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mikthe20

Interest Only Mortgage Warning

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I'd expect the IOM debate to get pretty heated in the months and years ahead. I'm convinced a lot of people just don't understand that they are not paying off any capital even though they are spending lots of money each month on a "mortgage". Their own fault but no doubt there'll be huge amount of bleating accusing others of misselling. I was surprised that people didn't understand that an endowment mortgage put money on the stock market, but to not know interest only means precisely that is inexcusable.

Anyway, thought this was a decent article, particularly the last bit: "If you can’t afford to pay for it, then don’t buy it."

http://www.citywire.co.uk/News/NewsArticle...nuKey=News.Home

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I'd expect the IOM debate to get pretty heated in the months and years ahead. I'm convinced a lot of people just don't understand that they are not paying off any capital even though they are spending lots of money each month on a "mortgage". Their own fault but no doubt there'll be huge amount of bleating accusing others of misselling. I was surprised that people didn't understand that an endowment mortgage put money on the stock market, but to not know interest only means precisely that is inexcusable.

Anyway, thought this was a decent article, particularly the last bit: "If you can’t afford to pay for it, then don’t buy it."

http://www.citywire.co.uk/News/NewsArticle...nuKey=News.Home

the "ambulance chaser" firms are already gearing up for this. It is almost certain that this will be the new endowments scandal - only far bigger.

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Why do you think people are so stupid. I have never met anyone who did not understand what an interest only mortgage was.

sadly, I have met many. And you might be surprised that some of them aren't entirely stupid. Although getting an IOM is undoutedly a stupid decision.

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I'd expect the IOM debate to get pretty heated in the months and years ahead. I'm convinced a lot of people just don't understand that they are not paying off any capital even though they are spending lots of money each month on a "mortgage". Their own fault but no doubt there'll be huge amount of bleating accusing others of misselling. I was surprised that people didn't understand that an endowment mortgage put money on the stock market, but to not know interest only means precisely that is inexcusable.

Anyway, thought this was a decent article, particularly the last bit: "If you can’t afford to pay for it, then don’t buy it."

http://www.citywire.co.uk/News/NewsArticle...nuKey=News.Home

So 200,000 IO mortgages were taken out last year - why is no-one doing anything about it now!

Surely the lenders have a responsiblity to do something? - now!

The taking out of IO mortages because they are cheaper is idiotic (unless the person is likely to get paid alot more in the future - how many of these people are?) my friend has IO mortgage but also an endowment plan so it costs here just as much per month as the repayment mortgage would.

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Why do you think people are so stupid. I have never met anyone who did not understand what an interest only mortgage was.

Neither have I, but I have seen forum posts on other sites where they didn't realise what an IOM was after taking it out! :blink:

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I agree with Fancypants - there are indeed people out there who think the word "mortgage" means the house actually becomes theirs just by making the payments that the bank takes out of their accounts every month. I personally think they should not be called mortgages at all, since all they really are IMO is a way of chargin for an option buy at some future date. Anyway, anyone who is stupid enough to take out an IOM without a repayment plan no matter if they understood it or not deserves to get what's coming and certainly don't deserve to get bailed out. I can see the media protraying such people as "victims" though, even though it is entirely their own fault.

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To be fair, most of those I know with IO mortgages don't intend on keeping them for too long; they're rather hoping that they'll be able to switch to repayment or, in the case of those who earn 'windfall' wages, pay off huge chunks of capital as they go.

It going to hurt to be paying off compound interest only for years as prices drop, without making a dent in the capital repayment. Ouch... <_<

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DOGBOX PREDICTION :rolleyes:

To be reported in the future;

'The extend of pure IO mortgages was underestimated, as many clients ticked a box on the application saying they intended to set - up a repayment vehicle, but then failed to do so'.

Take my own case. Thier was no IO option on the form so I just ticked ISA! :huh:

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So 200,000 IO mortgages were taken out last year - why is no-one doing anything about it now!

Surely the lenders have a responsiblity to do something? - now!

The taking out of IO mortages because they are cheaper is idiotic (unless the person is likely to get paid alot more in the future - how many of these people are?) my friend has IO mortgage but also an endowment plan so it costs here just as much per month as the repayment mortgage would.

Why do you think a money-lender has a responsibility to make sure the borrower can repay a loan?

Err, look I'll lend you 100k for 25 years and I want you to pay me 1% above the bank base rate throughout the term of the loan as interest. Is that okay?

And, at the end of the 25 years, you will pay me back the 100k. Okay?

Why is it my concern how you get the 100k over the 25 years. You might save it - you might expect to be left it - you might invest in the stock market. When I got an IO mortgage years ago the blurb made it very clear what the crack was - it even said something like 'mortgages for grown-ups'.

Maybe there are too many kids around who haven't got a clue how things work.

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This is why the market is bloody stupid.

It is a typical example of the credit fitting the price rather than the market determining the true value.

Its like the DFS suite. Interest free. the suite is obviously over-priced but its interest free. Cash does not reduce the price so you buy on interest free over 5 years

Interest only. Exactly the same. properties are too over priced for people to realistically afford on traditional terms, so, we offer Interest only. Renting a house for 25 years then still needing a mortgage at the end to pay off the principle.

It is a suckers paradise.

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A few years ago when I took out my mortgage I had to have a quick interview with the bank manager, the reason for this was that I was requesting a straight repayment mortgage , the bank manager was trying to get me to reconsider, for my benefit apparently, he thought I was foolish not taking either an endowment mortgage or a part interest only mortgage, I asked him why? he said I would be seen as a better creditor than someone who doesnt take out a wider range of products from the financial industry, also he was p*ssed of that I wasnt taking their insurance etc etc, So I can imangine the banks are now seriously pushing the IO mortgages as its the only way to ensure enough buyers to keep the party going and also the ultimate aim to keep a tighter grip on your assets (ie they keep them).

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nothing wrong with the concept of IO mortgages per se.

e.g. if you get an IO mortgage based on a fixed salary and pay off large chunks of capital through bonuses, they can be a useful means of paying off mortgages quickly without being penalised and without having a too hefty draw on one's monthly income.

The problems arise when they are used purely on the basis of affordability and speculatively on future HPI. As would seem to be the case from anecdotal evidence. As long as house prices keep on rising in real terms, no problem.

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Why do you think a money-lender has a responsibility to make sure the borrower can repay a loan?

Err, look I'll lend you 100k for 25 years and I want you to pay me 1% above the bank base rate throughout the term of the loan as interest. Is that okay?

And, at the end of the 25 years, you will pay me back the 100k. Okay?

Why is it my concern how you get the 100k over the 25 years. You might save it - you might expect to be left it - you might invest in the stock market. When I got an IO mortgage years ago the blurb made it very clear what the crack was - it even said something like 'mortgages for grown-ups'.

Maybe there are too many kids around who haven't got a clue how things work.

Well someone should do something about this. if not the lender then the government should do something. The fundamental is that many people in the country are stupid and financial service providers put profit above all else so these people are easy prey

Many people are buying on interest only as they cannot afford a repayment one. If they cannot afford the repayment they cannot afford the house (IMHO) and should be told as much. I dont believe many of them realise that they are actually renting off a bank - which is worse than off a landlord as you are responsible for it.

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As long as house prices keep on rising in real terms, no problem.

how so? The capital still needs to be repaid at the end of the term, regardless of the value of the house then.

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The fundamental is that many people in the country are stupid and financial service providers put profit above all else so these people are easy prey

In reality, many are stupid the right way round - they will all be sniffing free money and claiming they were misled, are too thick too understand, were pressured into it, etc. when the reality is they did not plan and did not bother and quite fancy blaming someone else and as usual, abrogate responsibility to someone else..... - that's part of the UK's problem, we always expect someone else to look after us and always jump on bandwagons, especially when it's a chance to do a Pontius Pilate for our own inadequacies.

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how so? The capital still needs to be repaid at the end of the term, regardless of the value of the house then.

by 'no problem' I meant the shit won't hit the fan as long as prices continue to rise in real terms. Obviously if people only realise after 20 years, they'll have to sell up to pay off the capital. If prices fall in real terms before then, then they've got a massive problem.

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by 'no problem' I meant the shit won't hit the fan as long as prices continue to rise in real terms. Obviously if people only realise after 20 years, they'll have to sell up to pay off the capital. If prices fall in real terms before then, then they've got a massive problem.

In 20 odd years time, when all these IO houses are put on the market - will that create a massive crash in house prices? It's still a long time for sensible people to wait.

I can't afford any type of mortgage. Houses here are so overpriced, around 10 times my income :(

People who suggest IO mortgages, have their own interests at heart. They want the party to keep going. It's time for everyone to sober up and go HOME!

Clangnuts

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There's nothing wrong with IO mortgages as long as they are handled correctly, it is sort of common knowledge that as life goes on most people begin to find themselves more financially stable, they need to amend accordingly their mortgage arrangements.

Buying a house is an expensive thing to do, & to sign for that amount of debt without really understanding the implications has to be one of the most shortsighted actions ever.

If you bought a sports car & the small print read"don't go too fast round corners", but you did & crashed it, it ain't the salesmans fault.

If you sign for an unserviceable debt it is your own fault for trying to be too clever.

Everybody wants the freedom of choice, but when they get it wrong they start bleating about how they should have been denied that which they were ready to die before prior to it going sour.

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There's nothing wrong with IO mortgages as long as they are handled correctly, it is sort of common knowledge that as life goes on most people begin to find themselves more financially stable, they need to amend accordingly their mortgage arrangements.

Buying a house is an expensive thing to do, & to sign for that amount of debt without really understanding the implications has to be one of the most shortsighted actions ever.

If you bought a sports car & the small print read"don't go too fast round corners", but you did & crashed it, it ain't the salesmans fault.

If you sign for an unserviceable debt it is your own fault for trying to be too clever.

Everybody wants the freedom of choice, but when they get it wrong they start bleating about how they should have been denied that which they were ready to die before prior to it going sour.

Thanks for a measured response - my partner & I are embarking on IO mortgage just now, in order to trade up before the HIPS nonsense starts, but will not be in position to repay capital until she qualifies (from college) in a couple of years, & can expect a substantially increased salary; so, some of us are actually thinking these things through, & making rational decisions according to our paricular circumstances..

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Thanks for a measured response - my partner & I are embarking on IO mortgage just now, in order to trade up before the HIPS nonsense starts, but will not be in position to repay capital until she qualifies (from college) in a couple of years, & can expect a substantially increased salary; so, some of us are actually thinking these things through, & making rational decisions according to our paricular circumstances..

Pardon the dumb question: what's HIPS?

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I completely agree with the bloke from Warwick. IOM's are fine and a good tool if handled correctly and with care but in fools hands can cause a lot of damage (just like knives). My folks bought there house in 1978 for £17,500 and a similar property was put up for sale last year for £270,000 but in the end i think it sold for near £250,000. Now even if my parents had taken out an IOM then they would still only have to pay back £17,500 which on a £250,000 house isnt that big a deal and is in unsecured loan territory. Im not saying that houses will go up that much in the future but IOM’s can be a good deal. If you buy today for £250,000 and in 25 years time your house is worth £750,000 which isn’t unreasonable (and maybe on the low side) then you have £500,000 left to buy a house with assuming you didn’t pay any of the capital off. If your 30 now you may well be looking to retire in 25 years and downsize, so £500,000 could be enough.

The house prices now may look crazy (and I think they are, and we will see some falls of 5-20%) but in 25 years time they will look cheap in real terms but not multiple of salary. I remember my mum saying that their bid of £17,000 was accepted but on the day before they were gazumped by £500 and they were up most of the night deciding whether to go through with the sale. Apparently £500 was a lot back then……

Although ive not checked the details so im sure but i think the banks will have covered themselves this time around with IOM's after the past mistakes. Afterall they are not stupid and seem to make lots of money :)

Edited by DONT PANIC !!! DONT PANIC !!!

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The taking out of IO mortages because they are cheaper is idiotic (unless the person is likely to get paid alot more in the future - how many of these people are?) my friend has IO mortgage but also an endowment plan so it costs here just as much per month as the repayment mortgage would.

This is what absolutely drives me mad!!! It is very unlikely that you could get an investment programme that works alongside your I/O mortgage for LESS than the cost of a repayment! You have to take BIG RISKS, why not take the safe bet?? Also an I/O mortgage is more volatile to IR rises as its 100% of your repayment that is afffected.

When you are repayment, you pay the interest on the outstanding balance WHICH REDUCES whilst an I/O is interest on the FULL AMOUNT ALL THE TIME!!!

I obviously HAVE NOT had an I/O mortgage, or seen the paperwork, but can someone tell me whether the lenders show you the costs in comparison to a repayments mortgage WITH AN INVESTMENT PROGRAMME RUNNING ALONGSIDE? I somehow feel that they dont!

These are gonna make endowments look like pocket money!!!

The CML is keeping an eye on the situation and has set up a shortfalls working group to look into ways to encourage consumers to act now to address any shortfall on interest-only mortgages. Sue Anderson of CML said: ‘But what we are suggesting is that when a mortgage comes up for review, for example, when it reaches the end of a concessionary rate, then it would be prudent to check on how the borrower intends to repay the loan.’

Find this part fascinating! How do the lenders expect the borrowers to afford to go onto a repayment model AFTER they have taken out the mortgage and had a review. This shows that they should have been ADVISED to do the repayment mortgage in the first place. IE This COULD have been mis-sold!!!!

Bet these lucky fookers get away with it. Can see Gordon Brown writing off all I/O debts to sta popular!!! (OK maybe not but I would not put it past him!)

TB

Edited by teddyboy

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Bet these lucky fookers get away with it. Can see Gordon Brown writing off all I/O debts to sta popular!!! (OK maybe not but I would not put it past him!)

TB

Im conviced that once the debt-sh*t hits the fan, the NeoStalinists at NuLabour will introduce some kind of National Debt Refinancing programme. Once there is enough anger about the debt problem, it will be brought in [probably via some private PPP route] to 'protect the victims' of debt from 'unscrupulous' debt management companies.

No doubt NuLab will offer to wipe the slate clean for these 'victims', in return for financial re-education [a NuLab favourite]. Brown will probably grab their wages at source, the redistribute it back via tax-credits, allowances etc. This method will conveniently kill 2 birds with one stone, as they will also be able to favour or discourage the purchase of certain products [healthy items to reduce burden on NHS]- after all, part of the financial education will be monitoring of peoples purchases/budgets.

A perfect policy for The Fat Controller Brown

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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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