Jump to content
House Price Crash Forum
Sign in to follow this  
eric pebble

Homeowners With Interest-only Mortgages --

Recommended Posts

Homeowners with interest-only mortgages 'heading for disaster'

"Thousands of homeowners with interest-only mortgages could be heading for 'disaster', a report warned yesterday.

Soaring numbers of cash-strapped homeowners are switching to these cheaper types of loans in a desperate bid to save money.

But the report fears many are simply "storing up problems for the future."

http://www.dailymail.co.uk/pages/live/arti...d=1770&ct=5

Share this post


Link to post
Share on other sites

We've all known it for ages; the elephant in the room. Anyone on an IO mortgage is admitting that they cannot afford to pay off their debt.

It was only a matter of time..........

LET THEM BURN

Share this post


Link to post
Share on other sites

From the article:

It says many will be tempted to switch to an interest-only deal when their current repayment mortgage comes up for renewal.
For many who fixed their mortgage two years ago, they will not be able to pay the much higher rates now charged by lender

then

He said people should either have a strategy, such as planning to use bonuses, inheritance or savings to pay down the loan.
Or they should have a plan to switch to a repayment mortgage after a few years when they can afford to.

Eric, you are right. Here's the potential for even more people to get into ever more trouble.

Share this post


Link to post
Share on other sites

An IO mortgage is like renting only that you take on te responsibility for maintaining the property. Very few IO mortgages are being sold as they were intended, with an investment vehicle setup to allow the principle capital sum to be repaid.

Share this post


Link to post
Share on other sites

The Daily Mail is running a second article. David Mills Chief UK Economist at Morgan Stanley is predicting 20% loses over the next two years. I saw this in one of the freebie evening papers, so I imagine it will be running everywhere tomorrow. Here is the article:

As lenders get tough, property prices look to drop 20 per cent in two years

Share this post


Link to post
Share on other sites

IO mortgages in themselves are not necessarily evil, as long as there is some means of actually paying back the capital. If you had a decent well paid job but kept your mortgage repayments flexible some months you could overpay if you were feeling flush whilst others - for example if you took a holiday - you only opt to pay the interest. The problems arise however when your two year teaser deal ends and your new rate forces you into only paying only the interest, or worse, you were only able to pay the interest from the start with no decent financial prospects on the horizon.

With a possible(definite) recession on the way things are going to get messy.

edit, also, what lender wants to take on IO paying business at this stage? Way too risky

Edited by chefdave

Share this post


Link to post
Share on other sites

This shift to IO has been happening for a while.

When I took out an IO mortgage in 1995 I had to prove I had an investment vehicle to fund the capital repayment... after about 2 years Halifax lost interest in checking on this.

I think the FSA should regulate on this and insist that investment vehicles are in place for IO mortgages.

But my guess is that this will be seen as a way of helping house prices deflate less quickly and will be supported by the mortgage lenders as the credit crunch bites.

Share this post


Link to post
Share on other sites
I think the FSA should regulate on this and insist that investment vehicles are in place for IO mortgages.

It makes sense to insist on it. Otherwise the bank is just your landlord.

Share this post


Link to post
Share on other sites
Pretty lousy one - won't do any repairs and can evict you as soon as you're in arrears!

Yeah OK, that's pretty standard rackmanism isn't it?

I imagine the level of landlords not doing repairs will be going up too.

Share this post


Link to post
Share on other sites
"Thousands of homeowners with interest-only mortgages could be heading for 'disaster', a report warned yesterday.

Soaring numbers of cash-strapped homeowners are switching to these cheaper types of loans in a desperate bid to save money.

But the report fears many are simply "storing up problems for the future."

There is a point when "sufficient unto the day is the evil thereof" is the only rational strategy. Especially if you have kids, the rational way of approaching an unmanageable situation may be to gear up as much as possible with IO loans then spin the process out as long as possible. At least you will be living in a relatively pleasant home while this is going on; then, when the whole pack of cards collapses and you are bankrupt, jobless and with a family the local council will have to find you somewhere.

Share this post


Link to post
Share on other sites
It makes sense to insist on it. Otherwise the bank is just your landlord.

Below is my letter/email/comment to that D Mail article on IO Mortgages: Needless to say - it hasn't been put up!!

----------------------

Letter to Daily Mail Mar 19 08

Mr Hollingsworth is being disingenuous to say the least. For too long Mortgage Lenders have lured people into the property market by offering "cheaper" loans - which are actually sustaining the unsustainable. If the Mortgage Lenders were acting responsibly and honestly, they would realise that the very fact that young and not so young people can only "afford" interest only or high salary multiple mortgages [another scandal], means that property prices are far too high - and so these mortgages are merely propping up an over-inflated bubble - which is what the property market is. It is a disaster waiting to happen. Shame on these unscrupulous, irresponsible - and, yes - dishonest Lenders.

All this just backs up what I have said for ages - and here too - http://www.housepricecrash.co.uk/forum/ind...71279&st=15

Edited by eric pebble

Share this post


Link to post
Share on other sites
Below is my letter/email/comment to that D Mail article on IO Mortgages: Needless to say - it hasn't been put up!!

People lured into the property market recently will find out that they were really buying into the poverty market.

Share this post


Link to post
Share on other sites

Gordon reckons the education system has not been dumbed down.

If that is the case, why on earth would they have to explain this ? Surey a five year old could understand the difference between a repayment or interest only ?

The mortgages are cheaper because none of the original advance is repaid, only the interest charges on it.

With a £155,000 mortgage at six per cent interest, you would pay £232,500 in total over the 25 years of an interest-only mortgage.

At that time, however, you would still owe the bank the full £155,000.

With a repayment mortgage, you would repay a total of £299,601 over 25 years but own your home outright when the deal ends.

Customers are supposed to invest money separately so that they can eventually pay off the debt - but many fail to do so.

Share this post


Link to post
Share on other sites
With a £155,000 mortgage at six per cent interest, you would pay £232,500 in total over the 25 years of an interest-only mortgage.

At that time, however, you would still owe the bank the full £155,000.

Can someone do the math .

Share this post


Link to post
Share on other sites

I couple of friends of mine have IO only mortgages but they took them out on the basis that houseprices only go up so the profit you make when sold can be put towards your next house which they will switch to a repayment mortgage as it will be cheaper...I didn't think it will work and it definitely won't work now.

Share this post


Link to post
Share on other sites
IO mortgages in themselves are not necessarily evil, as long as there is some means of actually paying back the capital. If you had a decent well paid job but kept your mortgage repayments flexible some months you could overpay if you were feeling flush whilst others - for example if you took a holiday - you only opt to pay the interest. The problems arise however when your two year teaser deal ends and your new rate forces you into only paying only the interest, or worse, you were only able to pay the interest from the start with no decent financial prospects on the horizon.

With a possible(definite) recession on the way things are going to get messy.

edit, also, what lender wants to take on IO paying business at this stage? Way too risky

Far too many posters on this site have 'black and white' opinions, with no grey options considered. If you are over-extended on your mortgage IO or repayment you're in bother.

IO mortgages may make sense if you're confident you will see a big family property appreciate in value over the long term and you cover your **** by some investment vehicle. If you are planning to downsize considerably once the chicks have all left, IO can be a viable approach - although I wouldn't advise anyone to buy at this stage of the market IO or repayment as I reckon we are on a one way street down depreciation for the next 3-4 years and no real gains for 8-10.

IO can be better than renting if the costs are comparable - which in most cases now they are not (renting is cheaper and therefore preferred). If IO is comparable to rent and you have a family you may want the stability of not having the threat of a landlord displacing you and yours - if you are are single it really isn't the same problem.

In sum: IO is not necessarily a bad idea, IO probably is a bad idea at this stage of the bubble

D

Edited by Dosser

Share this post


Link to post
Share on other sites
A finance test, to check understanding should be compulsory before anyone undertakes a mortgage. :unsure:

An IQ would be better! :lol:

I am very concerned about the financial situation my cousin is in (purchased last year with boyfriend and she has a sprog by another guy who pays minimal maintenance).

Luckily I managed to talk her round about buying a new build - however ...

They have an interest only mortgage with a sub-prime lender! Told me they couldn't afford the extra £180 a month on repayment and then goes and buys a new car (depreciation!) on finance at a cost of over £300 per month! She also paid over the odds for the house anyway.

I am very worried about her situation, she seems to think they can just remortgage with no problems when the fixed rate ends on their IO mortgage! She has loans (cosmetic surgery - so a deflating asset!), credit card debts (50" plasma TV etc), £3000 paid to landscape a 25ft garden, 2 expensive mobile phones on 18 month contracts, a house full of IKEA tat and now she's on about getting married abroad!

I have tried to brooch the subject of financial prudence but it's like swimming through treacle. I am really worried she will end up bankrupt with a repossessed house. Any suggestions on how I can approach the subject without making her angry??

What if her only option is another sub-prime lender? Oh! and she used to work in a bank!

And she has a £4000 grand sofa on credit from DFS!!

Edited by indebted

Share this post


Link to post
Share on other sites
I couple of friends of mine have IO only mortgages but they took them out on the basis that houseprices only go up so the profit you make when sold can be put towards your next house which they will switch to a repayment mortgage as it will be cheaper...I didn't think it will work and it definitely won't work now.

Might work if you are moving from London to the sticks, and you bought pre-2003. If you bought post 2005, you are not going anywhere..

Big problem is that with a repayment mortgage, you will eventually pay yourself out of negative equity. With an IO mortgage, you could be stuck for a LOT longer. And wheras a repayer has the option of switching to a longer term (or IO) in the event of financial problems, the IO mortgage holder has no fallback.

Share this post


Link to post
Share on other sites
An IQ would be better! :lol:

I am very concerned about the financial situation my cousin is in (purchased last year with boyfriend and she has a sprog by another guy who pays minimal maintenance).

Luckily I managed to talk her round about buying a new build - however ...

They have an interest only mortgage with a sub-prime lender! Told me they couldn't afford the extra £180 a month on repayment and then goes and buys a new car (depreciation!) on finance at a cost of over £300 per month! She also paid over the odds for the house anyway.

I am very worried about her situation, she seems to think they can just remortgage with no problems when the fixed rate ends on their IO mortgage! She has loans (cosmetic surgery - so a deflating asset!), credit card debts (50" plasma TV etc), £3000 paid to landscape a 25ft garden, 2 expensive mobile phones on 18 month contracts, a house full of IKEA tat and now she's on about getting married abroad!

I have tried to brooch the subject of financial prudence but it's like swimming through treacle. I am really worried she will end up bankrupt with a repossessed house. Any suggestions on how I can approach the subject without making her angry??

What if her only option is another sub-prime lender? Oh! and she used to work in a bank!

And she has a £4000 grand sofa on credit from DFS!!

may I suggest you direct her to the moneysavingexpert web organisation for hugs and consolation.

when she is on the skids shes gonna need a friend or two to help blame others for her terrible predicament.

Share this post


Link to post
Share on other sites
An IQ would be better! :lol:

I am very concerned about the financial situation my cousin is in (purchased last year with boyfriend and she has a sprog by another guy who pays minimal maintenance).

Luckily I managed to talk her round about buying a new build - however ...

They have an interest only mortgage with a sub-prime lender! Told me they couldn't afford the extra £180 a month on repayment and then goes and buys a new car (depreciation!) on finance at a cost of over £300 per month! She also paid over the odds for the house anyway.

I am very worried about her situation, she seems to think they can just remortgage with no problems when the fixed rate ends on their IO mortgage! She has loans (cosmetic surgery - so a deflating asset!), credit card debts (50" plasma TV etc), £3000 paid to landscape a 25ft garden, 2 expensive mobile phones on 18 month contracts, a house full of IKEA tat and now she's on about getting married abroad!

I have tried to brooch the subject of financial prudence but it's like swimming through treacle. I am really worried she will end up bankrupt with a repossessed house. Any suggestions on how I can approach the subject without making her angry??

What if her only option is another sub-prime lender? Oh! and she used to work in a bank!

And she has a £4000 grand sofa on credit from DFS!!

Sounds like she has the same financial mentality the ex wife..thank god i saw the light

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 292 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.