council dweller Posted March 15, 2012 Share Posted March 15, 2012 I can only assume the plan to repay was to sell up and trade down or simply roll over the mortgage and get another 25 year term and maybe a bit extra for a new car... Well yes. Also, many were expecting a parent to die off but they're still going strong into their 90's. Quote Link to comment Share on other sites More sharing options...
Fishman Posted March 15, 2012 Share Posted March 15, 2012 How about a perpetual mortgage ? (If it's good enough for Government, etc.....) Just pay the interest every month and the banks will be happy with the income and they'll never have to properly value the asset. It's what banks do best ! Quote Link to comment Share on other sites More sharing options...
koala_bear Posted March 15, 2012 Share Posted March 15, 2012 (edited) Well yes. Also, many were expecting a parent to die off but they're still going strong into their 90's. Mostly followed by an expensive spell in a nursing home if they reach that age. Oops where did that "equity" go Edited March 15, 2012 by koala_bear Quote Link to comment Share on other sites More sharing options...
Unsafe As Houses Posted March 15, 2012 Share Posted March 15, 2012 (edited) About four in ten mortgages are interest only??? I had no idea it was so many. According to this Telegraph article from May 2011 - 43% are interest only. http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8546531/Cash-strapped-families-switch-60bn-worth-of-mortgages-to-interest-only.html If one looks at mortgages pre-2008 the proportion should be even higher. UK - a Nation of 'homeowners' Edited March 15, 2012 by Unsafe As Houses Quote Link to comment Share on other sites More sharing options...
Monkey Posted March 15, 2012 Share Posted March 15, 2012 When the loans were taken out you could get a 90%/85% LTV IO mortgage, and you can't any more. upto 125% LTV, and there were peole taking out upto 100% LTV up to 2010. there will be pelnty of people who have NO equity, no deposit, no savings, couple that with no HPI and in some cases a small HPC, wil put massive pressure on them keepin the property That's alot of people who were not properly advised - they should club together and do the banks for misselling. Buckers there were alot of people who didnt want ot be advised, they just kept shouting "show me the money, SHOW ME THE MONEY" tehy wouldh ave signed anything/any deal to get their "dream" house And lets not forget, people have IO at all because a repayment is too expensive, alot of people too I/O as FTBers as it was the ONLY way they could afford their "dream" house, with no thought about if, how and when they would repay any of the capital. all in hope that the rise in house prices would pay for their house imagine a person with IO and Shared ownership! Scary isnt it Quote Link to comment Share on other sites More sharing options...
madpenguin Posted March 15, 2012 Share Posted March 15, 2012 (edited) About four in ten mortgages are interest only??? I had no idea it was so many. According to this Telegraph article from May 2011 - 43% are interest only. http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8546531/Cash-strapped-families-switch-60bn-worth-of-mortgages-to-interest-only.html If one looks at mortgages pre-2008 the proportion should be even higher. UK - a Nation of 'homeowners' 4-5 years ago I was doing some work for a large utility provider just outside London, a quick poll around the office (6-7 people) revealed everyone had IO mortgages from the young "first step on the ladder" types through to those nearing retirement (may have been to do with the fact that "average" house prices in the area were around 300-400k). When I asked who had a repayment vehicle very few had, everyone else just looked embarrassed and muttered something like "price rises will pay for the mortgage" or "I'll sort that out when I've got more money". I often wonder how those guys are feeling now, bearing in mind this was during the "boom", these people were all well paid (40k plus) in a job that was relatively secure Edited March 15, 2012 by madpenguin Quote Link to comment Share on other sites More sharing options...
fluffy666 Posted March 15, 2012 Share Posted March 15, 2012 4-5 years ago I was doing some work for a large utility provider just outside London, a quick poll around the office (6-7 people) revealed everyone had IO mortgages from the young "first step on the ladder" types through to those nearing retirement (may have been to do with the fact that "average" house prices in the area were around 300-400k). When I asked who had a repayment vehicle very few had, everyone else just looked embarrassed and muttered something like "price rises will pay for the mortgage" or "I'll sort that out when I've got more money". I often wonder how those guys are feeling now, bearing in mind this was during the "boom", these people were all well paid (40k plus) in a job that was relatively secure It's a graphic illustration why you need to restrict mortgage multiples.. Quote Link to comment Share on other sites More sharing options...
Unsafe As Houses Posted March 15, 2012 Share Posted March 15, 2012 (edited) 4-5 years ago I was doing some work for a large utility provider just outside London, a quick poll around the office (6-7 people) revealed everyone had IO mortgages from the young "first step on the ladder" types through to those nearing retirement (may have been to do with the fact that "average" house prices in the area were around 300-400k). When I asked who had a repayment vehicle very few had, everyone else just looked embarrassed and muttered something like "price rises will pay for the mortgage" or "I'll sort that out when I've got more money". I often wonder how those guys are feeling now, bearing in mind this was during the "boom", these people were all well paid (40k plus) in a job that was relatively secure Yes, it''s not marmally something you ask people. I've no idea what kind of mortgages my friends and relatives have An IO mortgage would only make sense, arguably, if you expect house price/cost increases above what you would get from saving/investing the money and saving on house running costs. Such increases are unlikely to happen anytine soon Edited March 15, 2012 by Unsafe As Houses Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted March 15, 2012 Share Posted March 15, 2012 4-5 years ago I was doing some work for a large utility provider just outside London, a quick poll around the office (6-7 people) revealed everyone had IO mortgages from the young "first step on the ladder" types through to those nearing retirement (may have been to do with the fact that "average" house prices in the area were around 300-400k). When I asked who had a repayment vehicle very few had, everyone else just looked embarrassed and muttered something like "price rises will pay for the mortgage" or "I'll sort that out when I've got more money". I often wonder how those guys are feeling now, bearing in mind this was during the "boom", these people were all well paid (40k plus) in a job that was relatively secure Even those close to retirement? Quote Link to comment Share on other sites More sharing options...
fluffy666 Posted March 15, 2012 Share Posted March 15, 2012 Yes, it''s not marmally something you ask people. I've no idea what kind of mortgages my friends and relatives have An IO mortgage would only make sense, arguably, if you expect house price/cost increases above what you would get from saving/investing the money and saving on house running costs. Such increases are unlikely to happen anytine soon IO mortgages only make sense when - - The person paying is financially savvy and has a lumpy income (cf sales) - As a short term stop-gap due to loss of income. - Wage/price inflation (and hence interest rates) are >10%, so the capital will be wiped out anyway. In a low inflation, low interest rate environment, IO mortgages really are 'just renting it from the bank'. Much more profitable over 25 years, though. Quote Link to comment Share on other sites More sharing options...
madpenguin Posted March 15, 2012 Share Posted March 15, 2012 (edited) Even those close to retirement? Yeah sorry a bit of an exaggeration but definitely late 40-50's Edited March 15, 2012 by madpenguin Quote Link to comment Share on other sites More sharing options...
madpenguin Posted March 15, 2012 Share Posted March 15, 2012 Yes, it''s not marmally something you ask people. I've no idea what kind of mortgages my friends and relatives have An IO mortgage would only make sense, arguably, if you expect house price/cost increases above what you would get from saving/investing the money and saving on house running costs. Such increases are unlikely to happen anytine soon At the time someone was moving up and the topic just came up naturally in the course of conversation, was quite shocked when most people owned up to having IO mortgages, gave me a definite (but kept to myself) "Holy Crap!" feeling Quote Link to comment Share on other sites More sharing options...
Guest_flaps_* Posted March 15, 2012 Share Posted March 15, 2012 Is this SMI for life for oldies still available? Girlfriends Dad, a self employed builder of 66 is on IO and he is reaching the point where his arthritis will prevent him working soon. Can he just quit working now on health grounds and drop onto this? Quote Link to comment Share on other sites More sharing options...
The Masked Tulip Posted March 15, 2012 Share Posted March 15, 2012 I wouldn't be surprised if half of these are 'unofficial' BTL mortgages.. Good point. Quote Link to comment Share on other sites More sharing options...
porca misèria Posted March 15, 2012 Share Posted March 15, 2012 IO mortgages only make sense when - - The person paying is financially savvy and has a lumpy income (cf sales) - As a short term stop-gap due to loss of income. - Wage/price inflation (and hence interest rates) are >10%, so the capital will be wiped out anyway. You forgot - when it releases money that can be invested to build up a repayment vehicle while also saving substantial amounts of tax - for example, the pension mortgage. In a low inflation, low interest rate environment, IO mortgages really are 'just renting it from the bank'. Much more profitable over 25 years, though. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted March 15, 2012 Share Posted March 15, 2012 Im sure MOST IOs are taken out because the monthly payments are lower. Quote Link to comment Share on other sites More sharing options...
fluffy666 Posted March 15, 2012 Share Posted March 15, 2012 - when it releases money that can be invested to build up a repayment vehicle while also saving substantial amounts of tax - for example, the pension mortgage. .. and the person with the mortgage is not too concerned about being flattened by IR spikes. It's fine when you know what you are doing. Quote Link to comment Share on other sites More sharing options...
Debbie568 Posted March 15, 2012 Share Posted March 15, 2012 changing from a teaser rate to an SVR is entirely different to the mortgage reaching maturity. One is a continuation during a term, and the other is the repayment deadline. Indeed, it wouldnt surprise me that a "means of settlement via an approved vehicle" clause was not in every IO mortgage ever issued. not having one is a serious breach of contract....IMHO. People in the 80s had endowment policies which were meant to earn enough to be able to repay the mortgage at the end of the term with a bit left over! Easy to say in hindsight too good to be true. What's scary is that when the endowment policy falls shortm, as so many have, the homeowner is left with having to somehow raise the money to meet the shortfall, even though it was the bank who sold them the policy, and possibly dudn't sufficiently explain the consequences for the borrower if the expected apreciation of the endowment policy failed to materialise. Offsetting that though is that often these mortgages have run for 20 to 30 years, so the amount that has to be found to pay off the mortgage, always assuming the homeowner is now too old to remortgage, is usually less than £100k. Surely someone in their 50s could raise a £100k mortgage on, say, a £400k house? Quote Link to comment Share on other sites More sharing options...
cartimandua51 Posted March 15, 2012 Share Posted March 15, 2012 Exactly, that's what taxpayers are for ... clue is in the word PAYER. SMI pays the mortgage interest (and in some cases the capital) of people who have mortgages and can't pay, the majority of people who receive this benefit are retired and will receive this until they die, there is no charge on the property and any profits therefore go to the recipients estate and not to the taxpayer. There will be some other scheme introduced to stop these IO mortgage, home owning, 'hard-working' families being evicted from their homes; the taxpayer can pick up the tab. Apparently the average amount per week paid on SMI to the retired is £20.24 per week. Not exactly much compare with housing benefit! The Govt is proposing to put a charge on equity. Source support-for-mortgage-interest-call-for-evidence-ia.pdf (the document is locked and I don't know how to cut and paste the relevant section) Quote Link to comment Share on other sites More sharing options...
winkie Posted March 15, 2012 Share Posted March 15, 2012 Good. I have a friend, about this age, who bought a BTL back in about 2007 with an IO mortgage. On the one hand, I thought fine, he runs his own small business and it's the only way he's going to get a pension, but on the other hand, I was furious to find out he'd managed to get an index-linked mortgage at a stupidly low rate. At one point he was paying about £150/month and getting £750 in rent. He moaned when his mortgage went up to over £200. He has no plans to repay the capital. Why should savers subsidise leechers like this? There is also a group of 50+ who are divorcees, these are the guys that are really going to hurt as I guess many of these have IO mortgages. I can only see the term being increased so they rent from the bank until they die. So the banks created the money, all of it, and gain a solid asset after a few tens of years, whilst you paid for the privilege. A fine scam, indeed! At the end of the day there is no difference between a private renter in their +50s and a IO mortgage payer apart from the size of the rent..... If an IO mortgage payer can't afford to repay their debt why can't they sell the house they can't afford to live in and use the equity (there should be quite a bit if they are over 50 and they bought at the right time with a deposit) to either buy a smaller home outright, or with repayments (a repayment mortgage) that will finish at retirement or use the proceeds to rent like everyone else has to....why should so called 'home owners' get special treatment over and above the renters? Quote Link to comment Share on other sites More sharing options...
Sibley's Love Child Posted March 15, 2012 Share Posted March 15, 2012 (edited) Now here's a chance for Dave to get some votes. A new benefit SMIFTOF Support for Mortgage Interest For Those Over Fifty. This new benefit will use taxpayers money to pay off the loan and cover the interest at a set rate of 6% of the value of the loan. The benefit will be paid forever if you are over fifty. I am surprised no one has thought of this type of scheme before. Don't be daft, there'd be rioting on the streets if you suggested, let's say for sake of argument, 200 million pounds of taxpayers money would be used to price themselves out of a home. Each and every year? You've got to be kidding. Edited March 15, 2012 by Sibley's Love Child Quote Link to comment Share on other sites More sharing options...
Sibley's Love Child Posted March 15, 2012 Share Posted March 15, 2012 I think he was. My attempt at sarcasm backfires spectacularly. Quote Link to comment Share on other sites More sharing options...
Sibley's Love Child Posted March 15, 2012 Share Posted March 15, 2012 I must admit, I felt a little sorry for you. In fact, you were the towering genius and I was the one needing 'dimbo' sympathy. Jolly good, sir. Quote Link to comment Share on other sites More sharing options...
Bland Unsight Posted March 16, 2012 Share Posted March 16, 2012 a new issued mortgage to cover the old one is another new buyer who cant get funds. The problem lies in the new FSA rules about mortgages ending @75. And lets not forget, people have IO at all because a repayment is too expensive, and is often a last resort when a repayment mortgage becomes unpayable through circumstances. and I read elsewhere 40% of all mortgages are IO. That's why this, the IO timebomb, is hopefully where it ends, (provided the regulators are allowed, by the elected politicians, to hold the line here). The bonkers bubble in Japan was made possible by turning 25 year mortgages into 100 year mortgages. It's the last trick in the box, after you've shifted LTV from plausible to 125%, and caved on the requirement for repayment, (i.e. moved to an IO "paradigm"). Only here in the UK could we even be comtemplating rolling forward IO mortgages. That idea deserves its own thread! But even that isn't as bad as the Japanese idea of passing on your mortgage debt to your offspring, and even that bubble crashed! At some point the political calculus for the government, (whoever they are at the time), will shift from "We're not having a crash on my watch" to "Let's have this crash properly now, and perhaps things will turn around before I'm up for election". 10 million mortgages, 45 million voters - you do the maths. What's the alternative? If you keep inflating an asset bubble indefinitely by printing, then fiat money becomes meaningless as a means of exchange. The economy becomes a purely a "black ecomony" in the mode of Weimar Germany. Democracy under the rule of law has proved quite robust, and the fact that we've all been able to share these heretical opinions without having our door kicked in the Stazi is credit to that. All this will pass. And if you have your door kicked in by the Stazi, and live to tell the tale, then go long housing. Quote Link to comment Share on other sites More sharing options...
Habeas Domus Posted March 16, 2012 Share Posted March 16, 2012 Last night, the Council of Mortgage Lenders said: ‘Lenders are attuned to this issue and will treat borrowers sympathetically.’ Which means: "I'm terribly sorry we won't be giving you a loan, have a nice day" Quote Link to comment Share on other sites More sharing options...
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