People with interest only mortgages - do they really not realise?(308 Posts)
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.
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!
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.
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.
And some banks and building societies are actively trying to get rid of customers who have little equity by offering them terrible deals!
Yes badvoc I have noticed! Also lots of my friends who do property having difficulties as they need 50% equity for IO!
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.
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.
Noddy...do 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....
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!
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.
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.
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.
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.
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.
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 equity...it's not a irresponsible choice if you know what you are doing.
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.
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!
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)
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.
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 :-)
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.
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.
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