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Sisyphus

How Long Before Io Mortgage Scandal Hits The Fan?

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OK apologies if this has been done to death, but I'm relatively new to the forum.

Now I can see that in limited circumstances IO mortgages can have their uses.

A friend of mine has 50% equity in his house +IO mortgage. He has been a shrewd investor in his ISAs and receives regular bonuses, I haven't done the maths with him but he is totally aware of the capital he needs to raise. He works in financial markets and is aware of the risks.

I get an inkling that he is in a tiny minority. I have a hunch that the vast majority of those that have taken out IOMs have done so with little or no provision for capital repayment and that the sole reasons for taking them on has been affordability (FEAR of being left off the ladder) and pure speculation on further HPI(GREED). It's only human nature.

The FSA, who only regulate the mortgage industry, not the housing industry, clearly compare repayment and IO mortgages on their website, but I think that's about all they do.

link

Surely, if they were serious about their role as regulator thay would be polling the population of IO mortgagees and asking what percentage have actually made provision for capital repayment. Is anyone here aware of any research that has been done to that effect?

In my opinion the results would confirm what I suspect: that IOMs have only served to woo a population of tenants on false promises, increase their rents and lock them into lifetime tenancies.

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Surely, if they were serious about their role as regulator thay would be polling the population of IO mortgagees and asking what percentage have actually made provision for capital repayment. Is anyone here aware of any research that has been done to that effect?

In my opinion the results would confirm what I suspect: that IOMs have only served to woo a population of tenants on false promises, increase their rents and lock them into lifetime tenancies.

There's been some numbers gathered in the USA, and the results are exactly as you surmise.

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The IO can remortgage and extending their mortgage period

and the problem will not surface for a long time. By then, unless something

is seriously wrong, they would be able to sell their house, pay off their debt

and move to some other cheaper countries (which may not be exactly their

first preference, but the are not in troble).

Also, there are Cash ISA paying 5.0% out there and with mortgage rate

as long as 4.5%, the financial savvy would put their cash in the ISA rather

than paying off the capital and make a risk free 0.5% compound.

Edited by easybetman

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Also, there are Cash ISA paying 5.0% out there and with mortgage rate

as long as 4.5%, the financial savvy would put their cash in the ISA rather

than paying off the capital and make a risk free 0.5% compound.

That maybe true, but would require the ISA and mortgage moved quite often. The best deals seem to change to nolonger be the best after a year or 2. And with the administration costs going up to end a mortgage (to stop people moving) I wonder whether it really will be worth the effort.

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OK apologies if this has been done to death, but I'm relatively new to the forum.

Now I can see that in limited circumstances IO mortgages can have their uses.

A friend of mine has 50% equity in his house +IO mortgage. He has been a shrewd investor in his ISAs and receives regular bonuses, I haven't done the maths with him but he is totally aware of the capital he needs to raise. He works in financial markets and is aware of the risks.

I get an inkling that he is in a tiny minority. I have a hunch that the vast majority of those that have taken out IOMs have done so with little or no provision for capital repayment and that the sole reasons for taking them on has been affordability (FEAR of being left off the ladder) and pure speculation on further HPI(GREED). It's only human nature.

The FSA, who only regulate the mortgage industry, not the housing industry, clearly compare repayment and IO mortgages on their website, but I think that's about all they do.

link

Surely, if they were serious about their role as regulator thay would be polling the population of IO mortgagees and asking what percentage have actually made provision for capital repayment. Is anyone here aware of any research that has been done to that effect?

In my opinion the results would confirm what I suspect: that IOMs have only served to woo a population of tenants on false promises, increase their rents and lock them into lifetime tenancies.

This is a very incisive post.

Almost everyone I know has I/O. The true extent is underestimated by virtue of the fact that people put I/O on the application and then usually tick a box saying they will arrange an ISA (I did this), but then never arrange said policy.

Mortgages are one giant game and the regulator always acts after the event, because just like other gatherings of experts, they are'nt fully in touch with the real world and they base thier plans on 'what is already known' rather than subtle but dramatic changes occuring on street. Thats how regulators didnt spot endowment and pension misselling until after the event.

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Almost everyone I know has I/O. The true extent is underestimated by virtue of the fact that people put I/O on the application and then usually tick a box saying they will arrange an ISA (I did this), but then never arrange said policy.

This is why it always makes me laugh when papers refer to the mortgage endowment scheme scandel leaving thounsands with a shortfall. Not half as much of a bloody shortfall as people who think that they don't actually need a repayment vehicle at all ( I presume they think that HPI will pay the loan off for them?) are going to have!

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The IO can remortgage and extending their mortgage period

and the problem will not surface for a long time. By then, unless something

is seriously wrong, they would be able to sell their house, pay off their debt

and move to some other cheaper countries (which may not be exactly their

first preference, but the are not in troble).

Also, there are Cash ISA paying 5.0% out there and with mortgage rate

as long as 4.5%, the financial savvy would put their cash in the ISA rather

than paying off the capital and make a risk free 0.5% compound.

Sure, if you can get decent returns in an investment vehicle and are disciplined, then it works.

Otherwise, and this is the thrust of my post, the survival of tens of thousands relies totally on house price appreciation and full employment.

If this is a disaster waiting to happen then the FSA should be proactive and tighten the rules and supervision.

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I actually know someone who changed from an endowment mortgage to a IO mortgage when they moved, because "You can't trust endowments". As far as I know their not putting anything away to pay off the capital.

You couldn't make it up!

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I have a friend who's borrowed 110k a few years ago for an ex-council house in a rather rough area of Bristol.

:blink:

Of course, the mortgage is IO and I was surprised to discover that he took the trouble to set up an investment vehicle with the bank. A proportion of his salary goes into it automatically every month.

Only trouble is he has decided to use it as a personal piggy bank. His take on it all; "It's great, I forget that the money is going in there so every couple of months I've got £300 to play with for nothing"

It's all going to end in tears.

:blink:

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Bear Goggles, an endowment mortgage is, and always has been, an interest only mortgage. I assume what you are saying is that your friend has surrendered the endowment plan. If he is still paying into his endowment, usually a low cost plan, then he still does have a savings vehicle to pay off his mortgage.

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Bear Goggles, an endowment mortgage is, and always has been, an interest only mortgage. I assume what you are saying is that your friend has surrendered the endowment plan. If he is still paying into his endowment, usually a low cost plan, then he still does have a savings vehicle to pay off his mortgage.

My understanding was that they (a couple) surrendered their endowment, went travelling and came back and got an interest only mortgage without an endowment - I don't know them well enough to ask, so maybe I shouldn't really have posted it.

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Do the banks really care?

I presume they'll kick you out of the house if you dont give them their money at the end of the term?

Actually, how does that work? I'm curious now!

What if you say, ermm, actually I havent got your money Mr Bank Manager. Sell the house, pay off the capital and downsize.

Either way, they wont lose anything unless we have a MAJOR crash!

Am I missing the point?

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Am I wrong to consider IOM on my return to UK, we always had one in the past purley because we moved every year and we had ISAs (gone now !).

We will pay our capital off via my inheritance, when I have it, its in cash and property (!). Is this sensible ?

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Am I wrong to consider IOM on my return to UK, we always had one in the past purley because we moved every year and we had ISAs (gone now !).

We will pay our capital off via my inheritance, when I have it, its in cash and property (!). Is this sensible ?

not wrong at all

unfortunately not all people with IO mortgages have such a plan.

one guy i know who had a middle manager position took a huge IO mortgage out to buy a house well beyond his otherwise means.

when i alsked him why, he said that prices would grow hugely and later in life he would trade down without a mortgage.

when i pointed out that if prices corrected he would have to earn a huge salary in his 60s and 70s if he wanted to keep his house. he went very quiet

he was later fired for incompetence.

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Am I wrong to consider IOM on my return to UK, we always had one in the past purley because we moved every year and we had ISAs (gone now !).

We will pay our capital off via my inheritance, when I have it, its in cash and property (!). Is this sensible ?

if you're only taking an IOM because you can afford the monthly payment, all you are doing is speculating on house price inflation.

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not wrong at all

unfortunately not all people with IO mortgages have such a plan.

one guy i know who had a middle manager position took a huge IO mortgage out to buy a house well beyond his otherwise means.

when i alsked him why, he said that prices would grow hugely and later in life he would trade down without a mortgage.

when i pointed out that if prices corrected he would have to earn a huge salary in his 60s and 70s if he wanted to keep his house. he went very quiet

he was later fired for incompetence.

Now thats what I dont get.

How can the banks allow you to borrow an amount"well beyond his otherwise means". Affordability or multiples, surely they wont let him have a mortgage IO of 50% take home for example?

Obviously they will!

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I'm often amused by people's shock-horror response to the idea that they might be forced to take out 50-year or 100-year mortgages, like the Japanese during their HPI madness.

Someone should gently point out to them that IO mortgages could (but won't) be marketed as "The Infinity Mortgage™", and that a good chunk of the market now consists of these never-ending debts.

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By then, unless something

is seriously wrong, they would be able to sell their house, pay off their debt

and move to some other cheaper countries (which may not be exactly their

first preference, but the are not in troble).

What a ridiculous statement!!!!!

Do you have any idea what a momentous decision it would be for the average person to emigrate to another country just so they could pay the mortgage

Especially to a cheaper country

Where did you have in mind – Iraq, Sudan, Somalia, I hear properties cheap in those countries

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I have a friend with a massive IO mortgage that would make your balls shrink just to think about it..

but he is one of those highly paid IT types who is actually near the top of his game..

He has an IO mortgage but paid of about £40,000 last year.. because he wanted to..

I know others who have a fraction of his salary, but a good percentage of his mortgage and no way in hell will they be able to pay of any capital unless inflation carries their salaries up..

and that is not going to happen.

Also, check the small print.

the mortgage companies have access to your payment fund should things go wrong..

If you don't have one that's fraud...

IO, self cert.

Defrauding a company of money under false pretenses of repayment after lying about your ability to pay..

There is a reason that they have prisons..

and if you don't think it is serious...

Phone up the serious fraud squad..

You are borrowing say a quarter of a million pounds and lying about any plans to pay this money back.

Lying about how much you have to be able to pay it back

Edited by apom

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Explain .... :o

Because renting from a landlord is currently cheaper (by a good margin where I live) than the repayments on an IOM. In neither case are you the owner of the property. I personally don't like to factor in inheritance into my calculation, but if you're sure you'll have the capital, fine. How easily can you realise equity if the market does tank? If interest rates rise, it's a double whammy!

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There's been some numbers gathered in the USA, and the results are exactly as you surmise.

IO are different in the US. (at least that is my unterstanding). They are IO only for a set period (generally 1-5 years) Then the payment goes up around 40%.

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The IO mortgage is not only being used by desperate FTB. I know I number of people who have remortgaged to IO mortgage from traditional repayment in most cases to clear debts, one couple I know had a 100K repayment mortgage 8 years ago now have a 200K IO mortgage on the same house.

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  • 301 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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