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jplevene

House Prices Must Come Down Or Country In Trouble

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You probably read the title and thought how come if the value of houses goes up, how could the country go under, easy:

At the moment the whole persons lifetime of owning a house has been turned upside down and is not going to finish as it has in the past. I read in 2009 that over 43% of mortgage holders are on interest only mortgages (probably higher now), that means that they are paying off no capital. Due to the overpriced property market, people have had no choice other than to go interest only as they could not afford a house otherwise. Problem is that when they retire, they have nothing, maybe if they are lucky, we might have another boom and the value might go up, but only a completely irresponsible government would allow this to happen again and would get slated for allowing the financial institutions to run riot again (only to bail them out at a later date).

We could not afford another bailout or to continue the public services as they are as by the time that happens the government will have to take into account the following:

  • Eye-watering sums will be paid to civil servant pension holders (final salary = employing staff x 2).
  • The people retiring who had interest only mortgages would need to be rehoused as they could not afford to buy and have enough for retirment, making those pensioners just as expensive as ex-civil servants.
  • We will still be paying off our debt from the last Government.
  • People will be living longer so the people with no houses would have to be housed for longer as well as hire NHS bills (1 out of 5 of us will live to 100).

If we took out of the equation the Interest Only mortgage people, then we have a chance, with them I can't see how it is affordable. We need to ban interest Only Mortgages on homes and get people to invest for their future and not try and live like the Beckham's, that is what a responsible Government should do. We also need to make houses affordable so that when people retire and sell the family house, they have enough collateral to buy a smaller property and retire, that is how the cycle should be and has been.

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If renting is the ultimate in dead money, what is an IO mortgage without the capital repayments? Renting AND the maintenance!

And the burden of negative equity.

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I read in 2009 that over 43% of mortgage holders are on interest only mortgages (probably higher now), that means that they are paying off no capital.

No, it doesn't necessarily mean that. Many interest only mortgages allow the capital to be paid off, and many people do pay off the capital. You won't prevent wallies by banning their actions.

I took out an interest only mortgage and paid it off in a few years. The reason I took out interest only rather than a repayment mortgage was:

  1. I could make repayments when I want rather than a fixed time each month. This was important as I received quarterly commission and annual bonuses, so my income varied each month.

  2. On many interest only mortgages the interest is recalculated daily, whereas for monthly repayments the interest may not be recalculated immediately. In effect, some interest only mortgage costs less for the same interest rate.

  3. I could draw down the full amount on an interest only if I needed to borrow more, whereas on a repayment mortgage you cannot borrow the full amount back.

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If we took out of the equation the Interest Only mortgage people, then we have a chance, with them I can't see how it is affordable. We need to ban interest Only Mortgages on homes and get people to invest for their future and not try and live like the Beckham's, that is what a responsible Government should do. We also need to make houses affordable so that when people retire and sell the family house, they have enough collateral to buy a smaller property and retire, that is how the cycle should be and has been.

Interest only mortgages suit a lot of people and help in paying off mortgages quicker (self included). My income can be erratic and I have some longer term investments that are tied up. I had a mortgage of £70K from 1992-2001 that I paid off entirely in chunks, and my mortgage of £100K I got in 2001 is now down to £17K again due to big payouts. It made more sense to build up the money in PEPs/ISAs than to just pay it off month by month.

The country is in trouble for a multitude of reason but interest only mortgages aren't one of them.

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The country is in trouble for a multitude of reason but interest only mortgages aren't one of them.

they will be because you are the exception rather than the rule

most people live on the limits of their income and or debt

and most people who took out IO did it to stretch their maximum borrowing limit

to get on the ladder in the 1st place

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If the borrower knows what they are doing, interest only is better than repayment.

You can invest the money you would have used for capital repayments, such as buying shares for example. Spread the risk on those investments, and the return can be higher than that of repaying your mortgage.

Flexibility. If you have the cash, and you need it, you can do something opportunistically like buy a car your mate is selling cheap, or to fix a boiler that went bust. You might need a loan if you have had the money taken from you already.

If you have excess cash, then repaying the mortgage capital is a good way to invest it, reducing the time period til when your non house assets can be used to payoff the mortgage.

That One Account, where you have the mortgage and your current account is brilliant imo. All the income you have goes to reducing the capital, reducing your interest payment, and you get the flexibility of extra cash should you need it.

If only they could devise a test for those that know how to use interest only property, and perhaps more importantly, devise a test that shows who is going to see a sharp reduction in their income at some point during the mortgage duration.

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lots of Ifs and maybees there

and of course there are times for some people who understand finances

to take on a IO option

but for the MAJORITY its to cling to the bottom rung

those who bought in the past few years are already in negative equity

and how many were 90-125% loan deals

lots trapped in a depreciating asset they cannot remortgage or sell

while inflation eats away at their income

IO is a problem now and in the future

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If the borrower knows what they are doing, interest only is better than repayment.

I think everyone on here would likely agree that IO mortgages are good for SOME people. But I would say they are not suitable for MOST people (like 90% of the population) because they require more financial planning. We are proven to be very poor financial planners so I would say IO mortgages should require more stringent access based on some sort of criteria and make the applicant prove they are able to repay the debt. They should be niche products to suit some people but not accessible by everyone who in the main take them out because the monthly payments are less - this is about as big a grasp most people have on IO mortgages which is why in the main all IO mortgages do is fuel HPI because you could borrow more on an IO than on a repayment.

Regulate them properly, don’t ban them.

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You probably read the title and thought how come if the value of houses goes up, how could the country go under, easy:

At the moment the whole persons lifetime of owning a house has been turned upside down and is not going to finish as it has in the past. I read in 2009 that over 43% of mortgage holders are on interest only mortgages (probably higher now), that means that they are paying off no capital. Due to the overpriced property market, people have had no choice other than to go interest only as they could not afford a house otherwise. Problem is that when they retire, they have nothing, maybe if they are lucky, we might have another boom and the value might go up, but only a completely irresponsible government would allow this to happen again and would get slated for allowing the financial institutions to run riot again (only to bail them out at a later date).

We could not afford another bailout or to continue the public services as they are as by the time that happens the government will have to take into account the following:

  • Eye-watering sums will be paid to civil servant pension holders (final salary = employing staff x 2).

  • The people retiring who had interest only mortgages would need to be rehoused as they could not afford to buy and have enough for retirment, making those pensioners just as expensive as ex-civil servants.

  • We will still be paying off our debt from the last Government.

  • People will be living longer so the people with no houses would have to be housed for longer as well as hire NHS bills (1 out of 5 of us will live to 100).

If we took out of the equation the Interest Only mortgage people, then we have a chance, with them I can't see how it is affordable. We need to ban interest Only Mortgages on homes and get people to invest for their future and not try and live like the Beckham's, that is what a responsible Government should do. We also need to make houses affordable so that when people retire and sell the family house, they have enough collateral to buy a smaller property and retire, that is how the cycle should be and has been.

I see the original authors point - we know that from experience of Endowment mortgages that interest only & investing elsewhere to try and build up funds to pay off the original loan amount is very risky.

My parents were left with a large shortfall of about 20% the original loan amount, but luckily had made other provisions to pay it off. They took the decision that whatever option you go for, you accept there is risk with investment, so decided not to join the UK Blame culture & simply paid off the shortfall.

The key point here is that people just look at 2 mortgages - 1 where they have to pay £1500 a month & another where they pay £1200 a month and convince themselves they are both the same thing. Then when the shortfall arises they scream and shout and tell the world how unjust it all is & then someone decides they should have compensation as it was all so unfair. Whereas, the person who took the route of repayment and paid more just has to accept that although they behaved responsibly there are no rewards for such behaviour in UK PLC.

People take the easy route, then look for someone to blame for their own stupidity - on that basis why let these idiots have the choice of interest only mortgages?

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I see the original authors point - we know that from experience of Endowment mortgages that interest only & investing elsewhere to try and build up funds to pay off the original loan amount is very risky.

I wouldn't say very risky, it's just a matter of preference. Right now I have fixed rate savings earning more in interest than my mortgage rate. But given the low interest rates I decided to overpay by £500/month and reduce the capital.

I don't really want to be regulated in this matter over and above a LTV and income calculation. If you can stump up 50% and have a half decent income then you should be able to have an interest only mortgage if you so choose. No one should be discussing my investing/earning acumen.

Back in 1992, I was given a lot of grief by some banks/building societies whose mortgage advisors couldn't grasp that a PEP was a suitable repayment vehicle. I was advised to take an endowment or repay, but I didn't want to do either. Eventually I found a building society who did understand my situation and happily agreed.

The last time I applied for a mortgage with a LTV of less than 30% (I didn't complete, but got the offer) they insisted on repayment in order to offer a better rate. I was happy to take them up on that as I could also make over payments when I liked.

Simply enforcing LTV of no more than 90% and 3/4 times last year's income would suffice on any mortgage no matter what its flavour.

Edited by arrgee1991

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No, it doesn't necessarily mean that. Many interest only mortgages allow the capital to be paid off, and many people do pay off the capital. You won't prevent wallies by banning their actions.

I took out an interest only mortgage and paid it off in a few years. The reason I took out interest only rather than a repayment mortgage was:

  1. I could make repayments when I want rather than a fixed time each month. This was important as I received quarterly commission and annual bonuses, so my income varied each month.

  2. On many interest only mortgages the interest is recalculated daily, whereas for monthly repayments the interest may not be recalculated immediately. In effect, some interest only mortgage costs less for the same interest rate.

  3. I could draw down the full amount on an interest only if I needed to borrow more, whereas on a repayment mortgage you cannot borrow the full amount back.

Good for you...you used your 'Interest only' how it was designed to be used....most people don't, they have an 'Interest only' mortgage simply because they couldn't live in the house they live in without one.....and worst still they will not afford the house they live in now when the interest rates increase. ;)

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Even with repayments a mortgage is still a poor investment under present conditions. In a stagflationary environment (as I believe we are) you could make ten years of repayments and still be a loser even if there were no nominal price falls, since inflation would have destroyed the value of the equity you'd built up when there is no market growth to compensate for the decrease in the value of money. Anyone who bought after 2005 on a high LTV would be better off getting out of property ownership and renting in the next decade, but of course indoctrination makes it impossible to see that.

The real elephant i the room here is not that costs are being handed down the generations, under fiat money and ZIRP 10x income multiples and 100% LTV are meaningless, it's Baumol's cost disease. Non-productive asset price inflation is having the same effect that wage inflation did in the 70s, namely it destroys productivity growth in the economy as a whole. But behind this I suspect there's another culprit; the unlimited growth in unfunded state liabilities from health care to pensions and higher education. Brick by brick a looming tower of public debt has been built up since 1945 on the assumption that the bill would never arrive, well now it has and the b*llsh*t narrative about banker's greed is a piece of distraction from the fact that it is what we all wished and voted for. Enjoy.

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I've just taken out a £120,000 I/O mortgage on a 10 year fix.

There is little difference between an IO or capital repayment mortgage IMO

It was either GBP700 per month capital repayment or GBP500 interest only. Putting aside GBP200 a month on such a hefty loan is almost as futile. I have 120 payments to make and will make sure I set aside GBP1000 a month. This has been made slightly easier as my wifes salary was negotiated years ago when the exchange rate for CHF used was 2.5 and her pay has been fixed at a rate of 1.5 for the next twelve months. Of course we have the worry that sterling will appreciate :D

Edited by tomposh101

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Anyone who bought after 2005 on a high LTV would be better off getting out of property ownership and renting in the next decade, but of course indoctrination makes it impossible to see that.

No one can be sure of that as it depends on many things.

In 2002 I was thinking that it would be better to rent than buy when I moved as prices were unlikely to keep rising...

I believe the problem in the indoctrination is that houses are seen as investments rather than places to live.

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IWe are proven to be very poor financial planners so I would say IO mortgages should require more stringent access based on some sort of criteria and make the applicant prove they are able to repay the debt. They should be niche products to suit some people but not accessible by everyone who in the main take them out because the monthly payments are less,,,

Regulate them properly, don’t ban them.

:angry: No! No! No! I don't want to spend hours and hours with a stupid (literally) financial adviser and then be forced to buy an 'investment product', rather than make repayments.

This is an utterly stupid proposal that would recreate endowments by another name because an investment product is the only way they'll accept you can repay.

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Guest UK Debt Slave

Your common sense isn't welcome in this country, sit down and be quiet!

LOL!

In Aldous Huxley's Brave New World, all the people who still had the capability to 'think' critically are packed off to Iceland

Perhaps we face a similar fate!

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I've just taken out a £120,000 I/O mortgage on a 10 year fix.

There is little difference between an IO or capital repayment mortgage IMO

It was either GBP700 per month capital repayment or GBP500 interest only.

Would I be correct in guessing that the two options were at the same interest rate? If so then that may be where the problem lies, as the lender isn't pricing risk properly. The IO loan where the lender takes on the risk that your repayment plan is lousy should be at a higher interest rate, reflecting that risk.

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Would I be correct in guessing that the two options were at the same interest rate? If so then that may be where the problem lies, as the lender isn't pricing risk properly. The IO loan where the lender takes on the risk that your repayment plan is lousy should be at a higher interest rate, reflecting that risk.

Agreed, but it is worse than that. Many lenders recalulate interest on every payment for an IO loan, but only on scheduled payment dates for Repayment loans, which makes IO cheaper.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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