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Dave Beans

"the Io Mortgage Timebomb"

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http://www.bbc.co.uk/news/business-22366821

More than a million people with interest-only mortgages face a financial crunch when they have to pay them off, a watchdog is warning. Some 2.6 million UK householders have the mortgages but the Financial Conduct Authority says "estimates... suggest" nearly half will not have savings or other funds to cover the final bill. The average shortfall is £71,000, according to FCA research.

Lenders will now step up warnings to homeowners to prevent payment shocks. Homeowners with these types of mortgage - about a third of all UK mortgage holders - make repayments each month that just cover the interest on the amount borrowed. The full amount of the home loan should be paid back when the mortgage term matures - usually after 25 years - using funds such as savings, inheritance or from the sale of a business.

These mortgages were popular when sold alongside an endowment policy in the 1990s, and again during the last decade when many homeowners banked on the rising value of their home to cover the cost. Rob McGregor, 42, from Reading, pays more than £900 a month and will still have £188,000 to pay off at the end of the mortgage term in 18 years. He already needed to make repayments on other loans and said that an interest-only mortgage seemed like the best option.

"I needed a mortgage that I could pay less into each month. But now I regret choosing interest-only," he said.

"It can be quite upsetting."

He said it was a struggle to make ends meet. The financial pressure means he has to look for deals in supermarkets, and he is finding it difficult to set money aside in savings. This led to fears of a mortgage timebomb, which prompted the agreement of new rules to tighten up on the sale of these mortgages from April 2014.

The FCA, the successor of the Financial Services Authority as the sector's watchdog, commissioned research to give a clear indication of what borrowers face when mortgages mature between now and 2014. Market research firm GfK NOP questioned 1,103 interest only borrowers to consider how prepared they were to repay their loans. It also created a balance sheet for each respondent, looking at their financial position now and at the time their mortgage matures

It found that 37% of interest-only mortgage holders said they faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own sums. This included people like Rob McGregor who said that taking out such a mortgage seemed a good idea at the time, but was now something he regretted.

"It is a pressure. It can be quite upsetting sometimes when you look at your finances and think I have this huge debt hanging over me all the time," the 42-year-old said.

While many people realise they might have a problem paying back the home loan when the time comes, others are more oblivious of the issue. The FCA says estimates "suggest" many people underestimated the financial problem and it believes 48% of holders of such mortgages face a shortfall. This could mean some are not likely to receive all the savings income or inheritance that they might expect.

More critically, one in 10 - the equivalent of 260,000 people - have no repayment strategy in place at all. They face the prospect of having to sell their homes when their mortgage matures. The watchdog said that those facing a shortfall, even if their final bill is looming within the next 10 years, should be able to find a viable way to pay the home loan back.

"By acting now we are aiming to nip this problem in the bud," said Martin Wheatley, chief executive of the FCA.

"My advice to borrowers is not to bury their head in the sand - take action now."

Mortgage lenders have agreed to write to borrowers to ensure they have a repayment strategy in place, concentrating on those whose policies mature first.

"Anyone with an interest-only mortgage maturing before the end of 2020 should expect to be contacted over the course of the next 12 months by their lender," said Paul Smee, director general of the Council of Mortgage Lenders.

"The aim is not to force customers to take actions they do not wish to, but to ensure they are aware of their mortgage repayment position, and have an opportunity to take steps that may prove useful to them in avoiding unforeseen payment shocks later."

Paul Broadhead, of the Building Societies Association (BSA), said that this type of mortgage had worked well for many people, but help was available for those who found themselves in trouble. "Building societies and other mutual lenders will deploy all the tools they have to help anyone who has an interest-only mortgage with a shortfall. This will only work if people respond to the communications they receive and engage early with their lender," he said.

But the consumer group Which? said that it was vital that people trapped in their current mortgage deals were treated fairly by their lenders.

Who is affected and when?

People approaching retirement who took out endowment policies in the 1990s and 2000s. Typically they have high incomes and live in the South East or South West of England. The peak in policies maturing is in 2017-18

Less affluent, middle-aged homeowners who often converted to interest-only in 2003-09. Concentrated in the South West, East and North West of England, as well as London and the West Midlands. Maturity peaks in 2027-28

People who are highly indebted and opened mortgages in 2005-08. Maturity of these home loans peaks in 2027-28

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Moody's research suggested the problem was a lot worse than that

More than half of outstanding mortgages on homes in London, the southeast and southwest of England are so-called interest only mortgages, a form of lending considered risky enough for regulators to set restrictions on new sales of this product.

Moody’s Investors Service looked at the loans associated with mortgage-backed securities to assess the effect tougher mortgage rules would have on outstanding loans. It found that 52.6 per cent of existing loans in London were to borrowers who were not making any repayments of principal. In the southwest and southeast, the proportion of outstanding loans of this type were 51.2 per cent and 52.4 per cent respectively.

http://www.ft.com/cms/s/0/f269df52-251d-11e2-86fb-00144feabdc0.html#axzz2S6t2e3RB

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Paul Lewis was just on Breakfast talking about this. One thing he got from the report which I can't see in the OP is that HALF of the people with these IO mortgages will be over 65 when the loan matures.

So, that'll be further added pressure on the SMI bill then. dry.gif

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Don't worry IO mortgage holders -- you might never need to pay them off. Savers and taxpayers will probably have to pay most of it for you. Don't you worry, just go out to Costas today as usual, and enjoy your coffee with all the trimmings, after that maybe go buy a new 47" smart TV or something on your card, because repaying loans and having to take responsibility for your debts don't apply when the lunatics have taken over the asylum as is currently the case. Banana?

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Well I never....what a bolt from the blue this story is.....imagine that...who would have thought it.

Real Black Swan stuff.

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...so the downsizers will be competing with the FTBers and BTLers.........more suitable housing required.

What about all those that have always rented and are still renting at the time of retirement? same thing?

......if you haven't paid for your home you will either have to sell it and rent, or downsize if you can.....or if old enough spend any equity left at a very high charge of interest until there is nothing left, and your home belongs to the lenders. ;)

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You can sense the mis-selling angst building.

Although the man from the FCA did say "it is exactly what it says on the tin...interest only".

Mis-selling is just the latest manifestation of compensation culture in UK. Time was if you bought something you didn't really want or need (who hasn't?) you had to sort out the mess yourself. Now we have firms of lawyers specialising in the subject.

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Meanwhile, while this denial of reality enters its 2nd decade, these idiots get to have a life, while the responsible, decent people that didn't sign up to IO have their lives destroyed, their chances of children diminished. They are being 'cleansed' from society.

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Fivelive covering it massively. Listneners ringing in and whinging.

just listening. Do they have a repayment plan? No not really....

Oh no the chap on did not say it but hinted at mis selling!

Edited by Ash4781

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You can sense the mis-selling angst building.

Although the man from the FCA did say "it is exactly what it says on the tin...interest only".

Mis-selling is just the latest manifestation of compensation culture in UK. Time was if you bought something you didn't really want or need (who hasn't?) you had to sort out the mess yourself. Now we have firms of lawyers specialising in the subject.

I can't see how it can be miss selling........many of these people would not be in the house they are living in if they had been made to have a repayment mortgage......the system allowed them this privilege it only helped the HPI cause.........many people cashed in their savings plan long ago, never had one or cancelled it as soon as they could.......the banks turned a blind eye to it all, they didn't follow up on it at the time, they were getting the interest and interest only means more interest for them plus the security of a house in the future....both sides had vested interest in all this, not to mention the benefit to the wider economy at the time. ;)

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Paying off a 300K IO mortgage is easy.

Branson will have finished his space plane in a few years. Buy a ticket on the card, Fly to the Mars diamond mine.

Work for a month, stuffing my pockets from of diamonds. Fly back and flog them in Belgium. Easy.

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Good news all around then. HPC will finally start big style in another 10-15 years when all the idiot motgages from 2000-2008 come home to roost. I've waited this long, I can wait some more.

Edited by Stainless Sam

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What's everybody worried about? These people all signed a piece of paper saying they would save the difference so I'm sure they must be doing that. Nobody would walk into a bank, lie about their income to get a supersized IO mortgage, and then lie again about saving into an alternative investment.

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Do you think it's dawning on them yet, that there just aren't enough taxpayers left?

Too few taxpayers to pay even the interest on the national debt, let alone the debt. ..... Sounds like a IO mortgage doesn't it?

Edited by sleeping dog

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What's everybody worried about? These people all signed a piece of paper saying they would save the difference so I'm sure they must be doing that. Nobody would walk into a bank, lie about their income to get a supersized IO mortgage, and then lie again about saving into an alternative investment.

I am sure they all had good intentions at the time.......they were relying on megga pay rises, ever higher house price rises and for high inflation to erode the debt away......their repayment plan was to be a months wages at the age of 75. ;)

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...so the downsizers will be competing with the FTBers and BTLers.........more suitable housing required.

I am 100% convinced this is the problem in Swansea and Gower.

I think that there are hundreds of people who bought homes on IO for 100 to 150 K 10 years ago who are now wanting 400K or 500K now - what they are hoping is someone buys their house for a stupid sum, pays off their mortgage for them and then they can downsize to a 250 to 300K house.

Loads of houses in the 200 to 250 area are STC because some pr*ck thinks their IO home that they bought for 150 is worth 500!

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7.45 Fivelive is going to give advice to those with IO mortgages.

You can see it coming now can't you - tax payer bailout.

That would presumably be something along the lines of .....

.

.

.

.

.

.

.

.

.

Sell your ******ing house and live somewhere you can actually afford !

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Top billing on 7:30 R4 news.

on the introduction on 5live the presenter sounded sheepish. I suspect there might be a few at the Bbc who have io mortgages.

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I am 100% convinced this is the problem in Swansea and Gower.

I think that there are hundreds of people who bought homes on IO for 100 to 150 K 10 years ago who are now wanting 400K or 500K now - what they are hoping is someone buys their house for a stupid sum, pays off their mortgage for them and then they can downsize to a 250 to 300K house.

Loads of houses in the 200 to 250 area are STC because some pr*ck thinks their IO home that they bought for 150 is worth 500!

....I agree, different price ranges depending on where you live.....but the £250k is definitely the ceiling mainly due to stamp duty, that should be tapered more fairly imo......you have to ask yourself who can support and would want to support a £400k to £500k family sized property, where are the jobs to support these high prices.....who wants and could afford to move to certain areas and buy these high priced properties certainly not a couple with a growing family with a repayment mortgage. ;)

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Too few taxpayers to pay even the interest on the national debt, let alone the debt. ..... Sounds like a IO mortgage doesn't it?

Too few producers to pay even the interest on the money supply, let alone the principal. ..... Sounds like a IO mortgage doesn't it?

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  • 242 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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