Thursday, February 16, 2012

RIP Interest only mortgages

Interest-only mortgages: Lloyds and Halifax tighten lending criteria

As they point out in the forum, brokers like Ray Boulger are up in arms. Thanks for coming to the party lads, but erm ... you'd best be on your way now.

Posted by paul @ 07:20 AM (3252 views)
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11 thoughts on “RIP Interest only mortgages

  • sibley's b'stard child says:

    Ray Boulger said of this move ‘it’s very disappointing news for all my customers and indeed the UK property market as they will no longer be able to speculate with what essentially amounts to IOUs. It seems the FSA intend to send us back to the dark days of ensuring borrowers put up collateral.’

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  • This is the pivotal moment. The death of IO mortgages will finally push the great HPC snowball down the hill!

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  • “This is the pivotal moment. The death of IO mortgages will finally push the great HPC snowball down the hill!”

    Must admit I’ve heard similar sentences once or twice on this forum!

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  • Excellent news for those of us still waiting for prices to get back to reality before we buy. Not good news for mortgage brokers such as Ray Boulger, nor their clients/mugs who bought with an interest-only mortgage at the height of the bubble. But we did warn them.

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  • I loved this line:

    “”particularly for the more sophisticated borrower who simply does not want a repayment mortgage””

    For ‘sophisticated’ read ‘gullible’

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  • From the article:

    “a borrower buying a £100,000 property on an interest-only loan could borrow a maximum of £75,000. But under the new criteria he would also need assets of £93,750 in stocks and shares or a pension with a current fund value of at least £1m, according to SPF Private Clients, the mortgage broker.”

    I don’t get it. If you have £25,000 cash for a deposit and £93,750 in stocks and shares, why not just cash up and buy the £100,000 house outright? If you would rather have a large mortgage and lots invested in stocks and shares, what you are doing is a leveraged bet on stocks and shares, which sounds like a recipe for disaster.

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  • sibley's b'stard child says:

    I must admit MW I was puzzled by that as well. Would it be a viable move if the return on their stocks was far greater than the cost of servicing the 75% LTV mortgage?

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  • SBC, you can’t say whether it’s viable or not, it’s just a leveraged bet, if your shares make a return of more than what the interest costs you, then hooray, but if they fall to a value below what the bank says you have to have as collateral then you are in big trouble. Plus, as a general rule, i don’t think leveraged bets on share prices are the sort of thing people should be encouraged to dabble in.

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  • I noticed that perverse stricture too. The only sense to an interest-only in those circumstances (and pretty much all others too) is if you can get a return greater than the interest rate on the mortgage. Then you would be quids-in; which was the line used to sell endowments some years ago (not mentioning the big fat adviser’s/provider’s/administrator’s fee of course). The only people who believe they can guarantee a better return are eternal optimists and fund managers. Of the two I’d be more inclined to lay my bets with the former.

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  • crash bandicoot says:

    Ah Ray Boulger

    We all know that he’s not worried about the financially savvy being deprived of another way to make their money work. He’s worried about the financially illiterate being denied the chance to extend and pretend. The suggestion that this is bad for ALL of his customers is ridiculous. The extend and pretenders need to be brought to face reality as soon as possible so that everyone can get on with things.

    As for him and other brokers, if they hadn’t ramped the housing market to it’s current levels by pushing fringe products like self cert and IO into the mainstream then they’d still be making a good living from selling lots more mortgages at sensible levels. What comes around, goes around.

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  • Adam Smith Fan says:

    @6 MW wrote why not just cash up and buy the £100,000 house outright?

    Or even better, use the investment income from the £118,750 to rent somewhere nicer than you can buy for £100,000. As for risk: sure, stocks and shares may go up or down but at the moment house prices are definitely on the way down. So you’re balancing a possible loss/gain of investment value over the next few years against a certain loss of property value over the next few years. Given those choices I’ll take the chance of a loss over the certainty of a loss.

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