing debt vs landlord overhead + landlord profit - where one may only choose properties where one may run a business. [ I don't think there is that much in it long term really, and at least you are long the asset you wish to have during retirement, which reduces risk. ] )
17. p. doff said...
20 odd years ago it was commonplace to take out an interest only mortgage - but in those days it was linked to an endowment so that you could prove to the lender that you would be able to repay it. However, as we all know, low cost endowments proved to be cr@p and many are now close to maturity with a substantial shortfall. I had one which was supposed to pay off my £30K mortgage and also give me a nice little extra £20K. If I hadn't paid off the mortgage I would be really worried now as Aviva have just told me to expect about £20K in total on maturity in 2011, which would have left me with a £10K shortfall. There must be loads of people who will be facing real problems over the next few years.
18. 51ck-6-51x said...
p.doff - ah yes good point. Endowments, a subtle way to transfer one asset bubble to another ;p
19. tenyearstogetmymoneyback said...
p. doff made various comments about endowment mortgages and was worried about having a shortfall.
It must be very reassuring for people taking out an interest only mortgage without an endowment to have
the certainty that they won't pay any money off their mortgage, rather than the worry that they might have
a slight shortfall at the end of it.
Thats financial innovation for you.
Duncan : No house but two endowments due to mature in 2011
p.s. At the time of taking out my first endowment I was told there would be a surplus of £50000,
but not to get excited as that would probably be the price of a family car. If the guys predicting
hyperinflation are right it could still happen :-)
20. uncle tom said...
The endowment mortgages took advantage of the tax laws prevailing at the time, and should have been strangled at birth.
Those selling them got fat commissions, and mis-selling was rife.
I spoke out against them then, and feel vindicated today..
Those suckered in are now coming to full term, and quite a few seem to have moderate (four figure) shortfalls. In most cases that means it takes an extra year or so (at the same repayment rate) to clear the residual debt, but it's a dismal end to a deceitful concept..
21. Clockslinger said...
We love it! We dream property dreams, watch property porn, vote in Kirsty as housing minister at next election and are expected to get all tumescent at the merest whiff of rising house prices or feel like we should be upset if they're not. If ever a society and a generation deserved the IO mortgage it is us, here, now in Tesco Britain. Meanwhile, sadly, to quote somebody or other "real life is what is happening to us whilst we're busy making other plans". That is what the elite want! Chase that (expensive) shadow boy!