People with interest only mortgages - do they really not realise?

(309 Posts)
minibmw2010 Thu 02-May-13 09:06:41

Have read and heard several stories on the news today where they're saying many people with interest only mortgages either don't know what will happen at the end of the term (or they'll owe a huge sum) or haven't made provision.

Anyone with an interest only mortgage in that boat? I'm genuinely curious as it was heavily emphasised to me when I bought first what would happen.

Eve Thu 02-May-13 09:12:25

I have an interest only mortgage on my house I lived in but now rented. I plan to sell the house when the mortgage is up or remortgage.

In the meantime I have the endowments that were supposed to cover it, sitting waiting to mature, but stopped paying any money into them years ago.

VivaLeBeaver Thu 02-May-13 09:12:47

When I bought my first house in 1997 I had a normal repayment mortgage. A friend a year or two later recomended a financial advisor to me...he came round to look at finances, etc and talked me into changing to an interest only mortgage.

I told him I was concerned, etc about stuff I'd heard. He said that was a load of rubbish, his products were superior, etc. He said he's never had anyone where the lump sum hadn't been covered by the end. I swapped, started getting letters from Alliance and Leicester a few years later about a probably shortfall. Rang the bloke up who still told me it was fine.

Rang the Alliance and Leiccester up all worried and immediatly the woman said they'd give me all my money back plus 8% interest. I guess I'd been missold it. The bloke was very convincing.

Some people aren't financial literate. Some people are missold. Some people bury their heads in the sand.

AlfalfaMum Thu 02-May-13 09:20:06

But isn't interest only a last resort, like if your financial situation changed and you couldn't meet your repayments then you might go interest only until you find your feet again? A short-term solution to reduce your out-goings?
Or are there actually people on them from day one? confused

Dawndonna Thu 02-May-13 09:21:40

I changed my mortgage in 2004. Things were looking distinctly dodgy back then. I don't understand why people just continued with interest only. Personally I think they shouldn't be allowed to sell them.

yetanotherworry Thu 02-May-13 09:23:20

i know some people who have them. They are relying on the fact that house prices will go up to pay them off and give themselves a tidy profit. I'm not sure if this is a good strategy though. I suppose over 25 years it should be okay but what if you have to sell up early.

noddyholder Thu 02-May-13 09:23:46

I can see the tax payer bailing this out angry As if people didn't know! Did they not wonder why they were paying 500 a month while their neighbour was paying 1000? Short sighted and they should pay the price imo. Unfair on al the sensible people who borrowed what they could afford and paid accordingly.

PiratePanda Thu 02-May-13 09:25:52

Well, in our case, it's MILES cheaper than paying rent on an identical property. We'll just sell it if all our other devious plans don't come off. wink

noddyholder Thu 02-May-13 09:28:22

The thing is it is rent! You are renting from the bank and paying all the maintenance and upkeep and unless you have the capital at the end you don't own it! I know someone atm with 166k owing on a flat worth about 200. They are in their 60s and have 4 years to get it sorted Madness

Cantbelieveitsnotbutter Thu 02-May-13 09:32:09

Alot of these mortgages were taken out when house prices were jumping massively, my flat made 70k in 2 years. Ok that level was unsustainable and the reason we are in the shit we are in, but that sort of increase was the reason interest only mortgages really took off and alot of people are now stuck.

Anomaly Thu 02-May-13 09:37:13

We're interest only have been over the last few years covering 3 lots of maternity leave and childcare costs. We're now changing to repayment. Its served a purpose for us. No way we could rent the house we live in for the current interest payment of just £400 a month.

noddyholder Thu 02-May-13 09:37:51

I agree people thought prices would rise like that forever and they could just sell and release the gains and either pocket it or put it into another house. I know loads of people 'living the dream' in a house they don't own and can't afford but they 'look' like they are doing well.

LifeofPo Thu 02-May-13 09:40:30

Message withdrawn at poster's request.

CockyFox Thu 02-May-13 09:43:43

I was offered an interest only mortgage but refused it as my parents had explained about the shortfall in their endowment policy. Thankfully they found out about their shortfall in time to switch to a repayment mortgage over a shorter term and have recently paid it off. if they hadn't they would never have been abke to make the payments from their

RedPencils Thu 02-May-13 09:46:46

We took out an interest only mortgage with and endowment. There will be a huge shortfall so we've converted to part repayment , part interest only.

We were told that the endowment would pay the mortgage with money left over. The Financial adviser said he had 3, one to pay his mortgage off, one to buy his daughter a house and one for when he retired at 50.

I know a few people who invested in buy to let properties on interest only, they'll sell the house at the end of the term to pay off the mortgage. Seems a risky strategy now as house prices are static but 15 years ago mortgages were cheap and house prices were just starting to climb.

Message withdrawn at poster's request.

Message withdrawn at poster's request.

noddyholder Thu 02-May-13 09:58:52

The thing is there are so many people who will be in this predicament that bailing out could be necessary I for one will be livid if they get bailed at the expense of savers. Done properly IO with a failsafe repayment vehicle was fine but people used it as an excuse to borrow n=more and only looked at the monthly figure and not the big picture

yetanotherworry Thu 02-May-13 10:01:10

I remember being offered an endowment mortgage when I bought my first house. I remember reading that as their value depends on share prices, they could go up or down in value. This point stuck in my mind so I went for a repayment mortgage. Friends who bought at the same time took out an endowment mortgage but changed it 3 years later when it became obvious that they weren't as good as people made out. This was 1995-2000ish. The information was out there but I think people were happy to rely on share prices which seems crazy when you're talking such vast quantities of money, although I am risk-adverse.

Justaoneoff Thu 02-May-13 10:07:42

I don't understand why anyone thinks that people are going to need to be bailed out? If you get to the end of the term and don't have the money to pay for it, you are going to need to sell the asset. If you have had the property for a long time, the chances are there will be some profit. That puts them in no worse position than someone who has rented all along, in fact potentially better if the property is worth more than they owe.

What is astonishing is someone thinking their mortgage is going to magically disappear at the end of the loan agreement when they have been paying interest only.

Incidentally, borrowing what you can afford and paying accordingly goes out of the window when interest rates go sky high. Then what appeared to be comfortable may become impossible. Same as losing the job that paid the bills. You can't plan for everything...

noddyholder Thu 02-May-13 10:11:57

The reason people think that is because there are mutterings along those lines amongst economics buffs and the scale of the problem means they can't possibly all be re possessed. I hope they are forced to stick with the original terms but I wouldn't be surprised if teh govt comes up with some hairbrained scheme to deal with it all

WarmFuzzyFun Thu 02-May-13 10:14:47

I thought you were made to purchase an endowment at the same time as taking out the interest only. The endowment is what paid of the mortgage as long as it was performing in line with expectations, how else would the capital be repaid? confused

noddyholder Thu 02-May-13 10:16:36

Lots of mortgages in the boom didn't ask for proof of an endowment and selling up was an acceptable answer to the 'how will you pay it' question.It seems there are people who didn't know they would still owe £ although how they came to that conclusion I will never know.

TheSmallPrint Thu 02-May-13 10:20:03

When I took out my first mortgage I did it interest only but had a PEP runinning too. For the first few years it was fine and making money and then start losing money at an incredible rate. When it got to the level I had paid in I cashed it in and invested it elsewhere.

I moved to a repayment mortgage because I don't like the lack of assurance other investment vehicles make and now I'm starting to see the original loan reduce every year - it's quite nice to see.

we've just changed back to repayment after 2 years at interest only. We had to switch, as our incomings just weren't covering the outgoings. We're much more financially stable now

I can't understand why people stay on them longterm, unless they're in VivaLeBeaver'ssituation and have someone telling them its all ok

ReculverTowers Thu 02-May-13 10:25:49

I suppose interest only and then selling asset at the end to cover is very similar to renting but with the advantage of a secure long term home

Yonihadtoask Thu 02-May-13 10:25:51

We have a 10 year IO mortgage. However it suited our financial situation - and we will have no problem in paying off the balance in 8 years. Our situation is/was maybe different from most - in that we had a lump sum of cash (approx. half the value of the mortgage) so we offset the interest against that £ sat in the bank.

Yes, there are people out there who don't understand the concept - but their banks have been lax in giving them this type of mortgage if they don't have the repayment vehicle in place.

In ten years time there will be a whole new "claim back your miss old IO mortgage" industry.

LadyBigtoes Thu 02-May-13 10:26:20

Given how many people don't think about a pension, I can see how the offer of having less to pay every month and not having to think about it until way into the future could appeal to buyers when prices have been so high - especially when banks were pushing it.

We were offered interest only/endowment and I said "no I want a straightforward repayment mortgage, otherwise I will just worry, I want to know it will be paid off." The bank person looked at me as if I was from planet zog and didn't have a clue. Like wanting to be sensible and on top of things was so lame when we could take a massive risk instead. hmm

Jaskla Thu 02-May-13 10:32:14

Some people don't understand the fact that they have an interest only mortgage.

I used to work in a building society and the number of people that got to the end of their mortgage term and had no funds to pay it back was unbelievable.

Some had cashed in endowment policies years ago and spent the money (they are not supposed to be able to do this if it is to pay off a mortgage but many have managed it).

We'd just have to extend their term and move it onto a repayment mortgage.

I always thought it strange how people could bury their head in the sand about such a large amount of money. It's not like they weren't advised of it every year via their statement.

The best was one man who rang up asking why he'd been paying £400 odd every month and his balance hadn't reduced.... I told him he had only been paying interest and his response was, 'well why are you charging me interest?' hmm

Badvoc Thu 02-May-13 10:34:12

My sis and bil have an IO mortgage.
They want to move desperately but can't as they bought at the height of the market and are in negative equity sad
It's mad.
Bil earns shed loads. He could afford the repayments on a repayment mortgage.
I agree with noddy...the govt will have to bail them out eventually.

Badvoc Thu 02-May-13 10:40:34

We were really pressured by our mortgage adviser to get an endowment.
For the simple reason he would have got more commission.
We said no.
We have only ever had repayment mortgages.
We have 3.5 years left on our fix ATM.
God knows what the IR will be then but as we don't plan to move it doesn't really matter.
I have worked out we can cope if IR go up to 10% but we will struggle if they go higher.

gloucestergirl Thu 02-May-13 10:47:56

I can't see the problems with IO mortgage as part of a range of options for people with different needs. Buy-to-let or people who want to live in a house for a long period of time, but are perfectly ready to sell to pay off the original loan. Seems sensible to me. Like renting but you get a house at the end to sell and hopefully you pocket some profit. Over a lonnnnggg period of time of course. Property ups and downs notwithstanding, housing will always increase in price in the long term.

slhilly Thu 02-May-13 10:51:42

In my view, the root problem remains that house prices are unaffordable. IO mortgages, like other subsidy approaches such as the government's latest schemes and the bank of mum and dad, only serve to make the problem worse, because prices simply rise further to take account of the additional money chasing not enough houses.

Ie it's not unreasonable for eg a family of 4 where the parents are average earners to aspire to live in a 3-bed semi. What's madness is that the 3-bed semi requires financial engineering or subsidy to be affordable.

Bringing house prices back to the point of sanity would require a land value tax, significant new house building, controls on overseas buyers (a major driver of the prime London market which drives the rest of the London market which drives the south-east market, ie ~20m+ people), regulated lending limits of say 3.5* earnings, etc. Finding new models of housing that suit the major shift in demographics (many more singletons) would also help, eg new types of apartment with more shared services.

noddyholder Thu 02-May-13 10:56:06

It is not like renting with a house to sell at the end! How do you know when to sell and what you will get? Where will you live next. It is actually not for long term but fine for short eg property developers or for maternity leave career breaks etc.If you know you are going to sell quickly it is fine in a rising or even static market as the capital doesn't decrease the 1st few years. Most banks aren't offering them now without very strict criteria. I agree house prices is the problem and this govt has just introduced a scheme which will keep them high and rising!

I don't understand this either. We took out an endowment in 1999. It was clearly explained that it might not meet the target amount. A few years later we took out another small policy to meet a projected shortfall. We now seem to vary between red letters and green ones but have agreed that we'll keep paying in to the existing policies but not add any more. Our endowment is £39,000. When we moved a few years ago we took out a new mortgage and most of that is on repayment with just 39 K as interest only. I think we had to show we had a 'vehicle' in place to repay it. In any case it matures in 9 years when dh and I should still have around 20 years of working life ahead of us so we're comfortable we can deal with what's atm likely to be only £1-2000 in shortfall.

Alwayscheerful Thu 02-May-13 11:04:24

We took out interest only because we purchased a property which required a fair bit of work, any time we had spare money we paid a chunk off, £5k or £10 k at a time, these mortgages are ideal for the self-employed or those who earn bonus payments at the end of the year. We were always aware of the outstanding balance but considered the improvements we made to the property were increasing our equity which meant we were in a similar position to someone one with a repayment mortgage. Yes we took an IO mortgage but we were responsible and always worked on reducing the outstanding balance but a tour convenience.

tungthai Thu 02-May-13 11:29:18

We switched to interest only after dh had to take a substantial pay cut when the recession first hit. We are only in a small property so couldn't downsize. We have been back on repayment for almost two years. The money we effectively lost by paying interest only for 5 years is staggering!

Lots of people on interest only thought their financial situations would change for the better but it hasn't turned out like that.

It's still better than renting though. If your financial situation improves at least you can switch to repayment without the hassle of applying for a mortgage. Lots of people who are renting have no savings and will need to be bailed out with housing benefit when they retire.

Acandlelitshadow Thu 02-May-13 11:37:53

I have long thought IO mortgages are a ticking time-bomb and a mis-selling 'scandal' in waiting.

Similar thing happened with endowments taken out in the 80's. We were fully aware of the risks when we took ours out and switched to repayment years early to make sure it was cleared when we had an amber warning on it.

There was a lot of coverage on the problem and efforts to alert those affected over the years. I can see the same thing happpening now with IO.

BarefootShirl Thu 02-May-13 11:57:40

I believe the problem is that some people really do believe that they should be able to get "something for nothing" and that it is somebody else's job to sort out their problems. They are probably the same people who have "injury lawyers 4u" on speed dial! It hardly requires a financial mind to realise that if you borrow money then you will be expected to pay it back but these people choose to ignore the issue because it's "inconvenient" and will then expect to be bailed out by us taxpayers when they can' afford it. Rant over.

Personally, we do have an IO mortgage but this was a considered decision based on the fact that we did not plan to move in short-term and our incomes (especially DH) are not predictable. Consequently we have been able to make some one-off repayments and the capital outstanding is reducing as we planned. So I appreciate IO is not best for most people but it is ideal in our circumstances.

noddyholder Thu 02-May-13 12:02:29

You cannot just 'switch' to repayment that easily. that is a problem atm a lot of people are not in good enough financial shape to qualify for repayment on their own loan! They are for the financially savvy not for getting your monthly payment as low as possible with no thought to the future. I have had a couple for house renovations as I knew 5 months max it would be gone but wouldn't entertain it for a long term family home

noddyholder Thu 02-May-13 12:03:08

I agree barefoot lots of people will try and 'blame' the banks for their own stupidity.

Poledra Thu 02-May-13 12:14:56

It's a real 'head-in-hands' moment for me, listening to the stories on the radio. I cannot understand how people don't know that they're getting into trouble - I had an endowment on the first house I owned. It's long since been sold, and DH and I have a repayment mortgage, but I kept paying the endowment as it'll come out at a nice time for us, and will still (just, we hope!) be more than I paid in. However, every year I get a letter from the insurance company telling me that the endowment will not cover my mortgage. I keep telling them I no longer have that mortgage but they're obliged, I think, to keep telling me. I guess the thing is that financial agreements can be so complex that people don't even try to understand them and just hope it'll all work out in the end.

I feel even more despondent when I see people with massive credit card debts blaming the banks for giving them the credit cards. No, take some responsibility, you took the credit card and ran it up to the limit, and then took another one and another one and another one... Who did you think was going to pay off all that money?

Mutley77 Thu 02-May-13 12:14:56

I think people are in different situations and you can't out and out rubbish interest only mortgages.

We have paid interest only for about 4 years (since our DC2 was born IIRC) just to keep our financial options a bit more open - and intended to start repayment when he returned to school but now I'm pg with DC3 shock and we have re-located and are renting the house out anyway so it is slightly different situation for now.

We have invested our money in different ways. So for example we spent £40K cash on a house extension (which has added that amount and possibly slightly more to the value of the house as confirmed before and after by estate agents) - in that sense we have used that money to up the value of the property rather than pay it off but essentially doing the same job when we come to sell, i.e. increasing the equity in the property. We are lucky that in our area house prices are still rising albeit slowly, so we are better off paying interest only than not owning at all.

We also invest £250 per month in a share save scheme through DH's work, which is really lucrative and tbh is money far better spent than paying off our mortgage - if we used this investment to pay off our mortgage we would do it quicker than if we had spent the money on a repayment mortgage.

Jaskla Thu 02-May-13 12:24:48

There are cases where IO is feasible but for most people it should be a last resort, for example financial difficulties, and even then the aim should be to get back on repayment ASAP.

Too many people are living in the present with no consideration about what they will do in 5, 10 or 20 years.

People are advised of the implications of IO - as others have said, endowment companies must advise customers regarding possible shortfalls, and mortgage providers must provide annual statements which come with all the FAQs that people appear to ignore until years down the line

tribpot Thu 02-May-13 12:27:52

We have IO because our capital is tied up in two other properties. One is a rental which is generating a small amount of income for DH and is currently in negative equity although with no mortgage. The other is my MIL's house, which my DH bought into about 15 years ago. Now that that house can be sold, I will look to move to repayment I think, offset by the capital I can plough in.

Lots of people did take them out because house prices would rise forever / it was cheaper than renting (which is possibly a valid argument in some circumstances) / they wanted the shiny house and it was the only way to afford it. I would not be surprised if this becomes a mis-selling scandal, and how any kind of clamp down is possible without the sort of re-regulation which is very unpopular.

twofingerstoGideon Thu 02-May-13 12:53:47

I have IO mortgage. It costs me approx £300/month LESS than renting the same property would. I now have approx £60,000 equity in the house. I got an IO mortgage because I couldn't afford a repayment mortgage and didn't want to keep paying high rent and having to move at the whim of a landlord. Because I did this, my DD has been able to stay in the same area/same schools, etc. and I have not had to fork out moving costs every couple of years.

There are lots of outraged people on this thread talking about irresponsible borrowing, but IMO people do what's best for them at the time. They are not necessarily irresponsible or stupid.

I've provided my DD with a stable home for the past ten years and 'earned' some equity. So shoot me.

lljkk Thu 02-May-13 13:13:20

The people most in trouble now took out their mortgages in the late 80s & early-mid 90s; there was a mis-selling scandal with compensation paid out and all, iirc. In 1998 DH came home from some bank meeting saying how we should get an endowment mortgage & I had to slap him around the head because even I knew they were too risky, but it wasn't as well publicised before mid '90s.

In 2007 colleague of DH & his fiancee bought a newbuild house (a mere flat would be too small for 2 of them hmm) on IO mortgage. They promptly got married in big wedding, went on Honeymoon, bought a vintage vehicle to restore & a superduper £2000 entertainment media system. All the while saying that they would worry about investing capital to pay off the mortgage later. I often wonder how that's turning out.

SmellsLikeWeenSpirits Thu 02-May-13 13:22:14

How can it be in negative equity if its got no mortgage?

CogitoErgoSometimes Thu 02-May-13 13:25:35

I don't think there's any suggestion of bailing anyone out. I see today's 'news' more as a profile-raising exercise.... a shot across the bows.

Ledkr Thu 02-May-13 13:29:25

I had useless endowments anyway so when dh fucked off with ow I stopped paying then as it was the only way to be able to make the mortgage payments on my wages. I cashed in the endowments and paid what little it was off the capital.
I pay interest only now and it's very little but I do know that as soon as possible I will need to sell up and downsize massively.
Nit a very secure situation to be in.

eminemmerdale Thu 02-May-13 13:30:21

We have IO - we wish we hadn't but can't afford a repayment right now but are in an area where house prices are absoluley riciculous and have equity of over £100K, so to be honest, if it's keeping us financially ok to 'live' we are not ever so worried - however, in June we are changing to one where we can pay a little more as nd when we can.

AnneElliott Thu 02-May-13 13:46:58

We had a salesmean try to sell us an endowment mortgage when we got out flat in 1998. He sat at his desk with his feet on the table and guaranteed that the endowment would pay off the mortgage and show us a profit. Sadly he declined to put that in writing and we informned the bank it was repayment all the way for us. We also got stared at as though we were mad... Receipie for mis selling if ever I saw one. Thankfully even at 19 I could tell that was a risky option and kept well clear.
My DB is on an IO and they are in negative equity. Have no option of moving or going onto replayment so stuck where they are.

minibmw2010 Thu 02-May-13 14:01:56

I'm glad to see that people here seem switched on. I've never thought IO is a bad option, just a risky one, hopefully it's not as bad a situation as the news stories are making out.

For me having an IO mortgage with no means to repay capital at the end of the term is bizarre. However, I can see that there is a place for IO mortgages in some circumstances.

We bought our house 3 years ago and it was a bit of a stretch. about 20% of our (massive) mortgage was IO. Since then we have overpaid and reduced the IO bit down a lot. Recently we also got a significant redundancy payoff and paid off some more. So, we no longer have any IO. If you can predict windfalls like that, or the ability to pay off some of the loan, IO may make sense for some.

K8Middleton Thu 02-May-13 14:12:25

We have one. It suits us and at some point we will switch to a repayment mortgage. We used to save into investment ISAs but stopped when I had first dc. We have some cash savings but want to be able to access them in an emergency (unfortunately we can't offset with current mortgage co).

But, we took out the mortgage at the beginning of our careers and quite young. We will probably move and so extend the term again making a repayment mortgage more affordable. Dh alone already earns what we both did when we took out the mortgage.

The other plan is to start paying off the capital when I go back to full time work. I will also start paying into my pension again. We're both under 35 so plenty of time to review and renegotiate when we're likely to be working until 68 or whatever.

We both worked in financial services so we're very clued up but I know some who are not.

Grammaticus Thu 02-May-13 14:21:22

Let's of the people who now say they don't understand just chose the cheapest option and turned a blind eye to the consequences. They've all been getting red letters for over ten years, if they've chosen to ignore them then that's their problem. Some people don't open their bank statements, I don't see how that's my problem either. Greed and stupidity - that's all.

noddyholder Thu 02-May-13 14:24:02

Agree grammaticus I can't bear the thought of the rest of us somehow paying for this in future under the guise of mis selling hmm

DewDr0p Thu 02-May-13 14:33:11

We have an IO mortgage and I am perfectly financially savvy.

It was repayment but when dh was made redundant and then set up his own business IO was a pragmatic way of keeping our home and reducing our fixed outgoings in the short term. I'm not too worried about it as our mortgage is relatively small both in terms of ultimate earning potential and the value of the house.

While interest rates are so low it literally isn't worth paying off the mortgage and effectively tie up that money, much better for us to save what we can into an instant access account and have that flexibility.

Obviously we are hoping to return to a repayment mortgage at some point in the next year or two.

ReculverTowers Thu 02-May-13 14:40:52

I can't see how anyone else will be paying for it but I rent, so i am paying for someone elses future instead (my landlord who is a multi millionaire) and it is like renting but with security of a long term home. If you don't understand why someone might do that then you most probably have not had to leave your 'home' with your family every 6 months of their life

pmgkt Thu 02-May-13 14:46:42

Io is not always bad, I have one on a rental property and on my own home, and I used to sell mortgages so know what I'm talking about. There can be many reasons for having one, from sheer need, to inheritance, or other lump sums. Mine is due to se, so irregular income. If you want to be totally failsafe (which seems to be what most people here feel is right) then you would have taken a long term fixed rate repayment when rates were at lows of about 4%, but people who took that 'risk' are now pounds out of pocket. I agree a lot of people don't understand or don't have any idea how to repay them, but others are taking a calculated risk. Anyone who has been paying into investment plans during the stock market crash, will have had great growth on that money in the last 6 months. If that happens a few more times then they will be able to pay off early, or get money left over and then people on repayment will look silly. As a long term solution I think the banks will just let them reset their terms over another 25 years, and just settle it from sales or estates on death. The banks won't care as long as they earn interest on that money. And if they force sales as the legal costs are high, and tend to get less than market value, so why bother. Hope that makes sense.

tungthai Thu 02-May-13 14:55:31

I'm not sure there will be a mis-selling issue with IO mortgages. We were advised against taking one out and received letters advising us to ensure that we were making provisions for paying off the mortgage.

DoingItForMyself Thu 02-May-13 15:03:11

My plan is to sell the house as by that time I hope the children will have moved out and I will not need such a large house.

Even with interest only, the mortgage is about half the price of rent round here. I can't afford repayment or to pay into an endowment etc so this is the cheapest way for me to live in a house. That is why.

eminemmerdale Thu 02-May-13 15:08:57

It is a bit unkind to assume people who have them are a bit thick about money! We're just in a position where it is the way it is! Hopefully, by the time it ends, the children may want to take it over or we will sell, make some money and get somewhere cheaper, or things will have changed and we will have been repaying.

OliviaP Thu 02-May-13 15:12:34

As many have said, I think it is a mixture of wanting to be a homeowner mixed with a misleading sales pitch that makes people sign their lives away so easily. Add to that the fact that you don't have to worry about it for 25 years means you can put the thought of paying out of your mind for a very long time. I think they should try paying with these messed up new Churchill £5 note

racmun Thu 02-May-13 15:14:06

It's the next mis selling scandal waiting to happen.

I think that it really helped fuel the boom in property prices by making 'unaffordable, unrealistic prices' dare I say it affordable.

For example go back say 9 years when I first bought a house things were really booming. We couldn't afford full repayment so we went interest only- it was the only way to get on the property ladder. If that hadn't been an option to us and many thousands of others we wouldn't have been able to pay that price for the house and the market would have had to naturally correct surely? (I'm not an evonomist btw this is just my simplistic view). You didn't even need a repayment vehicle.

I reckon there is probably about another 10-15 years before the shit really starts to hit the fan and like someone else said the tax payer will probably shoulder the brunt of it.

Ledkr Thu 02-May-13 15:15:00

Hang on! How will anyone else be paying for anything?
I do not for one tiny second expect anyone to bail me out I don't even know that's possible.
Have you read any if the reasons people ended up with these mortgages or is it just easier to throw out wild accusations of stupidity and entitlement.

BoffinMum Thu 02-May-13 15:18:45

If you have your head screwed on IO is a great product that really gives you good leverage on your investments. It's not good if you are sentimental and only have one house.

louschmoo Thu 02-May-13 15:23:08

We have an IO mortgage. We got a spectacular interest rate as our mortgae advisor was amazing. So instead of repaying every month to the bank we invest the money instead via DH's work sharesave scheme and ISAs and other investments. These generally operate at a higher interest rate than our mortgage, so we should either be able to repay the balance early, or repay at term and have money left over. We also have a fair amount of equity in the house so if worst comes to worst we can sell to repay. Totally agree that it is worrying if people have IO mortgages with nosolid repayment plans.

BackforGood Thu 02-May-13 15:27:57

It would be totally wrong for tax payers to bail out anyone. I took my first mortgage out as an endowment in 1990, and have been bombarded with letters telling me it won't meet the original predictions. The whole issue has been all over the press at regular intervals for 15 years. If people chose to spend all the money they saved from the interest rates on those mortgages coming down from 15% to about 2-3% they are now, on something other than paying off some of the capital repayments from their mortgage, then that was their choice. No-one can genuinely claim not to know that they will have to pay for the lump sum at the end of it somehow though.

flossieraptor Thu 02-May-13 15:36:13

I bought my London flat on a 100% mortgage, 5x my salary including a top-up loan in 2004, so I imagine I'm one of those people getting called stupid. It went up in value and I sold it last year keeping 125k profit which I invested elsewhere because by then I had got married and my financial set-up had changed.

My mortgage adviser recommended I buy somewhere that needed doing up so I could get the very most for my money and put the money I had saved for a deposit into renovations, then get it revalued, new mortgage deal etc.

I did well out of it but the mortgage company were insane to lend to me in that way (yes, Northern Rock, no longer lending) because with no investment in the property I could have walked away at any time, as has happened a lot in the US. I escaped negative equity, but having lived through the early nineties crash, I would just have hung in there, rented it out (oh yeah, 2400 per month, not a bad business).

Yet now DH and I have a 40% deposit ready and waiting but NO-ONE will lend to us. Unless we pretend it's a buy to let of course. Lenders are a bit of a joke if you ask me.

Lazyjaney Thu 02-May-13 15:50:39

IO isn't always stupid, it's very rational in high priced areas like London as private rental is expensive and unreliable, so you get something better and more stable for the same outgoing. If prices rise, you get the benefit and not the Landlord. If not, you've had a better deal renting from a bank than a landlord.

If you do it early in your career so much the better as salaries rise you can pay more off.

The only real risk is if prices fall, you get stuck with negative equity and you have to sell in that period. I know people who had that happen in the late 80s crash, they declared bankruptcy and are fine now.

The government, FSA etc saw what was happening in the noughties but let it happen.

noddyholder Thu 02-May-13 15:52:02

flossie why will no one lend to you with a 40% deposit?

Lazyjaney Thu 02-May-13 15:52:44

The disparity between buy to let and owner mortgage deals is odd, IMO buy go let is a scandal waiting to happen.

noddyholder Thu 02-May-13 15:54:47

ledkr you may not expect and many others BUT if the problem becomes too big the govt may well implement some sort of scheme or label it mis selling in order to 1.Garner votes and 2. avoid mass repossession/homelessness! Most people aren't talking about those who are finance savvy and can see the short term benefits of IO more those who have a long term family home with no way of paying the capital at the end. You can extend the term with some banks but that depends on your circumstances and age etc

Fluffy1234 Thu 02-May-13 15:55:26

I've got 75% of my mortgage on repayment and the rest on IO with an ISA to pay it of. Because I have an excellent rate of 0.18% above Bank of England rate Ive halved the years to repay the larger part of the mortgage to make the most of the low rates. Can't see the problem myself.

flossieraptor Thu 02-May-13 15:57:15

Hey Noddy (met you at the brighton meet-up!), DH is a professional gambler. Successful. Noone will touch us and we have investigated every avenue. We both have spotless credit records too and can evidence DH"s income. We have now bought a little flat in cash as a btw and in six months we will be able to get a btl mortgage and take it from there.

flossieraptor Thu 02-May-13 15:57:59

Most IO mortgages allow you to pay off up to 15k per year as well.

K8Middleton Thu 02-May-13 15:58:12

Remember these are secured loans so no bailing out... you sell the asset.

SmellsLikeTeenStrop Thu 02-May-13 16:12:21

The house we're currently renting has an interest only mortgage. There is no equity left in it because it was re-mortgaged early 2008, just before the financial crisis. Our landlord's (who is also my MIL) cunning plan was to transfer the mortgage over to us by first putting our names on it and then taking hers off - thus leaving us trying to find eight odd thousand pounds in just over 15 years.

We're not doing this btw. We're about to move in to our own home, with a standard repayment mortgage.

Oblomov Thu 02-May-13 16:22:53

Anyone who claims they they don't know what is goin on is living in cloud cuckoo land/ head in the sand.
We all aprreciate that IO mortgages may have been mis-sold 10 or 20 years ago.
But for the last 13 years, we have been told about the problem. Again and again.
If you have recently taken one, because it suits you , post pregnancy, for a short period of time, till your childcare costs reduce, that I can TOTALLY understand.
But claiming ignorance on any other level, when it is all over the press, on money programmes, everywhere, begars belief.

miemohrs Thu 02-May-13 16:26:47

Message withdrawn at poster's request.

miemohrs Thu 02-May-13 16:29:42

Message withdrawn at poster's request.

alemci Thu 02-May-13 16:39:42

Mine finishes in 3 years'. i expect the endowment/PEPs to pay some of the mortgage off but we overpay our mortgage every month and have an offset.

I hope to pay more off now that the interest rates will be lower (have been stuck in higher 5 year fix when things were different).

If we still owe some still it will be only a small amount and we are still in our forties so am not too worried

noisytoys Thu 02-May-13 16:48:15

This is why me, DH and 2DDs live in a small 1.5 bed flat. I would rather live cosily in a flat we can afford a repayment mortgage on than have somewhere bigger and more comfortable but not be able to truly afford to live there. Other than exceptional circumstances IO is bonkers.

Salbertina Thu 02-May-13 17:03:15

Yes - if we cant eventually pay off then will downsize to cover repayment. Would still be able to afford a repayment mortgage on reasonably sized family home should we need to do so, Interest we've been paying is less than monthly rental for equivalent would have been so could be much worse.

Tailtwister Thu 02-May-13 17:22:06

Out first mortgage was interest only with an endowment. That was in 1997. When we moved a few years later we changed to a repayment mortgage. There's no way the endowment was going to cover it, even back then.

Maat Thu 02-May-13 17:26:12

We took out an interest only plus endowment policy on our first home in 1989. At that time, they were seriously missold. Promises of paying off your mortgage plus £££'s extra when they matured.

However, we've been receiving letters warning of the poor performance for approximately 10 years. I had no idea people were still being offered them well into the late 90's.

We moved house and effectively started again with a repayment mortgage. I will be retirement age before it gets paid off.

We kept on the endowment policy but it's no longer tied to the mortgage. It is looking like it will pay out about 50% of what our original house price was. It's going on student fees. sad

SweetieTime Thu 02-May-13 17:43:22

I work for a large bank and they are worried about the number of interest only mortgages on the mortgage book. It could be another banking crisis waiting to happen.

skrumle Thu 02-May-13 17:47:56

we are IO and overpay as and when suits us - have paid less interest as a result and are on track to be mortgage-free well before we would be on a repayment scheme. we did initially take it out though because interest rates were so high we couldn't afford repayment.

i agree with comments above that the risks are now very clear, and the problem is not IO mortgages but irresponsible borrowers.

We were interest only at first purely as we'd gone from renting to mortgage and wanted to be sure all the bills etc were sustainable. We changed to repayment in less than a year, and it only increased the monthly amount by about £50.

However, we were so young when we took it, the loan term was about 40 years and as such we are only paying off about £500 a year.

expatinscotland Thu 02-May-13 18:14:08

'This is why me, DH and 2DDs live in a small 1.5 bed flat. I would rather live cosily in a flat we can afford a repayment mortgage on than have somewhere bigger and more comfortable but not be able to truly afford to live there. '

Yet you, and people who rented because it made poor financial sense for them to so-called 'buy', may be called on to bail out those on IO mortgages who then have no way to pay up when the principal comes due.

Personally, I think there should be no bailout for this.

We had one when we started out - but we made maximum overpayments on it whenever we could. We made significant inroads on the capital without overstretching ourselves. Mind you, that was in 2004 when banks were falling over themselves to give you an attractive mortgage.

Having a mortgage you can comfortably afford, and making overpayments when you can, is more financially prudent than having a mortgage you can only just afford.

Salbertina Thu 02-May-13 18:22:01

I agree there should be no bail out, we chose IO and up to us to sort out any future problems.

pickledginger Thu 02-May-13 18:23:21

It was common knowledge that these were a bad idea by the late 90s.

Yes I agree about the bailout.

And now that I think about it, ours was IO for the first three years, then repayment. IIRC we shaved six or so years off the term in those three years, by overpaying what felt like small sums.

Cremeeggsandspam Thu 02-May-13 18:49:33

Iinterest only mortgages can be very sensible indeed if hiu are sensible. We have one and pay monthly amounts into our choice of investments that we can pick and choose to get the best return rather than the mortgage companies choice. We then pay off large chunks of mortgage every 3 years or so reducing our mortgage repayments and therefore increasing the amount we can afford to pay into our own investments. We are not all burying our heads in the sand!

Bowlersarm Thu 02-May-13 18:56:31

We have been on a fantatic IO mortgage rate since 2007 and is for the life of the mortgage, about another 12 years to run. It tracks the base rate. We have got quite a bit of equity

It works for us because (1) to rent a similar house would cost us anout £1800 extra to rent per month (2) we can overpay - and we do overpay every month in fact - as much or as little as want, there are no restrictions (3) at the moment all our spare money goes on school fees. As soon as they stop we'll throw extra money at the mortgage and will be close to paying off the debt by the end of the term (4) if we are unable to clear the mortgage when it finishes, the kids should be off our hands, after growing up in a lovely family home, and we will be able to sell and downsize.

It works for us.

I do agree though that they were sold to people who are too naive to understand the implication of having an IO mortgage. And that strict vetting should be in place in the future.

chillinwithmyyonis Thu 02-May-13 19:07:02

How is it different to renting or living in a council house all your life? I think most of the 'shocked at the irresponsibility' posters have never had to pay through the eyeballs in rent... IO seems like a sensible alternative.

Salbertina Thu 02-May-13 19:12:51

Exactly- its a v British obsession this need to be a homeowner, in many other countries most people aren't and manage fine.

pmgkt Thu 02-May-13 19:13:10

Why will there need to be a bail out, why can't they just continue to pay interest to the bank. That's what happens abroad, the debt gets passed down with the estate.

Idreamofjeanie Thu 02-May-13 19:36:17

IO mortgages are fine if your eyes are wide open - we have one without an endowment and the paperwork came with so many warnings I don't understand people who say they didn't know what they were getting into. In my case my pay is heavily reliant on bonus (approx 40% of total comp) so we wanted to keep monthly outgoings low. When the bonus comes in, pretty much all of it goes as a lump sum towards paying off the mortgage - in this way we end up paying more of the capital than we would have done with a repayment mortgage, but with flexibility in case there's a bad year.

MousyMouse Thu 02-May-13 19:36:37

in other countries there ar not as many unscrupelous/accidental/clueless landlords.
in germany for example most rental properties are owned by companies and tennancies are much more secure (for both sides) and much more regulated. + banks there do not lend so easily to people.

Viviennemary Thu 02-May-13 19:40:19

I can see some bail out plan ahead like mis-selling. That will be the way it will be dealt with I think.

greenfolder Thu 02-May-13 19:43:10

we have a repayment mortgage, over the shortest period we reckoned we could pay it off. this is because we know that we are not responsible enough to save as we go along.

however, i would rather io than rent anyday

littlebillie Thu 02-May-13 19:45:56

There shouldn't be a bail out. If you spend instead of save on a IO mortgage, you are deluding yourself.

I have IO, we are on 0.95% above Bank of England base rated and have planned to pay it off very soon. However deposit accounts are higher than what we paying, so our deposits are subsidising our income.

littlebillie Thu 02-May-13 19:47:30

I meet people about once a month who are earning £20k and have £50k on credit card and an IO mortgage. It is very sad how these things can get out of control.

goodasgold Thu 02-May-13 19:53:52

The endowment misselling scandal has been and gone. There was no government bail out, the banks that missold put customers back into the position they would have been in if they had taken out a repayment mortgage at the same time.

This taught the banks not to missell loony mortgages. It was all 'buyer beware' in the early 2000s. If you have an IO mortgage taken out in this century your loan agreement will clearly state that you are responsible for repaying the lump sum at the end of the fixed term.

IO mortgages are good for people who will be moving and selling in a relatively short period. At the beginning of a repayment mortgage most of the payments are towards interest. If you are planning on buying somewhere and then moving within 3 years IO is cheaper. If it's not your family home it could work too, the rent earned could be a lot higher than the interest only repayment creating an income for investing, or to cover periods of lower income like ML.

The only problem is if you invest in equities to pay off an IO loan and a sharp fall in equity prices coincides with a reduction in lending (2008) so you have an asset that is difficult to sell and a repayment vehicle that is valued at its lowest point.

The mortgages are time sensitive. Nobody can safely say that when their mortgage comes to term their investments will cover it, just like we can't say how much annuity our pensions will buy.

timidviper Thu 02-May-13 19:56:28

I don't think there should be any bail-out as it has been very widely known for many years that there is a risk with these mortgages. In fact I will go further and say I will be really angry if I am expected to contribute to bailing folk out due to ignorance or irresponsibility.

We took an IO mortgage and endowment policy out in the mid-80s as it was the only way we could afford to get onto the housing ladder. In the 90s we moved house and it became clear that the policy might not pay the full balance so we switched to repayment. That was 15 years ago so this information is nothing new.

Some people are buying properties they could not otherwise afford by using IO mortgages. If 2 people are buying houses, one buys sensibly with a repayment mortgage, the second buys a larger, more expensive house on interest only then why should we, as a society, be expected to bail out / contribute to the profits of the second. They have had the benefit of living in a nice home and will, presumably, over 25 years, have made some profit. A bailout is a stupid idea.

littlebillie Thu 02-May-13 19:56:35

Just reading on statistic about Critical Illness cover only 35% have it the country.

Only 20% of women even have it.

What happens if you or your DP is really sick?

workingnomad Thu 02-May-13 19:57:54

A friend of mine has an interest only mortgage with no way of paying it off in a few years. They are already looking at claiming mis-selling in the hope that at the end of the mortgage they will get to keep the house.

peacefuleasyfeeling Thu 02-May-13 20:01:30

I've only read pages 1,2 and 5, so apologies if this point has already been made, but is it not the case that 90% of borrowers with IO mortgages are deemed "on top" of their endowment policies? That it is only 10% of IO borrowers are heading for a projected shortfall? At least that's what they said on The Today Programme this morning. That seems to suggest to me that 9 out of 10 people are sufficiently financially literate and have had no problems at all with "getting" the concept of what an IO mortgage entails, and hopefully even use it to their advantage. That makes me think that the question of a bail-out just cannot be seriously considered. If 9 out of 10 get it, it can't be rocket science, surely?

ProphetOfDoom Thu 02-May-13 20:10:16

Message withdrawn at poster's request.

goodasgold Thu 02-May-13 20:14:20

I'm happy to tell you what I would do in your circumstances, but I'm not a licensed financial advisor. So it would be 'if I were you' as a mate rather than professional advice.

Merguez Thu 02-May-13 20:21:37

We took out an interest-only mortgage on the premise that it's relative value would be eroded by house-price inflation, and when we came to the end of it (or hit retirement/kids left home) we'd simply downsize - our LTV is about 50% and its quite a big house.

Of course that hasn't happened and we've now got 12 years left, should be able to pay it off with ISA investments and a good following wind...

ProphetOfDoom Thu 02-May-13 20:26:05

Message withdrawn at poster's request.

Dededum Thu 02-May-13 20:27:46

We have a part interest only mortgage, we are overpaying to cover the amount that we would need for a repayment mortgage. When we pay off the repayment section 5 years early we will then continue to overpay until the interest only section is gone. At the time it was the only way we could afford the house.

Nobody ever checked we had a payment plan.

mizu Thu 02-May-13 21:29:43

Couldn't agree more noisytoys. When we are eventually able to buy - who knows when, it has taken us a year to save £5,000 - we will be buying a small house for us and 2DDs or even a flat. And once we do buy, that will be it, a house is a home and all that.

nellyjelly Thu 02-May-13 21:34:08

I have an IO with 2 endowments on it. Taken out in 1993 and 1998. Converted to part repayment a while ago but will still have a shortfall of around£13000 when mortgage ends in 3 years time.

I am seeking financial advice but expect to just take out another mortgage at the end of the current term. I luckily have alot of equity in the property. We plan to move in around a year anyway so will get a new mortgage then anyway.

I got the endowment at a time when they were really being pushed. Made sense at the time when there were high interest rates. I was given a lump sum for miselling and paid some of it off with that.

I don't expect a bailout. Not sure why anyone would think that likely.

goodasgold Thu 02-May-13 21:34:18

From your figures Schmaltzing, I would continue the endowment, but if your finances allow convert the whole of the mortgage to repayment. In an ideal world, then you have all outcomes covered and get to keep your home.

I expect that if you cash in your endowment now you would be hit with penalties.

I think its great that your mortgage is so low compared with the value of your home, it could be a hell of a lot worse.

As a mate I would say, convert all of your mortgage to repayment and keep your endowment. If you are near retirement age or on a very restricted income it may not be possible, and then I would try to be aware that it would be good to save in cash as much as possible to meet any potential shortfall of the endowment. There might not be a shortfall, keep your eye on the statements.

If you sell up anytime now between the 2021 maturity, you can pay off that mortgage with the proceeds of your house, continue the policy that matures in 2021.

I don't know how old you are or what your income is. These would both be factors that could make a big difference. Unfortunately the younger and richer you are the better, but nobody needs to be told that.

What I would do personally if I was on a restricted income or approaching retirement age would be to ensure the roof over my head and clear all debts.

Sorry if my advice seems really general, its just what I would do, to protect my home and my family.

ShadowStorm Thu 02-May-13 21:36:10

I guess interest only mortgages have their place if people go into it with their eyes wide open and have a payment plan, but I've heard plenty of bad stories in the media about them.

I know a few couples who started out with repayment mortagages, but switched to interest only when circumstances changed. Presumably most, if not all of them, plan to switch back when circumstances allow.

The worst one I came across was a young woman whose payment plan consisted of counting on her parents to die and leave her lots of money to cover the capital on the mortgage before the end of the mortgage term shock

I also don't think that there should be a bail-out - AFAIK, the risks of interest only mortgages have been widely known and highlighted for many years.

Talkinpeace Thu 02-May-13 21:51:56

Until 1979, mortgages could only be offered to people who had an existing relationship with the lender and lending ratios were tightly controlled.

In 1981, Margaret Thatcher and Nigel Lawson deregulated the market to allow fresh sales of mortgages.

With the "Big Bang" in the early 1980's mortgages other than repayment were permitted, and with interest and return rates at 8% a year and companies taking pension holidays and huge up front fees for salesmen,
endowment mortgages rapidly took off and created a housing bubble

- lenders eased multiples to allow greater up front fees.

The party went on even as rates began to fall.

Then in 2004, Gordon Brown relaxed the rules to allow interest only mortgages with no repayment vehicle
and the bubble inflated as people looked at what they were servicing on the debt rather than what the true value of the debt was.

House prices rose because the fees made by everybody involved in the sales side were front loaded to the value of the house.
THe sooner borowing controls are brought back in to deflate the market the better.
and yes, a lot of current "owners" will discover they were actually renting.

PS I have an IO that ends in two years : but the balance will be nil by then because I understand the maths ... see link on site stuff

Talkinpeace Thu 02-May-13 21:53:08
ProphetOfDoom Thu 02-May-13 21:55:06

Message withdrawn at poster's request.

Bowlersarm Thu 02-May-13 21:58:49

ShadowStorm when we took out our IO mortgage (it is fine for us as per my earlier post) the mortgage providers weren't interested in how we would be paying it back. We told them 'inheritance' as one of our methods of paying it back and that was absolutely fine as far as mortgage company was concerned. They needed no proof or figures, just our word

badguider Thu 02-May-13 22:00:18

Surely with an IO mortgage if you need to pay it back you just sell the house and rent somewhere to live?

They shouldn't really be in negative equity if the bank has set a reasonable loan to value ratio. If they are in negative equity then it might be a shared responsibility between the bank and owner... I mean, after 20-25years surely the value of any property should have increased? (unless flooding or subsidence or another 'big' issue). Certainly in the city I live in no property has gone down in value over the last 25years taken as a whole (prices now are about equal to 2003).

Talkinpeace Thu 02-May-13 22:08:44

Over 25 years, prices have indeed risen.
Has everybody in your street lived there that long?
Or have any of them bought within the last ten years when LTV rose to as much as 110% on an IO basis
THOSE people are facing negative equity.

I have a client still paying off the negative equity on a house he gave up in 1995.

ivykaty44 Thu 02-May-13 22:11:49

for some people IO will not be a problem though as they may have purchased the property when it was cheaper, the house goes up in value and they live there paying a low payment whilst there families grow up. Then there families grow up and leave home - so leaving possibly two bedrooms empty.

Now they are nearing the end of there 25 term and they can sell up and make a profit - then use that profit to buy outright a much smaller property, as they don't need a lot of space any more.

So they had cheap rent from the bank for a larger house - then buy a property with the profit and can retire in that flat/house whatever.

badguider Thu 02-May-13 22:13:30

But if somebody bought their house in the last ten years surely their mortgage lender won't ask for the money back for another fifteen years?

Or are lenders just deciding in the middle of the loan term to demand the money back immediately?

ivykaty44 Thu 02-May-13 22:14:18

the frist property we had was 25k - we had an interest only mortgage - that property is now worth £140£150k, I could certainly find a flat to move to worth 100k or there about, which would mean that if we had stayed int he first house with an IO we wouldn't be in trouble when 25 years was up

firesidechat Thu 02-May-13 22:14:53

When we took out our first mortagage we had to have a repayment method in place (endowment) and not sure why they seemed to stop making that a requirement. It seems to have left people in a right old mess.

As soon as we realised the endowments wouldn't cover the mortgage we switched to part repayment and will be mortgage free next year. Yay! In fact the endowments haven't done so badly after all and may have a bit of cash to spend too.

Not sure I could sleep at night with an IO mortgage and I do realise that we were fortunate to be able to afford what we did.

What do people do if they can't sell off their houses to pay the mortgage?

Talkinpeace Thu 02-May-13 22:17:28

what if they need to move for work or children or anything like that?

what if - like the bank of Ireland customers this week - the mortgage rate on the loan hikes up so you can no longer afford the repayments

very few people under the age of 40 stay in the same house for 25 years

badguider Thu 02-May-13 22:24:25

I guess I just don't really have much experience of negative equity, I have always been in a position where I could sell and at least break even on what I borrowed (maybe because I put in a reasonable deposit to start with).

I bought when the market was highish and then married dh and had to sell after the crash but although it took 6 months I still broke even (just). I guess I have been lucky.

I have also always chosen the type of house/flat that doesn't depreciate much (old and traditional rather than newbuild).

MonkeysTypewriter Thu 02-May-13 22:26:49

I took out mine (with an endowment) knowing full well the risks, but given I was 25 and was in a position where my salary would definitely increase substantially, I figured that the future risk was worth it for the smaller immediate payments and getting on the housing ladder (this was '98 or '99).
The endowment payments went up a few years ago, but it is on track. When I moved house 5 years later the new part of the mortgage is repayment. The endowment matures 5 years before my current mortgage, so if a shortfall does arise I have some time (plus will still be some way off retirement). My current mortgage plus endowment payment is less than it would be if 100% of my mortgage was repayment.
I would not get an IO mortgage again but I stand by it being the right decision at that time for me.

goodasgold Thu 02-May-13 22:27:23

No its only a problem when the investment vehicle (endowment, cash, some other equity plan) is at a low when the term of the mortgage is due. At that point you have to redeem the lump sum. If it's a property you can sell easily then great, if it comes at a time where house sales have slowed then it's not. It's certainly not elevated economics to think that a slump in house sales might follow a dip in equities.

Anybody would be fine in an interest only owned property, as long as they had the cash to redeem the mortgage, or it was a buy to let or a short term buy, or you don't give a shit about being able to live there after a fixed term. If its your family home then there has to be a proper means of paying back the loan, either a repayment mortgage or a shit load of cash from another source.

Talkinpeace Thu 02-May-13 22:28:21

My brother was in negative equity following the 1993 crash for ten years : he rented out the flat and sat and waited.

Being trapped in a house you can no longer afford is utterly horrible for those of my clients it affects.

You also have the problem that people like me - who bought 17 years ago - could not get a mortgage to buy my own house today because of its increase in "value"

Talkinpeace Thu 02-May-13 22:30:02

but for six years, interst only mortgages were sold with no repayment vehicle : the only way to pay off those loans was going to be rising house prices ...

We have an IO mortgage. We are well aware that it's just renting from the bank but it costs us £500 a month less than renting from a landlord, we can do what we want to the place without having to ask permission and we will get back any investments in improvements to the property when we move. We don't plan on being here long, and fully intend to take out a repayment mortgage on our next (long-term) house.

They do seem very risky as a long-term option. Our Building Society sends out regular letters reminding us that we will still have the full amount to pay at the end of our term. You'd have to be seriously stupid or in denial to not know that you will lose your house if you can't repay.

ShadowStorm Thu 02-May-13 22:32:30

badguider - the mortgage lender won't ask for the money back until the end of the mortgage.

But if someone bought at the height of the property market and is in negative equity, then they're not in a good position if they need to sell the house for whatever reason.
Especially if they've got an IO mortgage, because at least with a repayment mortgage, the amount of money you owe the bank gradually decreases, so eventually you'll repay your way out of the negative equity.

MsVestibule Thu 02-May-13 22:42:49

We bought our family home 3 years ago on IO; I'm currently a SAHM while the children are small, but plan to go back to work some time soon and will start making overpayments. Our LTV is 46%, so we have a lot of equity.

I wanted to buy our 'forever home' while the children were small. We could have actually afforded to buy a small 3 bedroomed house outright, but I didn't want to live in a tiny house when we could afford to live in a far more spacious one. My view it that we're renting it from the bank for an awful lot less than a private landlord, plus we have the security that we won't be kicked out with only 2 month's notice.

Worst case scenario is that we don't pay a penny off the capital, and house prices remain exactly as they are now - if that does happen, we will sell the house when we retire and still have enough equity to buy a small house outright. It could be argued that people who rent, never save a penny in pensions or otherwise, then rely on the state for housing benefit when they retire will cost us all a lot more money...

SueDunome Thu 02-May-13 22:43:29

IO mortgages have been around for a long time and they used to work effectively.
My parents took out their £4k mortgage in 1970, a huge amount for them at the time. It was an interest only mortgage backed by an endowment policy.
The endowment policy paid off the mortgage at the end of the term, with bonuses. I remember that, in the last few years of the mortgage term, they could easily have paid it off but they kept it going because otherwise they would have lost out on the final bonuses.

goodasgold Thu 02-May-13 22:44:17

Talkinpeace the buyer was always made aware of that. I took a mortgage, well two in the 2000s and I knew that my loans were repayable by me.

I bought a flat with the intention of selling it, on an IO term. I absolutely understood the terms of the loan and when the lump sum would be repayable, but because it was a short term buy by us we knew that IO was cheaper for us. When we bought our 'forever home' two years later we went for a repayment mortgage.

No repayment vehicle does not mean that they are missold. I would be very surprised to see a missold mortgage post 1987. The banks paid out on those, I expect they tightened their contracts post probably 1987. If anybody has to hand a bank loan agreement I expect it would say that the borrower has to repay the lump sum on the term of the loan in very clear English.

MsVestibule Thu 02-May-13 22:53:04

I would be very surprised to see a missold mortgage post 1987. Not true, Good. I bought my first house in 1990 and it wasn't even hinted to me that that my endowment policy wouldn't cover the loan. (In fact, I wasn't even offered a repayment mortgage.) At that point, many people were still making ££££ in profit on their policies. I'm not sure when the misselling scandal came to light, perhaps the mid-nineties?

ihategeorgeosborne Thu 02-May-13 23:01:51

"^It could be argued that people who rent, never save a penny in pensions or otherwise, then rely on the state for housing benefit when they retire will cost us all a lot more money...^"

I'm not sure what you mean by this MsVestibule. You're making all renters sound feckless. In fact the opposite may well be true in many cases. My dh and I and 3dc rent our house. We didn't buy when we could have borrowed 5x income with an interest only mortgage as we thought it was highly irresponsible to do so. Dh currently saves £300 a month into a work pension and we are saving £500 a month to add to our house deposit. I'm not sure how renting makes will cost us all a lot more money...........

goodasgold Thu 02-May-13 23:09:48

I know that misselling came to an end in about 2006. It was part of my job to correct the misselling, when my job became redundent I guess that's when Llloyds had finalized their claims. People were not making shit on their policies at that time, if they were they would not have been complaining about them.

Get your papers out and look at them, if you are promised a certain amount of money you might have been missold, if you were missold go back to your FA or lender. But I expect that in your T&A it says that you are responsible for the lump sum when the term is up. If not I will help you to claim for misselling. I would be more than happy to help if that's the case.

ExcuseTypos Thu 02-May-13 23:11:35

We have IO, we were offered a lifetime tracker with an interest rate of .5% above base rates. We'd have been idiots to turn it down.
The amount of interest we pay out is embarrassingly low for our mortgage. We think we are in a very fortunate position.

We are saving to pay back the mortgage and we are on track to do that. However we have over 50% equity and if we didn't pay back a penny more of the capital, we could sell it and buy a smaller house outright.

So I really don't think all people who bought with IO are in awful positions, or were stupid to take them out, or are expecting a bale out.
We certainly aren't, we are in a beautiful house and are in control of how and when we pay back the mortgage. We are in control, not the bank.

wonderingagain Thu 02-May-13 23:16:18

I just hope to christ they don't bail people out. It's not rocket science to know that if the repayment mortgage costs xxx but we'll only charge you xx means that someone is taking the xxxx.

My bil did this. Part buy part rent 100% IO mortgage. This enabled a property developer to sell a property at twice its real value and make it palatable to a hard-working but slightly gullible young man.

When he lost his job he simply stopped paying the rent, got about a year living rent free, and gladly gave it back to them. Sadly it was a housing association type partnership so johnny taxpayer and jenny charitable organisation would have lost out somewhere in the process.

MsVestibule Thu 02-May-13 23:16:25

How have I made all renters sound feckless? I specifically mentioned people who rent all their lives and never save a penny - you clearly don't come into that category. But even then, I haven't used the word, or implied, that people in those circumstances are feckless, so please don't put words into my mouth.

But if somebody does rent during their working years, then relies on their state pension as their sole source of income (£110 pw, depending on contributions), how are they going to continue to pay their rent? At present, I believe the state pays it through housing benefit, but happy to stand corrected.

I don't understand what the problem is? It's just a choice, and for many a forced choice if they can't afford repayments or rent (i.e. us), despite having a reasonable income.

We're in survival mode, like many others, simply focusing on having enough money at the end of the month one way or another. We can't afford pensions either.

It's all very well saying it is irresponsible, but responsibility is a luxury for many.

MsVestibule Thu 02-May-13 23:23:28

goodasgold Given that you dealt with misselling as part of your job, I fully concede you'll know a bit more about it than me! But I know several people who put in a successful claim for an endowment mortgage taken out in the early 90s - I believe they were given a lump sum which put them in a position as though they'd taken out a repayment mortgage. Why did they get this lump sum happen if their IO/endowment mortgage wasn't missold to them?

goodasgold Thu 02-May-13 23:35:57

Good point, I only worked for one bank which had scuppered the practice, so I suppose other banks/advisors had carried on like as in your case, I can only speak for the bank which employed me. If you feel that you have a case for misselling I can tell you what to say to help your case, if you have been missold a mortgage product I'm more than happy to do that. I'm more than happy to help you.

The bank/advisor should put you back in the position you would have been if you had been sold a repayment mortgage.That is the wrong that they should put right.

wonderingagain Thu 02-May-13 23:37:58

I think the problem Starlight is that it's another way the banks have duped society into accepting a way of living that is risky for clients but beneficial to the banks.

I remember wanting to buy a car with cash but the saleswoman kept trying to make me borrow money. She said 'it's cheaper'. I said no it isn't as I would be paying interest. It was absurd. She thought I would believe that buying it on a loan was going to save me money.

But somewhere along the line a lot of people started to believe the bullshit sales talk and everyone became an investor instead of a customer.

Also Starlight it worries a lot of us that the government who is actually scared of bankers will more than likely bail out the victims of the bankers vile greed because the poor bankers can't afford to do it themselves.

BackforGood Thu 02-May-13 23:39:16

I think that some people have selective memories, or - as I know happens in other areas of life - have selective hearing and only hear bits of a conversation that they want to.
When I took out my first mortgage in 1990, I'd had meetings with all sorts of lenders and financial advisors. Yes, all of them were selling endowments as being the best option, but all of them - without fail - told me that the amount of money the endowment would relinquish when it matured, was reliant on the interest from investments that it earned. No-one could fail to notice that interest rates then started to come down, and down, and down, as all of our mortgage payments came down and down and down. Therefore, it should have been obvious to all mortgage holders that the interest earned by the endowment was coming down and down and down. However, that shouldn't have been a problem, as everyone had the extra cash from the fact their monthly payments were coming down, to either overpay each month, or save to pay off a lump sum later. Now, even if one person you spoke to, shall we say economical with the truth, surely nobody would commit to 25years of debt mounting to several times their annual salary, without speaking to lots of people before signing up to anything?
Even if anyone was daft enough to take out a mortgage after only asking one single dodgy FA for information, then they must still have had 15 yrs of letters from their lender, as well as all there's been in the press, TV, radio, and internet, to remind them they need to do something.

Mosman Fri 03-May-13 04:31:04

We had one and tbh I just considered it to be the same as renting but without the inspections and without having to move all the time.
The £30,000 deposit would have been eaten up in removals at £1,000 a time, the bonds that we never seemed to get back no matter what and was worth it to a degree for the stability.

What will that bail out look like?

I can't see it.

Are you suggesting that people with interest only mortgage are then given free houses?

It won't happen. They'll have to sell their house as we would expect to.

MadamGazelleIsMyMum Fri 03-May-13 08:26:49

We have an IO mortgage at the moment. Only way we could get on the property ladder and afford 2 x mat leaves and childcare. I return to FT work next week, before the fixed term of the mortgage ends we will have paid off other debts and our childcare bill will be significantly reduced, and then we will switch to repayment. We'll still be under 35 at that point, will hopefully have a slightly higher LTV %as well. Yes IO isn't always ideal, but can give you options. Agree that you have to understand the consequences, but not everyone on IO doesn't understand what they are doing.

wonderingagain Fri 03-May-13 08:52:00

I had never looked on them as an alternative to renting but i see that as a valid reason to get an IO mortgage - as long as you know you won't be in negative equity.

For the banks it's win-win - if property prices go down you still have to pay them back the shortfall. I think that's the part that so many people didn't want to hear.

PilgrimSoul Fri 03-May-13 09:01:52

Another one here who views it as cheap rent. The house won't suit me when the mortgage ends. So with the money I have saved by not paying capital I have bought a smaller house with cash that I will eventually live in. I'll sell the existing house and there is bound to be a surplus (30 year mortgage), so that will be a bonus. Not all people with IO mortgages are fools.

Negative equity doesn't just effect IO people though.

JenaiMorris Fri 03-May-13 09:36:05

Will the market be flooded with 3 bedroom houses in a few years when people have to sell up because of shortfalls in their investments at the end of their IO mortgages?

(not a rhetorical question btw - I'm just wondering)

CalamityJ Fri 03-May-13 09:48:44

I use the phrase 'free money' a lot since the recession started. People seem to think you get something for nothing i.e. free money. When you spend on card not cash: that's free money. Interest only mortgages where you pay less than rent and 'own' (note the inverted commas) your own home: that's free money. TV on credit agreement, car on HP? It's all free money. When do these people think they're going to have to pay for the thing sat in front of them/they're wearing/driving/living in? WHO do they think is going to pay for it? I missed out on getting on the ladder early because I insisted on saving a 10% deposit and getting a repayment mortgage. Reading this thread there are certainly people who made the correct and considered decision to go interest only given their circumstances. However, in my experience this isn't true of everyone.

The 'free money' market has meant that the cost of living is based on it.

The availability has pushed up prices so much that people can only afford essentials by borrowing. Irresponsibility doesn't come into it.

And this mindset is encouraged from the minute the child reaches adulthood with university fees etc.

For us it isn't an investment choice. It's a no choice.

Xenia Fri 03-May-13 10:07:36

There are various situations:-
1. People who have a straight interest only mortgage. Most of those know full well it means what it says on the tin - interest only and you are not paying any capital back. They also know in the 90s there was negative equity and the 70s in various market crashes and property goes down as well as up. If they expect to own for 40 years however they probably can reasonably assume in 30 or 40 years time even with fairly low inflation they will have a bit of equity,.

2. People who took out endowment policies - I have spent 30 years recommending people do NOT take them out as they come with an element of risk. Simple products without commission are always best. We knew that 30 years ago and people had a choice and could ignore salesmen.

3. People missold in either category 1 or 2 above who can prove they were told by a salesman that interest only means you pay back capital (very hard to prove I would imagine) or that the salesman said endowments always do better than capital repayment mortgages - genuine mis-selling there.

Some people will take out interest only as the only choice but they know the risks. They expect salaries will improve, children get off their hands, inheritance come in or they can simply move in 10 years or rent it out and move in with mother if times get too dire.

Triumphoveradversity Fri 03-May-13 10:18:42

In my general studies class at school, so early 1980's the teacher got us to 'buy' shares in genuine companies and we tracked their progress over a number of weeks. I invested in London Brick and in theory would have made quite a bit, others lost out. This was a bog standard comp and he was a fresh out of teacher training enthusiast, that exercise was so incredibly useful and a big influence on my attitude to money and risk.

Did anyone get any lessons in finance at school?

JenaiMorris Fri 03-May-13 10:19:56

IO would have made sense for me years ago when the payments would have been lower than the rent - if in 1992 I'd bought the Grade II listed cottage near Bath I was renting for the £50k my landlord sold it for, I'd have been quids in even if I'd not put a penny in an endowment or savings or whatnot.

I think confused

I couldn't have raised the £5k deposit you needed then though.

JenaiMorris Fri 03-May-13 10:22:50

I just checked - my old house sold for £180k in 2008!

handcream Fri 03-May-13 11:08:43

I am getting quite irriated by people who have brought interest only mortgages at vastly reduced costs to repayment mortages now complaining they didnt understand or its not fair.

Why isnt it fair?

I blooming well hope that the 'government' doesnt the bail them out! I brought some shares a few years ago and they didnt do well. Can I have a handout too...

How would the government bail them out?

Bail them out of what exactly?

This is nonsense.

LifeofPo Fri 03-May-13 11:15:33

Message withdrawn at poster's request.

Xenia Fri 03-May-13 11:18:14

The FCA will not bail them out. A few individuals who bought endowments and were told the wrong things by salesmen if they can prove it may have a valid misselling claim.

However for political reasons this and the last Government are bailing out home owners all the time. They have kept base rate at 0.5%. None of the free market 12% interest rates some of us have paid in our home owning lives these days.
Secondly they decided in the last budget to prop up house prices with new schemes to support the market which will make it less likely prices will drop. In the past Government have often let rates double and prices drop by large amounts.

It would certainly be wise for interest only people as soon as they can afford it to stop holidays and meals out and instead save even a little bit towards repayment and try to pay something off once a year particularly whilst interest rates are low.

RescueCack Fri 03-May-13 11:34:37

LifeofPo that made me laugh out loud. I think that is all this is. No-one's getting bailed out, nothing has changed. We're just all supposed to judge each other a bit harder and feel superior.

handcream Fri 03-May-13 11:39:08

The interest rates are very low at present. People should stop sticking their heads in the sand. They had a huge advantage and got on the housing ladder earlier than someone who was planning to take a repayment mortgage. If they brought in London they could be sitting a a fair amount of equity.

I agree with Xenia. My Dh had a endownment mortgage with a policy which was coming in at a shortfall that he brought many years ago. We changed that shortfall to the repayment element a number of years ago and now it is maturing at the end of the year we will be fine but but it hasnt just happened. We needed to take a active decision and put our hands in our pockets.

It doesnt just happen.....

alemci Fri 03-May-13 11:47:31

yes I agree Handcream. Our endowments mature in 3 years'. we kept them going and overpaid the mortgage every month by about £300. It has left things tight but as we have an offset which I would recommend, at least we could take some back out if needed. we did take a little once to go on holiday.

what i like about the offset is it makes use of any money sitting around in other accounts linked to it.

Mosman Fri 03-May-13 11:54:05

If anything an interest only works well if you're in negative equity, long story short our house will be repossessed as I'm getting divorced and neither of us is prepared to save the investment so I feel a bit better about the fact that the banks won't win either when it all goes tits up.

flossieraptor Fri 03-May-13 12:03:25

I think it depends where you bought too. London prices are still going up. Within two years of buying I had enough equity in my flat to buy a flat elsewhere in the country.

I know people who were forced to sell with negative equity in the 90's. An awful situation. But even having seen that it never seemed dangerous to me to borrow 290k. My flat was large enough to have brought in 2 flatmates even if interest rates had soared, I would never have been forced to sell.

SarahMumsnet (MNHQ) Fri 03-May-13 12:07:06

Hey everyone - we've just put together a page on interest-only mortgages - what they are, what the issues surrounding them are, and what your options are if you currently have one. Hope it's useful!

ParsingFancy Fri 03-May-13 12:17:42

Nice one, SarahMN!

Can I be picky and point out the typo in the title - should be "Interest-only" not "Interest-free".

Also, can I very humbly suggest a couple of tweaks in the text?

"With an interest-only mortgage you only pay back the interest charged each month, leaving the amount borrowed (the capital) untouched. However, once your mortgage reaches the end of its term, you'll need to pay off back the capital debt.
To ensure you'll be able to do this, funds should be saved or invested separately into an investment vehicle, such as an ISA or endowment.
By comparison, a repayment mortgage requires you to pay off both the interest and pay back some of the capital each month – making monthly mortgage repayments more expensive."

tribpot Fri 03-May-13 12:40:06

Sign me up for one of these interest-free mortgages grin

ExcuseTypos Fri 03-May-13 12:44:18

Parsing good tweeks!

Maybe you should report your post, as MNHQ may become aware of it more quickly.

Who got on the housing ladder? At 37 I'm buying my first and can only afford interest only for a 3 single bedroom house with 3 children and a Dh who's job is and can only be in London, though his salary is more than twice the average.

Head in the sand it is not. It's simply survival.

OldLadyKnowsNothing Fri 03-May-13 12:58:39

Mosman, you do know that if the bank repo's your house and it sells for less than you owe them, they can (and will!) chase you and your ex for the shortfall? (Assuming you're in the UK...)

JenaiMorris Fri 03-May-13 13:03:13

Indeed. People end up paying back the shortfall years after having to sell their homes at a loss.

Friend of mine is in negative equity with an IO mortgage - she couldn't afford to sell when her circumstances changed so she's stuck there (thankfully she can manage the repayments so she won't be repossessed).

Mosman Fri 03-May-13 13:18:21

I am not in the UK at the moment and person who the mortgage is in the name of won't be coming back in the 12 years they have to chase it.

Badvoc Fri 03-May-13 13:19:33

I think eventually they will be either more tightly controlled or banned altogether.
It's a time bomb waiting to go off IMHO.
My sis is in negative equity with a huge IO mortgage. They want to move desperately, but can't afford it.
I think there must be many more in her position sad

rrreow Fri 03-May-13 13:37:10

We're self employed and bought a house pretty much the month after self certification stopped. So we ended up with a more expensive mortgage than we wanted and the only option was interest only. We plan to remortgage as soon as we're in the position to. I'd much prefer to pay interest only on a house we actually own (we put down more than 50% deposit) than pay rent (and the rent in this area would be more than an interest only mortgage).

The thing is though, there are going to be a percentage of people with interest only mortgages that made an informed decision based on their personal circumstances, and there are other people who made the decision without thinking it through or educating themselves on the consequences.

newgirl Fri 03-May-13 13:47:45

Yep we have interest only as it is 1/4 of the cost of renting on the same road.

We do have a repayment mortgage too, and a small endowment. It won't cover the final cost but we plan to move and sell before then (in about five years) and pay it off.

wonderingagain Fri 03-May-13 14:03:38

Now I'm starting to wish I had one! Could have meant that extra bedroom...

handcream Fri 03-May-13 14:33:10

Yes, I have a relative who has two houses (worth lots!) with interest only. Only works if the houses go up in value (they have - very posh area) but not for everyone.

Surely people recognised that if something was half the price or less than the other option there was a downside...

Mandy2003 Fri 03-May-13 14:34:43

Having sold in London and bought 'in the suburbs' I had 75% deposit so I took in interest only mortgage for around £45,000 three years ago. (15 year term). My IO is a TENTH of the cost of private rents for similar properties locally.

Last year I considered that my financial position could cover it so I rang the building society to find out about changing to a repayment mortgage. The person on the phone had such a bad attitude and wanted to know the ins and outs of a cats bottom regarding what savings vehicle I had in place, refusing to supply any information about repayment mortgages until I'd told him in the n-th degree, that I gave up trying sad

Savings and inheritance will cover it, or by then DS will have long left home so I will downsize.

handcream Fri 03-May-13 15:00:05

Mandy, there sometimes is a place for interest only mortgages but only when you have a large deposit or know the property is going to go up in valude (and who really knows that!)

Xenia Fri 03-May-13 15:03:55

They are still very easily available for buy to let lenders with a 25% deposit.

There is nothing wrong with them as long as people read the label on the tin - interest only (which means you only pay interest). For the basic interesting only one you cannot be misled. It is so clear in the name what it means and most borrowers are offered both and can see the difference in repayments between the two.

I don't believe in a nanny state. If people want to make foolish financial decisions let them and often interest only is not foolish anyway.

(Not exactly tweaks- corrections of major errors!)

SarahMumsnet (MNHQ) Fri 03-May-13 15:11:37

oh lord blush

thanks everyone - faces well and truly eggy over here. We've amended the headline and will look at the tweaks you suggest, Parsing smile

LaQueen Fri 03-May-13 16:24:07

We've always had an interest only mortgage, and currently live in a 5 bed house (though considering moving to a 4 bed).

Anyway - in 15 years time, we're fairly sure that our house will have at least doubled in price, from what we paid for it 6 years ago, and will most likely have tripled, if not more.

In 15 years time, the DDs will presumably be at university/left home, and we certainly won't want a 5 bed house anymore.

So, we will sell it (hopefully for three times what we paid for it). Very easily pay off the original mortgage lump sum, and buy a small 2/3 bed cottage, for cash - and still have a nice lump sum in the bank.

Job done.

I think interest only mortgages are only a worry, if you don't have any means to pay off the full amount but still want to stay in the same house, for the rest of your life.

BoffinMum Fri 03-May-13 16:33:16

Tbh we've done quite well out of IO. I think we have made £100k net out of being able to have one. But you have to be sure what you are doing and be prepared to sell rapidly if necessary

LaQueen Fri 03-May-13 16:42:39

Yes, same for us Boffin.

We actually put a lot of thought into getting an IO mortgage, and it's definitely been the wisest move for us.

10 years ago, we bought in a village, which is very popular - even more so now, since it's secondary school got an Outstanding Ofsted, so families are queing up to buy, and pay a premium.

Plus, we are perfectly happy to sell and downsize a lot, in years to come, that was always the plan.

JenaiMorris Fri 03-May-13 17:10:19


I keep thinking about that £50k cottage sad

LaQueen Fri 03-May-13 17:20:36

Jenai sorry, did you mean me?

We will downsize to a small cottage, after the DDs leave home.

handcream Fri 03-May-13 17:22:58

So, what happens if you take out a IO for 25 yrs - nice and cheap and then at say 60 it comes to an end and the bank wants its money back. My DM was in this position and getting a mortgage extended when you have just retired is very difficult.

Fine if you are ready to move but what if you arent ready or circumstances have changed? I guess that is when you start bleating that it wasnt fair - you were 'forced' into this mortage and signed not really understanding what you were agreeing to. All those letters you got from the lender reminding you - well - those went into the bin - you didnt understand them either!

ExcuseTypos Fri 03-May-13 17:46:07

handdcream I don't think the majority of people have been "bleating" on this thread.

Most have said they will pay off the morgage or know they will have to downsize, before the end of the morgage.

handcream Fri 03-May-13 17:48:56

I think we will hear a lot of bleating and complaining over the next few months. Agree though - not necessarily on this thread although someone earlier was asking for someone to explain just what it was they had signed up to!

Talkinpeace Fri 03-May-13 18:04:11

in 15 years time, we're fairly sure that our house will have at least doubled in price, from what we paid for it 6 years ago, and will most likely have tripled, if not more
You are very optimistic.
House prices in Japan - which has been in a long slow recession similar to the one the UK is now in - are currently just below what they were 20 years ago.
House price inflation UK style - at greater than real inflation - was a bubble that has now burst.

ExcuseTypos Fri 03-May-13 18:08:28

Agree Talking.

There is no way house prices are going to triple in the next 15 years. I'd be very surprised if they didn't remain very stagnant(apart from London).

handcream Fri 03-May-13 18:14:27

We have been in our house 15 years (South Bucks). It has doubled but we did a huge amount of work on it and a extension. I am thinking of my DM in West London. She paid 90K for a small 2 bed which is now worth £380-£400k. Its in a nice road 2 mins from the tube.

But that was 30 years ago. So I guess its possible

LaQueen Fri 03-May-13 18:16:39

Talkin I'm not optimistic. I think it very much depends on location.

We've already had one couple, perfectly happy to pay us £120K more for this house, than we paid for it 6 years ago.

LaQueen Fri 03-May-13 18:18:21

Like handcream we did quite a lot of work to this house, when we bought it.

Plus, we got it at a very good price (because it needed a lot of cosmetic work).

Talkinpeace Fri 03-May-13 18:20:38

We've already had one couple, perfectly happy to pay us £120K more for this house, than we paid for it 6 years ago
But you still live there so that is a hypothetical figure.
My house is "worth" more than four times what I bought it for.
But until that money is in my bank it is worth what I owe on it. Not a penny more, not a penny less.
what house I can buy with any funds I receive is limited by the same factors.

Houses are not an "investment" - they are houses.

Xenia Fri 03-May-13 18:32:49

90% of people with IO mortgages have a means to pay them back or a plan so it's only the 10% where there is a problem and they need to be reminded of the risks. A lot of women on the mumsnet divorce threads have a house with negative equity on divorce and the argument is over who keeps up the mortgage when they part and how wants the debt.

In some ways we were the converse. We paid off our first mortgage entirely and on two flat by the time I was about 33 and then bought this house on only a 10 year mortgage - very expensive but if you can afford it imposes quite good discipline on you. I don't think I would ever want to downsize.

Sometimes IO mortgages though are right for people. The main thing is that people listen to the name - interest only. You would have to be pretty stupid not to assume from that that you only pay interest and are paying nothing back.

Virgil Fri 03-May-13 18:33:25

We are interest only and thank god. This week I have suddenly found myself technically unemployed. If we were on a repayment mortgage we would immediately be unable to cover our outgoings. As it is we are fine. As long as we cover the interest nothing happens in the short term.

JenaiMorris Fri 03-May-13 18:33:55

Yes you LaQ! wink

The cottage I rented was sold by my landlord for £50k in 1992-ish. Last time it sold was in 2008. For £180k.

Back in 1992 there is no way I could have raised a 10% deposit, but the payments on an IO mortgage would have been less than I paid in rent and even if I'd never bothered with an endowment I still would have been quids in.

Instead we have a mortgage for £150k on a less nice house, bought in 2006.

LaQueen Fri 03-May-13 18:34:30

Talkin no, we would genuinely have sold to them and moved house - but, then his contract changed, and they had to move elsewhere.

If we decide to put it on the market this summer, it will go on for approx. £150K more than we paid for it.

3 estate agents have all agreed this is a fair valuation.

I agree that nothing is guaranteed. But, I have been keeping careful note of what houses have sold in this village over the last year, how much they were on the market for, and how much they actually sold for (you can check this on-line).

And, they go for pretty close to the asking price, as far as I can see.

But, I think we're an anomoly in this village/ area. We have great facilities - and a train station, with fast links to London. So, it's a sought after area, and the secondary school is Outstanding which I think keeps house prices inflated?

JenaiMorris Fri 03-May-13 18:34:34

I was living in the cottage when it was for sale btw (I have had wine sorry)

LaQueen Fri 03-May-13 18:36:10

Oh jenai how annoying hmm

DH and I still spit blood that we didn't get on the property ladder until 10 years ago. Most of our friends bought houses 15-18 years ago, and they have made a fortune...

Talkinpeace Fri 03-May-13 18:52:33

I won't have made a fortune, but I will own my house mortgage free within two years .... despite being on an IO

LaQueen Fri 03-May-13 18:58:29

That's good Talking.

DH and I will eventually own our own small cottage, mortgage free, when we sell and downsize.

Have simply no interest in keeping on a big, family sized house [shudders]

JenaiMorris Fri 03-May-13 19:35:32

That is making a fortune though Talkin. In two years you will no longer ever have to worry about paying to put a roof over your head!

Talkinpeace Fri 03-May-13 19:55:38

LaQueen and jenaimorris
I've not done it in 2 years.

The original mortgage was taken out in September 1987.
THe endowment paperwork - which I still have stated £48k : reality was £22k
Between now and the end I have another crap endowment coming in.

But DH and I stopped relying on house price rises the day (in 2005) I discovered that IOs without repayment vehicle were standard.

Molehillmountain Fri 03-May-13 20:04:39

I am not surprised people have interest only mortgages-part of our mortgage is interest only and with a well performing endowment it's not a problem. I'm also not surprised if people go interest only for a few years when they need to, perhaps when childcare costs are high, knowing that they'll need to accelerate their saving later. I am amazed that anyone takes one out with no plan and I can't see how mortgage companies can let this happen. Smacks of misselling to me.

Xenia Fri 03-May-13 21:31:45

I don't think it is mis-selling because as most people own a home for 10 - 20 years even someone with a 100% interest only is likely to have some equity increase in that period and if times go badly can sell. I do not believe it is the duty of lenders to bail out those interest only people who fall behind with their mortgages and have to sell when they are in negative equity. Nor do I think the risk that some people fall in that category means all interest only deals should be abolished.

However if a broker told someone their endowment would more than cover their loan and if they can prove he or she said that then yes that could be a mis-selling case.

AudrinaAdare Fri 03-May-13 23:24:14

Starlight's post about responsibility being a luxury these days struck a real chord. So true.

However, there are some utter idiots with a huge sense of entitlement out there and they are not those who are struggling to feed their children and heat at least one room. Shona Sibary and Poor Keith for example. "Free money" culture indeed.

Wuldric Sat 04-May-13 01:06:01

A lot of people (particularly those with self-certification mortgages) took out interest-only mortgages without an endowment. Once upon a time, this was possible. I have a friend in this situation. I think she was planning that galloping inflation would erode the value of the debt over the term of the mortgage, then they would be able to sell up and buy a smaller property at the end of the term.

Inflation has not been galloping so far.

mamateur Sat 04-May-13 07:10:15

What Jenaimorris says resonates with me. My zero-deposit, IO loan got me on the property ladder and away from the uncertainty and expense of renting which I would never have been able to do on a 10% deposit plus repayment mortgage. In fact it allowed me to 'earn' 125k which I took out and have since invested and doubled. I rented my flat out for over 2k a month before tax and my IO tracker mortgage payment went as high as 1700 before dropping to 415. If I hadn't done it I would not be financially secure now. It was the only sensible financial decision I have ever made in my life.

I never had the slightest intention of living there until the end of the mortgage.

CalamityJ Sat 04-May-13 07:41:50

Can I be a pendant on this thread and remind people that the past participle of buy is bought not brought? If in the present tense you would use the word buy then the past tense is bought. If in the present tense you would use the word bring then the past tense is brought.

For example I brought a house at the height of the market in 2007 is incorrect as in the present tense when you were buying the house you wouldn't have said I am trying to bring a house at the moment

Correct use in the past tense is When I bought my house to rent out... and When I brought my child to school by car... because you would say in the present I buy houses to rent out and I bring my child to school by car Yes I'm a pendant but it does annoy me when people say they brought a house because they wouldn't bring it, they would buy it.

Ledkr Sat 04-May-13 07:46:23


tribpot Sat 04-May-13 07:48:30

Calamity I'm afraid auto-correct has rather undermined the point you were wanting to make smile

Xenia Sat 04-May-13 08:22:19

Did anyone say they brought rather than bought a house? It is not a very common error. If it were done then presumably it is more likely to be a typo.

mamateur's example shows how having a relatively free market which allows lenders to offer IO loans where they think the person is worth the risk is a good idea as it gives people opportunities.

I certainly think it wise that the FCA is requiring lenders to advise those whose loans mature by 2018 or whatever it is who are on IO that they will need to have a means to pay the loan off however.

mamateur Sat 04-May-13 08:23:05

I won't labour the point quite as much, Calamity, but being a pendant on the thread is not quite the same as being a pedant, unless you mean you are hanging around our necks, like the proverbial millstone.

Vickibee Sat 04-May-13 08:24:36

with interest rates at an all time low a lot of people are overpaying to reduce the capital owing far quicker and saving tons of interest
I guess some IO people are effectively renting their home from the bank and hoping for a capital rise to cash in on later

Xenia Sat 04-May-13 08:32:31

Yes, over paying is often the best investment you can make better than bothering with an ISA or just savings (unless you want to build up a safety net of savings for when the car breaks down etc of course which is wise). Pay it off when you can because interest rates being so low may well not last forever. The state seems pretty committed to keeping them low in the UK which is not how it normally has been but I would still recommend people pay off what they can when they can.

When my daughter borrowed last year the lender had to reissue the mortgage offer twice because they kept adding their lender fee to the loan. They seems unable to understand that someone might want to pay that themselves to keep the loan lower, as if everyone in the land tries to pile as many costs as possible on to the loan rather than keep the loans as low as possible.

PartyFops Sat 04-May-13 08:37:06

This may sound really awful, but we have an interest only mortgage, we do make some overpayments when we can, but we are banking on some inheritance at some point. It will happen (a lot more than my house is worth) but of course I don't want it yet!

Xenia Sat 04-May-13 08:39:03

Not awful at all and if the inheritance does not come you can always sell and in the meantime you have the advantages of owning rather than renting. It sounds perfectly sensible.

Mind you it depends on age. There is a relatively small age gap between some of my children and me so they are likely to be well over 60 before any inheritance might be in prospect.

PartyFops Sat 04-May-13 08:39:40

Could I also add we have bought sensibly and put money into our home, over 7 years we have made £80k in equity, from a mere £10k deposit.

Also, DH is self employed so we needed a low monthly figure we can add to if we have it.

It's the best choice for us and we know the risks.

tribpot Sat 04-May-13 08:41:33

One poster did use brought incorrectly. Not sure it warranted a pendantic (geddit) note, however.

PartyFops - things can change with inheritance. I would have a plan B just in case.

mam29 Sat 04-May-13 09:00:30

I hate the uk housing market.

freinds brought flat at height of market
remortaged as most peoples houses were cashcows last 10years
they got into trouble mortage with northern rock couldent sell and would have ended up with 25neg equity if they sold so stayed out.

Other people I know got on ladder due to mummy and daddy or inhertitance..

most working people paying private rent struggle to save deposit.

we have shitty new build 3bed shoe box 700a month.

with council tax,utilities brings us over 1000 a month

as ct £150-always bafled why based on value of house seems unfair to renters.

duel fuel £140

water gone upto £55

it doesnt help we have loan that ends soon and some money on credit cards.

we paid off lots debt last few years so see some light at end of tunnel should be debt free in 2years time.
we not on any dmp or anything just borrowed and made repayment owed.

things like hubby losing £18,000 bonus.
running car-essential for his job
1income as 3kids childcare extortionate.

we accept it is what it is we not been abroad since 2005.
we arefully monitor our outgoings
rarly go out
buy 2nd hand.
got food down to 300 a month.
switched untilities and insurance where we can.

hubby does not have a pension.
we have no savings as paying debts as interest rates on savings bit crap anyway.

we not eligible for social housing.
we never have got housing benefit
we never been late with rent

agents subjects u to inspection every 3months
charge us annual admin costs80quid as landlord keeps us on 12month contract.
The kitchen is falling apart.
we been without fire for nearly 2months
not allowed pets despite offer of extra deposit.
we have 900 deposut on this place.

Estimate cost of ,moving upfront £2000 as 1months rent upfront, deposit and removal costs and paint/clean.

been looking aroudn at bigger properties would ideallylike 4bed but 1100-1500 a month!
probably move older style 3bed with bigger bedrooms and more than 1 reception room so 850-1000 per month.

we looked when we both working combined income of 52k.

santander offers us 146k in 2005 interest only
barclays 125k as they belive in affordability.-couldent buy house round here for that.
morther rock 170 but part of taht was interest only and 2nd part was secured loan.-dad said dont touch it glad we dident.

Hubbys earnings lot less then hes on 42k a year now.But cost of living.

when i worked most of money swallowed up by nursery feeswe have no family nearby.

but we feel bit stuck to be honest and poorer than most homeowners we know as they pay less and most quite smug.

I honestly dont know what we do.
no rich relatives.
mums and and dad split they both doing ok and have small mortgages due to equity.

mums husband mechanic earns 14k a year.
they sold their last house for 160
brought house for 250k got money from his mum so got mortgage for 50k repayment paying 300 a month.

Those on tracker mortages are laughing.
heard some people paying less than100 a month.

cant see bank england ever increasing intrest rates it annoys me think they should rise as inflations high but homeowner in uk is king!

I remember one greedy woman in antenatal going on about equity and their house she dident own it he did.
They had 1 child then she married him.
Then they sold got dream house had child no 2
Then they split and she got the house.
she had free childcare both grandparents
she earned money but could never have got on housing ladder without him.

Another freind is currenty trying to buy and confuses me.

They have a house-her husband inherited it think its ex council right to buy, less desirable are city so they rented it.
They rented all this time.
They bot self employed so had trouble getting amount they wanted to buy their forever home.
shes o about suing sold house as chunk deposit.
her husband buying house with her neice whos employed.
Then giving her chnk money on deposit so she can buy her flat.
have no idea what type mortgage they going for as property they going for 250k.

she keeps asking like so many others why dont wetry buy gets annoying after a while.

how does it work in states where people just handed back keys.

governemnt wont do anything with rental market as most of them buy to let landlords.

Its the private renters who live life of poverty.
for us was about bad timing and hubbys 41 this year would have to be 15year term.

We just want a home not an investment vehicle.

This recessions diffrent to 80,s 90s houses not fallen to affordable level and credit hard to get.

The new scheme from governemnt to lend depost on house up to 600k make this worse as allows people with equity to trade up to mansions on tax payers expense.

Homeowners wont be bailed out banks have and will.
We already propping them up with stupidly low interest rates,

most mortgages 25-30years so might take a while for shit to hit the fan.

Littlehousesomewhere Sat 04-May-13 09:00:40

Reading all this has certainly been an education. I thought interest only was for buy-to-lets and not for homeowners.

I am kicking myself that we didn't find out about them earlier as they really do seem to be the solution for renters who want a secure home, like renting from the bank but a lot cheaper than what we have been paying for years!

I will definitely look into them now as it would be great to buy once dcs are in schools so we won't need to move them out the area.

At present we are slowly saving, mainly as rent sucks up so much money so with cheaper housing costs we might actually have something to show in retirement (or for dcs to inherit).

Also if the plan is to continue to extend the interest only repayment period if for some reason you can pay in full, then what is there to lose.

We would only want to purchase something modest anyway (similar to what we are renting and paying a kings ransom for) so there would be a good chance that we could pay it off when we are in a position to save more.

I can't see any negatives for us to do this.

FasterStronger Sat 04-May-13 09:02:22

Laqueen, I would not hold much weight in what estate agent say on pricing. It is not unusual for an asking price of a moderately expensive house to sell for 100k less than asking price. Also the boost you got for renovating the house was a one off.

If you want to understand property prices in your area better, a plug in called property bee enables you to see the changes on a single property on rightmove and the drops people are taking are much higher than I expected. We were looking in very desirable areas of London and beautiful commuter villages.

LifeofPo Sat 04-May-13 09:03:08

Message withdrawn at poster's request.

You are probably too late littlehouse a lot of lenders are no longer offering them for residential mortgages.

BoffinMum Sat 04-May-13 09:08:57

We kept our smaller house and rent it out. We've made enough living in a bigger house on an IO mortgage to completely pay off the IO mortgage on the smaller house, much quicker than doing a repayment, and our plan B was always to move back to the smaller house if we ended up in financial difficulties anyway. In the event, taking that managed risk has probably made us an additional £100k as well. But I do stress you have to have a solid plan B, which was to move back into our smaller, but still nice, original house.

Bowlersarm Sat 04-May-13 09:16:48

smile Littlehouse I'm finding it ironic that a thread which was started to warn people about the dubious nature of interest only mortgages has actually converted someone who hadn't thought about it, into looking in to it for themselves!

I think it is very very hard to get one now though, and the interest rates aren't as favourable as they once were

mamateur Sat 04-May-13 09:21:13

Why has the market gone from so lax to conditions so tight they are turning down good, solid profitable business? The bank that lent me over 100% of my purchase price, with zero deposit on IO, zero deposit etc. refused to let me port my lifetime tracker mortgage when we wanted to move? They would only let me port 4 times my average salary which in the wake of a baby and an adoption, was low, and DH's salary is not classified as income.

Oh right, interest rates are low so it's not worth their while.

DontmindifIdo Sat 04-May-13 09:23:37

Littlehouse - I know someone I worked with in 2007 (so just before it all went a bit wrong) who got a 100% interest only mortgage, saying quite clearly she had no way of paying it off at that time, but she had been forced to move out of rental flats 4 times in the previous 3 years due to landlords wanting to sell or flatmates wanting to leave and her not being able to rent on her own or find someone who wanted to take on the tenancy - moving is very expensive! She was quite clear, it was a way of having some stability and the only way her buget could get her a flat on her own (as rent on the same flat was a lot higher).

She said she'd save, possibly in the future sell it for a profit (this was 2007, so maybe not), or just stay there until she was in a position to afford to move to a repayment mortgage.

Bowlersarm Sat 04-May-13 09:29:09

Dontmind-we got our ridiculously low IO mortgage rate on a ridiculously high mortgage amount in 2007. We vaguely mentioned we would pay it off eventually through inheritances, but their interest in our ability to pay it off was zero. We are thankful all the time that we got this mortgage, it has helped us no end.

BoffinMum Sat 04-May-13 09:30:49

We wanted to build an annexe here and rent it out, and we were told we would have to convert to repayment. Which we didn't want to do, because the plan is not necessarily to repay it, simply to accrue capital and then move out at some point. Which is working well. However this is leveraging an asset in a way the 'little people' are not normally allowed to do - we are supposed to be pathetically grateful for miserable little capital loans and sit tight while rich people do all the leveraging they like.

Now that also happens to be one if the arguments that was used to free up mortgage regulations in the US in the early 2000s, and which led to the financial crash. The problem was that it is risky and you have to be more knowledgeable and hard nosed than with traditional routes to finance, and also know your market inside out. Some people don't, and it is spotting those ones that is the problem, which is why the rest of us are being denied the full range of products.

Xenia Sat 04-May-13 09:32:57

They are becoming tighter because of the financial crisis. They were very very tough in the early 80s when we first bought. Even if you had saved with one lender for 10 years (which used to be something they liked to see) they would often turn you down and would only lend 2.5x a joint salary or 3x 1 salary and wanted fairly large deposits. Every time we are in recession it becomes harder to borrow.

When we bought two buy to lets they did not have buy to let loans - they had not been invented. So first time we did a remortgage on our current house. Second time the bank gave us something called a business development loan. By the way for those who think property used to be some kind of golden goose we sold both buy to let flats on which we had repaid all loans in the mid 90s for a 50% loss on each over the purchase price. Property prices have always gone up and down. There was an awful property crash in the 1970s too.

So a lot of the recent tightening has been because banks know people are losing jobs and property prices are not rising so they take on fewer risks, increase their profit even when a loan is supposedly tracking base rate. Separately regulations have now banned self certified mortgages for the self employed so that is statutory I think , not just the banks being a bit more careful.

What was interesting when she was looking last year was that my daughter could easily get a buy to let interest only loan with 25% deposit and that is what she has (but will try to pay back capital when she can) but harder to obtain a traditional mortgage on a higher multiple based on her salary. The difference seems to be that they add her salary and the potential rent for the buy to let loan so I suppose then her "income" is higher as the rent is added on. Of course that is no use to anyone who wants to live in their home although I am not sure they send out teams of inspectors to check you have actually let the place (she has let it).

Littlehousesomewhere Sat 04-May-13 09:36:22

Typical ... Arriving late at the party hmm

Doesn't seem fair that landlords can take the risk whereas someone who want to take the same risk and live in the same property can't!

We would buy a similar property as lots of buy to lets- small flat in expensive area near good transport links for work.

This seems very unfair sad

tb Sat 04-May-13 09:40:59

When we bought our first house in 1977 we were offered an endowment mortgage. Interest rates were, if I remember correctly, about 10%.

There were 2 types of endowment - the cheap one, called, I think, gplan, and the dearer one. The dearer one paid a projected bonus of more than 50% of the amount borrowed. Even the cheap one was unaffordable.

The main problem with it was that you could transfer the endowment to a second property if you moved, but not after that. We decided that that was too restrictive. Good job, too as we moved twice in 5 years. We just took out mortgage protection insurance, instead.

They probably worked very well when interest rates were 10-15%, as stock market performance tends to match interest rates (at least).

My sil was advised to have one by her social worker after her divorce, as it means the grateful taxpayers pay it for her, and have been doing for the last 20+ years grin

Xenia Sat 04-May-13 09:44:59

I suppose my point was they have no idea if you live in it or not, although no one should ever break the rules or they might be in trouble. My daughter has let it out, but how does the lender know and given the lender has demanded a 25% deposit the lender is protected whether you live in it or not.

However I just did a search and there seem to be loads of interest only loans if you have a 20% deposit so if you have enough earnings to borrow the 80% loan then you can do without any buy to let element. Buy to let interest rates are a bit higher so best avoided unless you are really buy to letting

There seem to be 90% loans around still, not sure if they are interest only however

JenaiMorris Sat 04-May-13 09:56:47

Pendant. That's priceless grin

Cyclops99 Sat 04-May-13 09:57:15

There's all sorts of conditions that you sign when you get a buy to let that you'll let it, won't live in it yourself, let it to family and friends etc....they don't actually follow up. As long as they get their money every month they're happy.

It all about satisfying the risk...if you have a big deposit, there's little risk for them. I hear that for some self employed people its the only way to get a mortgage....

Badvoc Sat 04-May-13 09:58:01

We got a 90% ltv mortgage 15 months ago Xenia.
Repayment @ 4.79%.
5 year fix, no fees.
There are more out there now than there were when we were looking.

My parents had an interest only mortgage. Both are now dead (Dad died last year). The mortgage co won't tell me what is outstanding without probate. Probate want to know what's o/s on the mortgage! And he didn't have life insurance....

Xenia Sat 04-May-13 10:18:52

Badvoc, good. I was just interested.
I think the budget changes (in effect supporting low interest rates and house prices) have helped too.

Mrs C I would up my father's estate. Just about everyone I contacted gave me every detail I needed if I produced the original of the grant of probate. I could even do a credit reference search in his name. Just ask the executors for an original of the grant of probate and then email it and post it to the mortgage company having first asked to speak to their "deaths department" which seems to be the way to get through to someone who will speak to you even though you are not the borrower.

On endowment policies which people often took out with interest only loans in the old days I had not remembered that many years back the lenders were more protective. This letter in today's Times explains.

" Sir, Margaret Thatcher was noted for her adoption of the monetarist theory that the way to beat inflation was to limit the supply of money. It is regrettable that the same principle was not adopted to avoid the boom in house prices caused by unrestricted mortgage lending. Before the deregulation of building societies it was not possible to borrow more than the guaranteed maturity value of the associated Life Assurance Policy. In good years this led to a healthy bonus pay-out on maturity, easing the homeowner into retirement. What has now happened was entirely predictable.

Peter Schofield
Oxford "

Badvoc Sat 04-May-13 10:26:23

It's odd, actually.
We literally had the choice between 2 mortgage products from different lenders.
Back in the day (2000-2006) we changed lenders twice at the end of our fixes and we could have had the chicken between hundreds of products...and now there do seem to be more than there were even 15 months ago.
Why is that do you think?
Is it that the govt is actually forcing lenders to lend again?

Badvoc Sat 04-May-13 10:26:47

Choice, I meant.

mamateur Sat 04-May-13 10:46:22

We have no chance of a penny of residential mortgage, but they will lend to us freely when it's a btl mortgage, with rates of just 3% without providing info on our incomes. It sounds like the new self cert.

JenaiMorris Sat 04-May-13 10:49:44

Arf at chicken [pendant]

Why is it easier to get a BTL IO mortgage than a residential one?

mamateur Sat 04-May-13 10:55:55

Dunno, Jenai, our mortgage broker is quite creative. He has got DH two mortgages using a loophole, now closed, on whether your accountant was certified or not. And now he says if you own a property and let it out for 6 months you can get further btl mortgages off the back of it. So we bought a small flat in cash and are hoping to be able to buy property in 6 months. Property we would never be given a mortgage on as individuals.

If its a btl it is a business venture, so they look at the rental income against mortgage payment and make a decision on that basis.

Of course, you can live in it if you want, hardly going to bump into your lender over breakfast. But you are liable for capital gains tax when you sell it, unless it is your sole residence for 3 months I think (haven't checked that in a while).

mamateur Sat 04-May-13 10:56:26

Sorry, the btl mortgage isn't IO, it's repayment.

Thanks Xenia - there are no executors yet. I'm doing the probate myself. I can't afford a solicitor, but once I have the admin permissions then I'll be straight back to the mortgage co. For now, the probate forms will have to be accompanied with a copy of the mortgage statement which appears to show the outstanding amount. Although it could be the 'paid' amount. It's a very badly designed and worded statement!

tribpot Sat 04-May-13 11:26:42

Why is it easier to get a BTL IO mortgage than a residential one?

I'm assuming because it's lower risk - the property can be disposed of without making yourself homeless (although obviously it may make your tenant homeless confused).

Chicken is right up there with pendant on this thread. The power of auto-correct.

cyclingtreadworn Sat 04-May-13 11:59:16

I find this thread quite sneery, smug and patronising. People with IO mortgages are not stupid, as some posters have suggested. We had a repayment mortage. Our financial circumstances have changed drastically and unpredictably so we switched to IO. I don't know when we will be able to switch back. I don't know that anyone is 'bleating' or expecting the government to bail them out. Some rather unpleasant, self righteous posters on here.

PlasticLentilWeaver Sat 04-May-13 12:54:49

We have used IO at various points. We were specifically advised it was our best option when buying an investment property (for me to live in short term,as we had to live apart for work for a couple of years, now rented out). As I receive bonuses etc, we were advised that as long as we were disciplined about using them to clear capital, we would clear it quicker than on repayment.

We have just taken another one on another property as a re-mortgage. We had fully paid off a repayment mortgage on it but can't sell at the moment (relative living there rent free [grrr emoticon ]) but need our capital elsewhere. Its only about 70% LTV. I am not concerned in the least as we will be able to sell within about 5 years and will be able to pay it off easily.

Haven't seen any sneering, but I have seen lots of people saying they flhave IO mortgages and fully understand the risks.

AngiBolen Sat 04-May-13 13:07:42

What cyclingtreadworn said.

The only other option would be to sell and rent...paying out the same each month, but with the fear of the landlord ending the tenancy.

DontmindifIdo Sat 04-May-13 14:12:20

also as tripot said - the amount of effort the bank has to go to help you with a BTL mortgage rather than a residential is a lot less - you stop paying and they can go to repossession much quicker than if it's owner occupied. Far less risky for the bank.

JulieCarp Sat 04-May-13 14:23:10

Surely if houses are worth 3 times what they are worth now in 15 years, it makes sense that that nice cottage or smaller house will also cost 3 times what it is worth now ??? confused

I cant imagine that this will be the case( 3 x rises) as many people are struggling to get on the housing ladder now .Where is the money going to suddenly appear from when salaries arent going up and the cost of food,fuel,childcare etc rocketing ??
Im rather risk averse and I cant think of anything worse than having to sell my house aged 60 plus when I may have other significant life events- retirement,ill health etc.
Franklin had it right when pronouncing that the only 2 certainties in life are "Death and Taxes"

Xenia Sat 04-May-13 15:45:09

Yes, the BTL seemed so much easier for my daughter because they include the rental income as your income so if you're making say £18k a year rent plus add on your salary the income you have is both.

I would not recommend anyone taking out a BTL but never intending to let as that breaches the mortgage conditions. What my daughter's broker said was when she can afford to mvoe into it which may in say 2 years' time then you apply to convert the BTL loan to a residential one, the interest rate goes down as BTL interest is higher and by that time her own salary will have risen, may be even doubled, so she can get that residential loan - that is the theory anyway.

It certainly crossed my mind though that people could get these BTL loans if they have 25% deposit which of course most people don't have, and then live in the place.

I agree about CGT if we think any gains will be made - you will pay 28% on the profit on your sale of a buy to let although if you live in it then that is not letting and no CGT.

(Deaths - that's true - we had to fill things on the form to get the grant of probate but had all the files. Surely the dead parent has files at home on which every mortgage statement is retained so you could not need that from the lender?)

ivykaty44 Sat 04-May-13 16:05:26

It certainly crossed my mind though that people could get these BTL loans if they have 25% deposit which of course most people don't have, and then live in the place.

there are a few divorcing people that have the capital but are still strapped for cash and want a cheaper way to do things - they may have maintenence to pay etc and once that is paid they can change around

ivykaty44 Sat 04-May-13 16:08:21

Surely if houses are worth 3 times what they are worth now in 15 years, it makes sense that that nice cottage or smaller house will also cost 3 times what it is worth now

so If I buy a house in 1990 for 52k and it trebles in value

A nice small house or flat was 28k and that trebles in value

I sell the house for 156k and pay back the original 52k which leaves me 104k

now the flat is for sale at 85k

that leaves me 19k

ivykaty44 Sat 04-May-13 16:12:39

Juliecarp - i know you said 15 years but I was using real figures over 23 years which would of course be the life span on a lot of mortgages and those are pretty much real figures of property prices in my area in 1990 and now in 2013

For a lot of people at 60 they might not want to look after a larger house, it is a drain on their finances and they may want a smaller place and release captial to take a few holidays as they retire.

mirai Sat 04-May-13 16:23:46

Wow Xenia what industry does your daughter work in where her salary will have doubled in two years? I need to retrain!

In my experience people don't really want to downsize.

We sold a flat that was an ideal downsize (gardens maintained by maintenance company, ground floor, near to local shop/GP/dentist/pub, not far from naice walks, etc) and I lost count of the downsizers who hadn't realised that reception rooms in a 2-bed flat would be smaller and with lower ceilings, etc, than the reception rooms in their Edwardian 5-bed houses. Well, duh.

rubyrubyruby Sat 04-May-13 16:32:16

We have only ever had interest only mortgages.

It's worked well for us.

rubyrubyruby Sat 04-May-13 16:34:48

Just about to take out another mortgage (moving) and that will be interest only too.

There are some very sneery posters on this thread.

JulieCarp Sat 04-May-13 16:36:38

IvyI was referring to the post upthread that estimated that in 15 years time the current price of their house would have trebled and so they would sell and use the equity to pay off the IO mortgage and in addition buy a small cottage.
I really cant imagine that if the current house is worth 500K then in 15 years time there will be a queue of people wanting or being able to pay 1.5K given that salaries are not increasing and bonuses cut ,not to mention living costs etc.
Sorry if Im being unclear -Im not referring to myself or my situation.
I bought my property in 1987 so am well aware of the way in which property prices fluctuate but surely they have reached a point where they are becoming unaffordable for so many.What would happen if interest rates shoot up is unthinkable or maybe I dont understand property prices at all. confused

Xenia Sat 04-May-13 17:09:53

I don't know who has sneered. It think it is interesting pooling of information. Also it's a gamble. My daughter and the other 4 children when they buy they don't know if they will sell at a loss as I did in the 90s or make a profit. There are no guaranteed profits in property and if you buy to let the profit over your interest is really hardly worth the effort unless there is capital appreciation which there may not be.

However for a home most people do for psychological reasons do best if they can buy so I think it's worth a risk to get you started even if it means a few years of no holidays and scrimping and saving.

The deposit issue is the big one. If you can get 90% interest only loans as someone said on the thread above you still need that 10%. The first house we bought now costs £275k (outer London) so assuming both husband and wife work full time as plenty of us do that means each of the two partners raising £13,750 from their savings or loans from parents. Not easy for many and you need a joint two full time working salaries or large one salary to allow you to borrow £275k less 10%.

(mir, law. Trainee £40k. 2 years qualified £70k+ and onwards. So not quite doubling but in 3 years if you're good. Most people aren't good and plenty don't earn much in most professions. The pay is published

It does illustrate the importance of ensuring daughters do know about wage ries in teaching, medicine, call centre worker, Tesco etc etc so they can make informed choices about their lives in their teens rather than hanging out on mumsnet credit crunch threads in their 30s scratching around to save 50p on a pack of beans)

LaQueen Sat 04-May-13 17:25:00

I'm also detecting a slight undertone of though, people are determined to believe that anyone with an IO mortgage, is being wilfully stupid, and has a huge sense of entitlement.

I don't know the details of anyone else's personal circumstances. But, I know that for us, an IO has been a wise move, for several viable reasons.

I have comprehensively researched what houses sell for in this particular village. I know that they are never on the market long. That is precisely why we bought a house here, and why we live here.

We absolutely want to dramatically downsize, when the DDs leave home. It's what we have always planned to do - I am genuinely looking forward to doing it, as it's always been my dream to have a small cottage smile

eminemmerdale Sat 04-May-13 17:38:47

Agree with those who say there is sneering. I get from friends too - sort of 'gosh, how awful'. As I said upthread, our house has already increased by £100K since we started buying it and the area we live is highly unlikely to go down.

JulieCarp Sat 04-May-13 17:49:30

No sneering here as had IO myself (now almost paid off)
- was hoping for a discussion from someone more knowledgable than I am. Im interested in how the economic conditions would make house prices triple in 15 years.. genuine non sneering question ? grin.

LaQueen Sat 04-May-13 17:57:26

Julie I'm not saying that all house prices will triple in 15 years...I was saying that would be very naice wink

However, the village we live in is very popular, for several reasons, mainly the fantastic secondary school. So, for a start I think it highly unlikely our house will go down in value over the next 15 years...and, actually it has every chance of increasing in value (very recently we had a couple more than happy to pay us £150K more, than we bought it for 6 years ago...which was an increase of nearly 40%, I think?).

Obviously, I realise this isn't the case for many people with IO mortgages. But, for some people, in specific circumstances, then an IO mortgage is a viable product.

Xenia Sat 04-May-13 18:01:12

I think the simple answer is we do not know if prices woudl triple.
In the 70s which I remember (just) there were 2 years of inflation (England was on its knees) of 18%, 22% and 20% so everything went up 60% after a property crash. The whole country had very high inflation. It was dreadful. People's savings were almost wiped out. It must have benefited some people who had bought before the inflation years though.

There have been other times after that when prices rose. The price of my house would have risen from 97 to about 2002 (more than doubled, possibly trebled). I don't think any of us can know if the UK will move back to a period of very high inflation but the Budget which in effect introduced measures to prop house prices up and the political decision to keep interests rates so very very very low suggests a property crash is less likely than feared.

We are in a double not a triple dip recession. Whether we will be in the doldrums like Japan for 10 - 15 years no one really knows.

However I am pretty sure if people buy now in their 20s and hold property for 40 years they will probably find over time they do pretty well out of it and most importantly have a stable home rather than relying on landlords.

JulieCarp Sat 04-May-13 18:03:00

Ah - Ok. < puts away calculator>grin

I'm not sneering at people with IO mortgages. I had one on my first flat in London. I bought for £160k and sold for £210k so it worked out ok. I wouldn't have one now because I now live in an area where I don't think property will rise much, plus if I can afford repayment now it seems pointless to have IO.

One question I do have for people who know lots about mortgages on this thread: a few people are talking about when their mortgage is finished, in 10 years, 15 years whatever. Does no one else take out their mortgage on a 2/3/5 year deal and then change to a better deal when the intro offer is finished? I was under the impression that this was the best thing to do.

JulieCarp Sat 04-May-13 18:13:16

Akiss I think many people were caught out in that they tried to remortgage but were unable to after lenders tightened their lending criteria up.So they had a 4 year fixed rate but then were struggling to get a new deal especially if they has taken on a high LTV or used the "equity" in their property to fund their lifestyle ie increased their loan but found they were in negative equity. I dont profess to know much about mortgages though.

rubyrubyruby Sat 04-May-13 18:22:57

Apologies - I do realise not everyone is sneering.

As someone who has always had an IO mortgage I found the OP insulting.

Xenia Sat 04-May-13 18:31:51

AKiss, never had to look at it in that much detail. Mine is 2.6% above base rate. In the old days I think we just took out one that tracked base rate on a repayment basis may be because I'm a risk taker or I'd rather just follow base rate by and large.

I mentioned a 10 year mortgage - I meant the term. When we moved here we decided we could afford to repay over 10 not 25 years and wanted that financial discipline. That is rare and certainly most younger people cannot afford it although it can pay off if you can afford it. I am paying mine (divorce debt) off fairly quickly at the moment whilst interest rates are low.

Talkinpeace Sat 04-May-13 18:39:57

DH and I are both self employed.

We bought this house with one of the very, very first buy to let mortgages (November 1996 : according to stats we were in the first 200 ...) which meant we rented out our old house.
Mortgage was with RBS

When the DCs were no longer able to fit on the back seat of an MGB we borrowed extra to buy a car.
As an accountant I'd always suppressed both our net incomes for tax purposes, so our income was within £7 of the multiple required for the loan.
RBS said yes within an hour.
I called them to check .... "we know that the self employed fiddle their figures so we take half way between turnover and profit to work with"
their fee was based on the amount advanced - so they had a vested interest in making that be as high as possible.

I'm happy though because its 0.55% above base till the mortgage ends in two years :-)

pointythings Sat 04-May-13 20:17:04

We went into IO with out eyes open, knowing we wanted children and would have to pay childcare.

We started paying against the principal as soon as we could after the penalty period had expired, setting aside money whenever we could -we did have an ISA but the state of the stock market meant it was a joke in terms of paying off the mortgage so we left it.

Had things not changed we'd have paid off about 5 years early - as it was, we inherited when MIL died and paid off halfway through the term.

I don't understand the whole idea of a house as a financial investment, we bought ours knowing we wanted to raise a family in it (and so chose one with enough bedrooms). We have no intention of moving unless we win the Lottery, or unless we absolutely have to because of work.

Xenia Sat 04-May-13 22:08:13

And now Talk I understand that is not possible as they changed the law and they want tax returns, cost of your child care, gym membership monthly cost (even for the employed) because the law now requires that I think for the self employed or rules made under the abolition of self certification.

Some people have a house as an income stream. Most people buy one house to live in and do not plan to see so increases in its value do not mean much (except those of us paying husbands on divorce find increases in prices means we pay out more)

Talkinpeace Sat 04-May-13 22:35:27

Do not believe what you read in the press.
Self certification is alive and well : I did a mortgage reference for a client a couple of weeks back that specifically asked for "estimated earnings in the curent tax year" : so I could write whatever I liked .....
Then again being my client I gave him a harder time about repaying it than any broker ever would!

Xenia Sun 05-May-13 07:56:41

I might be wrong but in late 2011 the FSA as it then was was consulting on abolishing them by law and I thought that had happened. Also if a bank were requiring an accountant to confirm earnings then surely that means it is therefore not a self certified as instead they are asking others like accountants to certify the amounts? Anyway I cannot find regulations on it so may be it was never brought in as a law change.

banana87 Sun 05-May-13 08:02:56

Our interest only mortgage is over a period of 30 years. I'm not worried about the end because we will sell it or remortgage using the equity. Honestly, it's SO unlikely that in 30 years we will have NO's not a irresponsible choice if you know what you are doing.

LifeofPo Sun 05-May-13 08:17:05

Message withdrawn at poster's request.

VestaCurry Sun 05-May-13 08:19:10

Friends of ours bought their house in London in 2001 for £450k, IO mortgage. They have just sold it for £1.2m. The strategy has worked for them, I don't think there's a black and white answer to this.

banana87 Sun 05-May-13 08:21:23

We will likely sell and expatriate in the next few years lifeofpo. Also we haven't lived there for 5 years, it's now rented.

noviceoftheday Sun 05-May-13 08:26:00

Xenia, they weren't actually abolished but effectively abolished because from next April (2014): 1. Mortgage applicants must satisfy lenders that they can repay a mortgage, and lenders must check these assurances; 2. Interest-only mortgage customers must prove they are relying on more than just rising house prices to repay a home loan; 3. "mortgage prisoners" on old deals will be given some leeway to remortgage, even if they would normally fall foul of the new rules.

However, those with an annual income of more than £300,000 or with more than £3m in assets will face a less stringent affordability check which means that the "old rules" will continue to apply to about 0.5% of the population. Dh and I are both self employed and without this proviso, would be stuffed. We expect when we next buy that we would probably have to use a specialist broker.

Xenia Sun 05-May-13 09:58:08

Thanks, novice. That (1) - "must check the assurances" is exactly what I was after.

I suppose to prove you have income over £300k, though you must provide evidence so therefore the change means for everyone there will be no self certification.

wonderingagain Tue 07-May-13 10:54:29

But surely one of the problems with IO is that although you will make a profit on your home, if you want to buy an equivalent home you won't be able to afford it. In the meantime you've paid thousands in interest.

So a 250k IO that's worth 500k, when it's sold you get to keep 250k but it is only worth half what you paid for it if used for property.

It's fine to say you are going to downsize but it is a compromise over paying off the capital. Each bit of capital that you pay off is like investing money that will increase in value with the property.

I think the next generation will suffer more than any for our easy money attitude.

rubyrubyruby Tue 07-May-13 12:09:08

But you would pay into an endowment too,

noddyholder Tue 07-May-13 12:12:52

Xenia is right they are on their way out and also if people want to remortgage to better rates etc they will be re assessed and may not meet the criteria This has recently happened to a friend of mine Nightmare!

Badvoc Tue 07-May-13 12:16:19 you remember all the tv adverts a few years ago for remortgaging? Seems like it was every other ad at one time.
Seems eons ago now....

I have an interest only mortgage. I have other payment vehicles to pay it off in 15 years !
If people are stupid enough to take out an interest only mortgage and not realise they need to pay it all back in x number of years they shouldn't get a mortgage full stop.
I am fully aware of the implications and do not need the government to police it.
My house would cost approx £2100 a month on a repayment, £1900 to rent and I pay £1400 interest only. So basically I am renting my house for £500 less than the market rate, but in 15 years I will have any capital growth unlike someone renting.

Abra1d Tue 07-May-13 12:18:26

I think a lot of people have benefited from very cheap mortgages. Interest rates are very low.

When they eventually all start going up again many people who have been shielded from the recession will start to feel the pain.

noddyholder Tue 07-May-13 12:25:41

Yes badvoc I have noticed! Also lots of my friends who do property having difficulties as they need 50% equity for IO!

noddyholder Tue 07-May-13 12:26:44

And some banks and building societies are actively trying to get rid of customers who have little equity by offering them terrible deals!

mamateur Tue 07-May-13 15:40:16

Yes, if you're an IO customer on a very low interest rate they will do everything they can to get rid of you, even if you have a lifetime product.

Xenia Tue 07-May-13 15:45:29

What feels very wrong to me is that some people on base rate plus x% are having their mortgages doubled - 100,000 of them - simply because the bank's terms hidden away say that base rate can be any multiple of base rate the bank chooses so what you thought was 2% above Bank of england base rate of 0.5% suddenly becomes 2 % above a new 3% base rate of Bank of Ireland i.e 5%. I really don't think that's very fair on borrowers and there are complaints being made to the relevant bodies at present. I think the terms say if there are "exceptional circumstances" the banks can jack up their rates. The banks are saying that new regulation, new capital requirements, new more expensive rules put in place to protect consumers mean they are allowed to double the interest rates paid on these so called trackers which now seem anything but trackers.

noddyholder Tue 07-May-13 15:46:23

BofI have done that in stages this year. They also offered people cash to go although when you read the small print it wasn't the best deal!

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