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One In Ten Buyers With Interest-Only Mortgages Risk Paying Their Home Loan Three Times Over - And Still Never Own Their House

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http://www.dailymail.co.uk/money/mortgageshome/article-2820823/One-ten-buyers-mortgages-risk-paying-home-loan-three-times-over.html

A generation of homebuyers are likely to pay their mortgage three times over and still never own the roof over their heads, Money Mail can reveal.

One in ten of the 2.6million households with interest-only mortgages are thought to have no plans in place to repay them - and face taking out a lifetime mortgage to stay in their homes.

These loans, offered by a bank or insurer, charge the homeowner interest while alive, but take a giant chunk from their property’s equity at death.

Now calculations by London & Country broker reveal a homeowner - usually aged 65 or over - is likely to pay three times more interest than the amount they originally borrowed to buy the house.

Essentially a person would have spent their entire life paying mortgage interest - but never paid off the amount borrowed.

Lots of conflation in this article. These people are renting, but unlike renters actually get full responsibility for property maintenance!

They'll pay 3 times more than they originally paid to rent the house would be more appropriate. In fact describing them as a inferior renter would I think be the correct terminology.

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That's not quite fair.

Yes they are paying back 3 times the amount borrowed, but that doesn't necessarily mean they are paying over the odds vs renting the same house over the same term. They also have security of tenure and a few other perks that you don't get through renting from a landlord.

Putting in a sweeping statement that they are inferior renters is just a bit naff daily mail.

There are a number of people on "repayment" mortgages who have prolonged forbearance from the lender that are going to be in the same boat.

Edited by Squeeky

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That's not quite fair.

Yes they are paying back 3 times the amount borrowed, but that doesn't necessarily mean they are paying over the odds vs renting the same house over the same term. They also have security of tenure and a few other perks that you don't get through renting from a landlord.

Putting in a sweeping statement that they are inferior renters is just a bit naff daily mail.

There are a number of people on "repayment" mortgages who have prolonged forbearance from the lender that are going to be in the same boat.

No they don't, if they fail to service the loan they are out. If the value of the property falls they may have a margin call running into the tens of thousands if not hundreds meaning that these individuals run the risk of owing the banks money and paying for a property they no longer live in.

Renting does not run this risk and a repayment mortgage minimises this risk. IO only frankly is a stupid way to own unless property continually goes up then you make a profit for a down payment on the next house.

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You're right If you don't keep up with the repayments you get booted. I'm not sure how that differs from renting, even if you have a classic secure tennancy. By secure I meant you won''t get booted if you move your granny in or the landlord doesn't simply doesn't like the cut of your jib. Hell if you fail to keep up with your council tax payments you can get booted from your home, even if you own the bricks and the free hold outright.

Yes there is a risk but in the current climate, but if you can find a property that hasn't been destroyed, swept in to the sea etc... that now costs less than it did when they purchased it 25+ years ago I would be impressed. I should also point out that I wouldn't purchase on IO either as I agree it is high risk compared to repayment. Comparing it to renting though and all the pitfalls, I don't think it is as clear cut.

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They also have political cover weighing on their side- turfing out people in mortgage arrears is political dynamite, even more so if elderly/children involved whereas turfing out tenants who are up to date in simply exercising contractual rights. Why else would these lifetime mortgages exist?

We know around 8% of mortgages are subject to some degree of forebearance yet repossessions are very low.

I'd feel more secure in mortgage arrears than under a rolling AST, on balance.

I reckon some of the 'best' outcomes (in order to minimize lifetime housing costs and maximize disposable income) have turned out to be IO when upsizing in the early 80s, followed by pension credits unlocking SMI in perpetuity. You'd have enjoyed the extra dosh from not repaying the capital over the intervening decades, and SMI/lifetime mortgage gives you the same end point regardless. You couldn't possibly have known it would work out like that, but it does serve to show that being a total idiot can work out massively in your favour.

Moral hazard anyone?

Edited by Joan of The Tower

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They seem like excellent assets for the bank. Though I do not know in the current environment what capital is required to hold by the bank. Maybe that's the issue the borrowers won't actually reach the end. Even worse.

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SMI will be reformed in the next parliament id expect.Likely it will be the government version of a lifetime mortgage.On death or sale they have first dibs on any equity.

Its a huge problem never really talked about.The more pensioners retire renting and/or with mortgages and no pensions means massive amounts of Housing Benefit,SMI etc.

Just like the left should of reformed and been tough on welfare,the right should hate high house prices because it ends up in more dependency.

Of course that would need politicians with conviction rather than self interest.

The other point is the new pension coming in is the same level as pension credit BUT it does away with the savings element.In basic terms that means anything above the basic pension would be means tested for SMI/Housing Benefit/Council Tax Benefit.So anyone saving into the enrolled into pensions who ends up with £80 a week will see £60 of it means tested away if they dont own their home 100%.That is about the governments only feeble effort to tackle the problem.

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SMI will be reformed in the next parliament id expect.Likely it will be the government version of a lifetime mortgage.On death or sale they have first dibs on any equity.

Its a huge problem never really talked about.The more pensioners retire renting and/or with mortgages and no pensions means massive amounts of Housing Benefit,SMI etc.

Just like the left should of reformed and been tough on welfare,the right should hate high house prices because it ends up in more dependency.

Of course that would need politicians with conviction rather than self interest.

The other point is the new pension coming in is the same level as pension credit BUT it does away with the savings element.In basic terms that means anything above the basic pension would be means tested for SMI/Housing Benefit/Council Tax Benefit.So anyone saving into the enrolled into pensions who ends up with £80 a week will see £60 of it means tested away if they dont own their home 100%.That is about the governments only feeble effort to tackle the problem.

Interesting....you are right, pensions or lack of pension provision is the elephant in the room....I find it hard to differentiate between cash savings, equity or pension value.....net worth is your means. Therefore someone with thousands in equity/savings/pension/shares etc should be spending that before claiming benefits.......this all links in with being able to cash your pension pot and lifetime equity withdrawal......anyway paying your mortgage down, saving for a pension or cash savings are all a form of saving......short-term, medium-term and long-term mixture. ;)

Edit: This does not include the new basic state pension that all should get having paid in for the qualifying years.....a state pension is not a benefit and should not be means tested.

Edited by winkie

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http://www.dailymail.co.uk/news/article-2821263/One-million-homeowners-paying-mortgages-seventies-average-debt-38-000.html

'Almost a million people in their 70s are still paying off their mortgages, a report reveals.

At a time of life when they expect to be free of financial burden, one in five are still shouldering home loans – with the average debt at £38,000.'

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http://www.dailymail.co.uk/news/article-2821263/One-million-homeowners-paying-mortgages-seventies-average-debt-38-000.html

'Almost a million people in their 70s are still paying off their mortgages, a report reveals.

At a time of life when they expect to be free of financial burden, one in five are still shouldering home loans – with the average debt at £38,000.'

Meaning that they could well be sitting on thousands of equity built up over years of HPI dead money in effect....should it not be paying the interest on the debt and used by ploughing it back into the economy and helping people with living costs....in a fair and cheap way, meaning fair rate of interest and fees....when the house is spent can rent like thousands always have, and continue to do so. ;)

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You're right If you don't keep up with the repayments you get booted. I'm not sure how that differs from renting, even if you have a classic secure tennancy. By secure I meant you won''t get booted if you move your granny in or the landlord doesn't simply doesn't like the cut of your jib. Hell if you fail to keep up with your council tax payments you can get booted from your home, even if you own the bricks and the free hold outright.

Yes there is a risk but in the current climate, but if you can find a property that hasn't been destroyed, swept in to the sea etc... that now costs less than it did when they purchased it 25+ years ago I would be impressed. I should also point out that I wouldn't purchase on IO either as I agree it is high risk compared to repayment. Comparing it to renting though and all the pitfalls, I don't think it is as clear cut.

Is this something you have experienced, or are you just making it up? Doesn`t sound anything like CT rules in Scotland. Where you are must be more draconian?

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You're right If you don't keep up with the repayments you get booted. I'm not sure how that differs from renting, even if you have a classic secure tennancy. By secure I meant you won''t get booted if you move your granny in or the landlord doesn't simply doesn't like the cut of your jib. Hell if you fail to keep up with your council tax payments you can get booted from your home, even if you own the bricks and the free hold outright.

Yes there is a risk but in the current climate, but if you can find a property that hasn't been destroyed, swept in to the sea etc... that now costs less than it did when they purchased it 25+ years ago I would be impressed. I should also point out that I wouldn't purchase on IO either as I agree it is high risk compared to repayment. Comparing it to renting though and all the pitfalls, I don't think it is as clear cut.

Link for this law?

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I heard Ray Boulger dribbling crumbs in to a mic on Moneybox R4 at the weekend.

He was banging on about Santanders mortgage for life bailing out all the failed endowments.

He didn't mention how they'd get on paying back all the MEW they've added in the interim.

A crash will be fought with every tool in the box.

Everything will be thrown from the back of the truck to keep asset prices high.

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if you can find a property that hasn't been destroyed, swept in to the sea etc... that now costs less than it did when they purchased it 25+ years ago I would be impressed

Japan has plenty.

Also the UK IO mortgage peak wasn't 25 years ago, it was in the early-mid 2000s. I expect plenty of those have little/negative equity even though 10-15 years have passed since they were bought. It is very possible that in another ten years UK nominal house prices will be lower than today, right as those IO mortgages start maturing.

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