Active discussions

Meet the Other Phone. Flexible and made to last.

Meet the Other Phone.
Flexible and made to last.

Buy now

Please or to access all these features

Talk
AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

to think that if you took out an interest only mortgage....

194 replies

CherylWillBounceBack · 31/10/2012 17:19

....that the clue to how the product worked was in the title.

www.dailymail.co.uk/money/mortgageshome/article-2225427/Over-50s-mortgage-trap-cost-home.html

To be clear I'm not attacking those who fell foul of endowment policies, but those who have either taken on more than they could have ever afforded as a repayment scheme, and even more at those that have released equity from these homes to fund a 'lifestyle'. It makes me absolutely irate as a saver who has seen people bidding up the property market to insane levels using borrowed money which it turns out they had no vehicle in place to pay back. They are now claiming they didn't understand what they had got themselves into.

They are not victims of anything other than greed and stupidity, and with the media coverage they've been getting over the last few weeks, it looks like we are now we are heading towards another bailout of the profligate, at the expense of those who saw this coming years ago and have seen their savings decimated due to inflation and low interest rates.

Disclaimer, I don't own a house, I stayed out and attempted to save up for one outright only to see the prices spiral out of control and then be propped up by all manner of schemes for those who have overstretched.

To quote Paul Daniels, if there's another bailout of either the banks or those who have been feckless, I'm leaving the country.

OP posts:
JenaiMarrHePlaysGuitar · 31/10/2012 18:36

If i knew, the people with the mortgages knew

Indeed. Endowments received lots of coverage, and have done for ages. I knew about it before I even had a mortgage (repayment, case you're bothered. Bought right at the top of the market too [hgrin] )

JenaiMarrHePlaysGuitar · 31/10/2012 18:37

expat most of them can, but isn't there one of them who pissed a load of money away by being an utter fuckwit (apols for swearing)? The 51 yo?

Bloody idiot. My heart bleeds.

maybenow · 31/10/2012 18:40

I refuse to click on the daily fail link but there was a place for interest-only mortgages. I switched my flat to one when i married dh and moved into his flat. I knew that I'd have to sell my flat to pay off the capital but that's ok as i wasn't living in it (i'd have sold it when i married but the market was rubbish).

Also, if you had a huge deposit and bought a big house on interest-only and planned to sell and move to somewhere small to pay off the capital that'd be perfectly logical.

Basically, an 'interest only' mortgage is like renting, and for a while it was far cheaper than renting so relatively sensible if you understood you werent' paying off the capital.

I'm assuming though that the daily fail people were not in that situation.

FrankelDeBeauvoir · 31/10/2012 18:45

I can see a property crash coming when all of the "interest only" mortgages sold in the mid/late 90s come to an end. There will probably be a flood of properties being sold to pay back the outstanding funds. [hsad]

expatinscotland · 31/10/2012 18:47

Oh, well, Frankel. Not my fault or my lookout. They'll all be crying for a bailout well, I'll be damned if I pay for their foolery.

noddyholder · 31/10/2012 18:49

It is a nightmare about to happen. So many people based their borrowing on teh monthly figure and nothing more. They deserve all they get

TalkinPeace2 · 31/10/2012 18:50

JESUS WEPT
Scroll down that article to the graph from the CML.
By 2003 80% of all mortgages being taken out had no method in place to pay for the damned house.
I realised it was a bubble in 2005 when I found out about those but am horrified how far behind the curve I was.

cornybeefhash · 31/10/2012 18:50

we took out endowments
we've had loads of warnings that they won't pay out over the last 10 years so we switched to repayment
I can't believe that anyone would claim not to know that endowments won't pay off your mortgage

VivaLeBeaver · 31/10/2012 18:52

I bought my first house with interest only and an endowment. The financial advisor from alliance and Leicester promised me that no one had ever had a short fall and it would be fine. This was 1998. Two years later there were scare stories in the papers and I rang him back, he still said everything would be fine.

I smelt a rat and rang alliance and Leicester who said I'd been misled and gave me all my money back and 8% interest. I'm glad I didn't just believe the salesman, I'm sure some people did.

kim147 · 31/10/2012 18:52

This reply has been deleted

Message withdrawn at poster's request.

WhoKnowsWhereTheTimeGoes · 31/10/2012 18:55

I bought my first house in 1994. Even back then the papers were full of articles spelling out the differences and the risks of endowment mortgages. I decided I didn't want one but an awful lot of people thought I was mad because they all believed the hard sell and that you would clear your debt with plenty to spare. I agree they have their place but you have to understand what you are doing.

bringupthebabies · 31/10/2012 18:56

Well I can vouch for some interest only mortgages being mis-sold. I went to a mortgage broker and didn't even realise I'd bought an io mortgage. I was in my early 20s, and it was a case of sign this, sign this etc..

Having said that, I effectively started again after 11 years and swapped to a repayment. I do resent the fact that it wasn't made clear (I'm not stupid or feckless). But I don't expect to be compensated.

colleysmill · 31/10/2012 19:04

I bought my first house on interest only because it was cheaper than renting back then. But things have changed considerably - when I sold it was worth twice what I'd paid but the climate is very different now.

I still think interest only is a viable product if you are canny enough to know how you will pay the outstanding balance or when to switch to repayment.

For me the biggest shock when we bought our current house was how much the banks were still prepared to lend - we were offered 200k more than we chose to borrow and this was only 4 years ago. We declined the extra because we worked out we could never afford that amount on repayment unless we had a substantial lottery win (and I'm not that lucky!)

noddyholder · 31/10/2012 19:05

The numbers of people who won't have sufficient equity to get a new deal when their current one ends is rising all the time. They will be forced onto repayment Happened to a friend of mine and her payments rocketed and she is struggling. It is not just a problem when selling many banks now require at least 40% deposit

EdgarAllanPond · 31/10/2012 19:06

interest only is a great vehicle for companies to buy houses with, as interest is tax-deductible - then they can use blocks of income from rent to pay down the sum as time goes one.

for most people a very bad idea - when we started our mortgage the difference in payments was only £100 - just not worth it.

noddyholder · 31/10/2012 19:07

4 years ago was very different. Lending criteria has really tightened.

Iggly · 31/10/2012 19:10

Some people are idiots. Some people take a gamble.

I took out a 100% mortgage but did it on the basis that I knew my salary would go up (qualified professional) so I could overpay. Which I did and now we're on about 75% after 6 years.

How can you stop idiots borrowing though?

HoobleDooble · 31/10/2012 19:11

Hmm so if they use 'their children's inheritance' to pay off the shortfall, won't the money still actually be there for their children when they pop their clogs and the house is sold? Am just not feeling the sympathy vibe when people are finding it impossible to get a foot on the ladder and are paying inflated rents and will have nothing to show for it and/or leave their kids.

EdgarAllanPond · 31/10/2012 19:13

it was 2006 and lending criteria from any major player were still pretty tight- proof of income required and lending multiples (especially from Natwest/ HSBC) fairly restrictive.

the still ridiculous scenario where people were told they couldn't afford repayment mortgages that were lower than the rent they were already paying was around then, and still is now...

Sulfur · 31/10/2012 19:19

We initially had an endowment mortgage (taken out in the late 80s hype). We switched to repayment when we moved house and cashed in the endowment.

My parents had an endowment mortgage which matured in the late 1990s. They got quite a bonus from it.

At the end of the day, you have to lay a lot more than the interest if you are ever going to pay off your mortgage. A simple repayment mortgage is probably the simplest.

colleysmill · 31/10/2012 19:22

Edgar I think the 4 years was in response to my post :)

Although I too remember being checked out - payslips, evidence of savings and a 35% deposit etc. I was still gobsmacked at the time - maybe they got us mixed up with another customer.

I'm still glad we didn't take them up on the offer!

noddyholder · 31/10/2012 19:22

It is not the kids inheritance it is your debt you silly people. The inheritance is whatever if anything you leave once gone.

MadBusLadyHauntsTheMetro · 31/10/2012 19:26

Yes, when did perfectly normal people start talking about "leaving an inheritance" like they're in Downton Abbey?

Maybe I'm just one of life's natural peasants.

Bogeyface · 31/10/2012 19:31

Re: Inheritance, maybe I am just selfish but I think that if my kids want a wodge of cash they can work for it and not assume that it will just come to them on my death!

Bogeyface · 31/10/2012 19:32

And with 6 kids and only the house as an asset, they ain't going to get much even if I don't spend it in my retirement :o