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PeanutButter

Retirement interest-only mortgages offer lifeline to older borrowers

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Sorry if already been posted - had a scroll and couldn't see it. 

Demand is growing for a new type of home loan that helps the over-55s facing a shortfall at the end of their existing term

Quote

 

A new breed of interest-only mortgage for older people is starting to take off. These deals could throw a lifeline to thousands of people who have an interest-only home loan that’s coming to an end, but don’t know how they are going to pay back what they owe.

Interest-only mortgages became virtually extinct following the credit crunch and were once branded a ticking timebomb. During the past few years some older homeowners with these mortgages have found themselves staring down the barrel of a big shortfall and worried they could lose their homes.

Partly in order to help these people, the Financial Conduct Authority last year gave the green light to a new type of interest-only deal. These products are known as “retirement interest-only” (RIO) mortgages and are a little more pricey than standard home loans.

 

 

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35 minutes ago, PeanutButter said:

Partly in order to help these people, the Financial Conduct Authority last year gave the green light to a new type of interest-only deal. 

The duplicity. This is a zero sum game. They can't help these (idiotic) homeowners without hindering frankly more deserving would-be homeowners.

The statement implies the FCA believes that private rental is a rip off. Of course the statement is inaccurate. The FCA aren't doing it to help anyone; they have done it to help sustain house prices, likely under pressure from above. 

 

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Oh really.

RIO mortgages are best suited to those who have an interest-only deal that is coming to the end of its term, but who have been left high and dry because the investment plan that was supposed to pay off their debt has underperformed – or maybe they never set one up in the first place. In theory, you can simply remortgage from your existing deal on to a RIO mortgage.

Hey kids! What do YOU think the answer is??

RIOs are not mortgages.

And only a few high n dry IOdiots will qualify.

The FSA thinks nothing of renting, either way.

Its looking for a way to mop up idiot Browns massive credit bubble.

For 30-50% of IOdiots thats going to be the home owner (yeah i know) giving up the nest egg (cough cough), the bank shouldering some risk, and a life insurer third party trading some longevity risk for interest risk.

RIO needs a hefty slug of equity and a reasonable pension incone in excess of tge state one to service the contract.

20+ years to revover from tgat idiot Brown. Jesus.

 

 

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18 minutes ago, monkeyman1974 said:

On balance I'd rather those involved were servicing the debt, than falling on the state to house them.

Appreciate forced sales would create downward pressure on pricing.

They are.

Ive looked at RIOs.

It goes something liek this.

IOdiot - 100k IO mortgage. House valued at ~200k.

IOdiot takes on 100k RIO 'mortgage'

100k mortgage debt took over by RIO counterparty - normally a life co.

Bank gets 100k of its book, avoiding a default/repo hell. Bank will probably throw in about 10k of capital, contingent on some price term or what not.

IOdiot carries on paying RIO rate, no capital repayment, till they die.

So, VR forever.

If you were the '55 yo' then paying SVR for the rest of your life will be sucking up whatever pension provision - SVR ~4%, 100k debt = ~4k/y, 340/m.

The complications are if they need care then theres no asset to go after.

Like equity withdrawal, the correct/sane action for ~80% will be to sell up and get somewhere smaller n cheaper.

 

 

 

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I would guess it's mostly aimed at encouraging equity release to prop up house prices by providing "bank of mum and dad" deposits to their children.

Just another stealth prop for flagging house prices.

"These home loans may also appeal to people who want to unlock some equity in their home to finance home improvements or to help their children or grandchildren buy their first home. Equity release has been around for years and can help both these categories of people. However, some homeowners are wary of equity release and are put off by the way the interest on these schemes rolls up."

Edited by Bruce Banner

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4 minutes ago, Bruce Banner said:

I would guess it's mostly aimed at encouraging equity release to prop up house prices by providing "bank of mum and dad" deposits to their children.

Just another stealth prop for flagging house prices.

"These home loans may also appeal to people who want to unlock some equity in their home to finance home improvements or to help their children or grandchildren buy their first home. Equity release has been around for years and can help both these categories of people. However, some homeowners are wary of equity release and are put off by the way the interest on these schemes rolls up."

RIO looks like ER but its not. Same sort of area, actors.

ER is a fig leaf to cover up an individuals past inability to save for retirement.

RIO is a fig leaf to cover up a banks idiot lending.

The correct action for the majority of people considering ER and RIO is to sell up and move to somewhere cheaper.

 

 

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8 minutes ago, spyguy said:

RIO looks like ER but its not. Same sort of area, actors.

ER is a fig leaf to cover up an individuals past inability to save for retirement.

RIO is a fig leaf to cover up a banks idiot lending.

The correct action for the majority of people considering ER and RIO is to sell up and move to somewhere cheaper.

 

 

there is a lot to commend the smaller and cheaper argument for the reasons you give

in 2011 the intergenerational foundation highlighted 25 million unoccupied bedrooms

issue is one of misallocation not just supply 

 

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17 minutes ago, spyguy said:

 

The correct action for the majority of people considering ER and RIO is to sell up and move to somewhere cheaper.

 

 

Not very likely...they like their large comfortable homes.

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23 minutes ago, Wayward said:

Not very likely...they like their large comfortable homes.

Cant remember the thread - probably the This is the chart ... thread.

I commented that in the areas I follow, a 65+ living in big (3+ bedrooms) is more liekly to leave in a box rather than removal van. I got a repose .. 'Well youve got to go sometime ..'

However, its not as simple as that.

Big houses cost a fortune to heat and the council tax can be pretty steep - and getting steeper.

Kids move away - well, they cannot afford to stay in the area - OAPs now need paid for home help, more chippy away at the cash ....

Now the rea is just a load of OAPs, in big run-down houses, no young families, so the facilities for young families dry up, making the area even less attractive to, err, young families who might the but the big house.

The idea of some of property ladder is daft - its not mathematically/economically possible for houses to increase more than wages FFS.

The idea of housing housing equity to pay for your retirement is even more knocks - you cant a house brick by brick.

 

 

 

 

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  • 297 Brexit, House prices and Summer 2020

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



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