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

[CherylWillBounceBack]

....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.

Chipping, if people can't afford a repayment mortgage for their house so they buy with IO, then that implies they have no proper repayment vehicle in place. If this is the norm to be able to afford a house, it also tells me prices are too high and we're building up even bigger problems.

But we already knew all that anyway.

Oooh, now, can I look forward to someone coming around to my way of thinking and compensating us for fixing our mortgage interest rate for TEN FUCKING YEARS? We need restitution for month after month of anguish as rates fell through the floor and we were left paying squillions while less prudent types quaffed champagne and bought new kitchens with all that spare cash. No? Well, fuck it then, no, I don't want to bail out people who are too lazy to read the small print.

MsV while I can understand the logic, I dont see that you will be as happy to "just sell" in 25 years as you are now. And lets assume the worst, what if you sell and have just enough from the sale to pay the capital, then what?

What will you do then?

I am not trying to be a doom monger, but it really does seem too risky to me, especially when you were in a position to buy a place outright. I would have done that, waited ten years and moved up the ladder.

It is not just the interest payments You also pay all the maintenance over the years you effectively rent and have no landlord to sort out the repairs etc. then the bank still own it you have made them a nice little,profit unless you sell and make a good amount.

Cheryl - I think it's the 'norm' around here for people with young families who intend to work more once the kids are in school or sell the house and pay back the principal if they have to (ideal to over pay once the kids are bigger or they get inheritance!). As I said, not ideal, but certainly better than renting. I don't blame them one bit.

It is much harder to think of moving and giving up your home further down the line though. The people I know in this situation espmthe woman are gutted,they enjoyed the financial freedom when younger but both now would love to keep the house but can,t. They will have v little once the bank take theirs and will be renting at 67 and 63

Thats exactly the point I was trying to make Noddy

Its a good idea in theory, especially rent being the price it is, but you invest emotionally in your home and having to give that up after 25 years, to be left with practically nothing isnt that easy. I wonder if MsV would understand that if she spoke to your friends.

Nobody who took out an endowment in the 80s/90s can honestly claim to not have realised the value would never be as high as originally forecast - the media coverage alone, even if they never, ever opened one of the dozens and dozens of letters we've all been sent from the endowment people over the years.
When we took out the endowments, interst rates were high, so the predicted returns were high, but so were our mortgage rates.... and I'm talking about 13%,14%. So, when the interest rates started dropping - meaning the returns were never going to be as high as promised, so too did our monthly mortgage repayments. It was the choice of every mortgage holder to either
a)save to pay off some of the mortgage / cover the shortfall
b)change to repayment or overpay the interest and therefore end the term without a shortfall (or even, end the term early, as has been perfectly possible)
c) spend the money freely on all sorts of other things, knowing that you will then need to sell your house (when you are able) to pay off the loan at the end.
They made their choices.

IO can work out very well. It is for us.

We have a lifetime IO mortgage of +0.6% above base rate!
It was an offer too good to refuse. We also have a lot of equity in the house.

We do make savings every month into bonds, Isas etc. we are earning far more interest from them, than we are paying out in interest on the mortgage. We would be mad to change to a repayment mortgage.

I do agree though that people not being aware of what 'interest only' means, after having the mortgage for years, are being a bit naive to think people will a) believe them or b) have any sympathy.

I'd also add that it isn't just like renting. If you stay in a house for a long time, say 15 years, you will almost certainly benefit form house prise rises.

Backforgood

In my friends case they were told that the returns were guaranteed, as were a lot of people then, by sales people masquerading as financial advisors. The sales people were so desperate for sales that they would tell people anything, and thats why there were so many people who got compensation because they were led to believe that their endowment policies were protected from interest rate falls.

price

I understand that BogeyFace, at the point of sale, but since about 1998ish (can't recall exactly) everyone has been bombarded with the information that nobody's endowment will be enough to pay off the original mortgage it was meant to - that's 14 years, or over half the life of the mortgage if your mortgage was ending this year. As everyone else has said, we all knew we had to do something with the money we were all saving each month by no longer having to pay interest at 13% or 14%, which we originally all started doing. Not to mention the fact you could use any mis-selling payout to pay off some of your mortgage, or all the thousands of people who picked up unexpected payouts when all the Building Societies demutualised (the same people who were mis-sold those endowments were the ones receiving the payouts).

I think we agree but are saying it in different ways!

I agree that since then (my friends bought just before the "endowments are the work of the devil" explosion), there is no excuse to not plan ahead for the fact that your endowment is under performing.

I was just saying that at the POS, alot of people were actively misled.

I cant help thinking that that "mis-sold" IOM will be the next PPI, which was the new "Mis-sold" Endowment,

'If you stay in a house for a long time, say 15 years, you will almost certainly benefit form house prise rises.'

Not really. It's been the case in the last few years but the most likely scenario now seems to be a slow decline over several decades, as in Japan.
It all just depends when you bought and how much choice you have about when to sell, so you can take advantage of short-term fluctuations. It's worked for a lot of people in the past but many are coming unstuck by assuming that now.

I do agree thought that it depends on when you bought and how long you intend to stay in the property. I was just trying to provide another prospective-IO isn't always bad and it is (for us and others who bought before the height of the market) working out very well and is a hundred times better than just renting.

Yes, Quick, sometimes an interest only mortgage can work out fine, if there is some plan to pay off the capital.

For most people, mortgage rates are higher than savings rates, so the best kind of "savings" to be made are actually mortgage repayments.

Another factor in this, is that it is currently government policy (and has been for years over successive governments) to keep inflation low. In the '70s and '80s inflation helped to pay off your loan. That's something we can't currently rely on.

Yes, it has been an excellent strategy for some people.
I think that's why I'm so annoyed by this mis-selling business. It's a gamble, you reap the benefits if it works out so should not be protected from the negatives if it doesn't.

How did you manage to save if you are renting impossible for many

I have IO, put down 30% needed to move when prices were at the highest thankfully flat is now at the same price as I bought. Since being made redundant I could not pay into any other savings. Luckily mortgage is being paid by my tenants and in a few years will be ale to sell and buy again. I am 40 now so though my position is not great I can in a few years sell flat and get another mortgage I would really struggle to get my first mortgage at 45 on my own.

Not everyone was foolish many were but circumstances change

Am bored.
Anybody want their endowment figures checked?

Send me a message with
provider, start date, number of years, monthly premium, basic sum assured

and I'll post onto the board your name, the value of the endowment and my most cynical guess of what mortgage it was meant to cover [hgrin]

or do it as a message if you wish to save the company their blushes!

I haven't read the link. But articles like this in the fail are just provided for people to have their two minute hate. Like the article today (I haven't read it, DH was wittering about it) about the 100k per a bum couple whining about losing their child benefit because they will no longer be able to pay for piano lessons. It's just an aunt Sally.

As for a crash when all the stupids find they have to sell/re-mortgage etc - here's hoping. No way we're buying a house otherwise.

Lets face it the vast majority of house buyers using IO mortgages and the banks that sold them the mortgages were assuming that house prices would always go up and therefore a repayment plan was not necessary. The house could always be sold for more than the mortgage plus a nice tax free profit - or so they thought.

There is a woman near us who frankly lived the last decade by buying, doing up and flipping houses on IO mortgages. She took the proceeds tax free when she sold and bought another house. Problem is that house prices are actually falling in our area now. She has a house half refurbished, she has run out of cash, the bank will not lend her any more to complete it and she will not be able to sell it for what she has spent when she has done. That game is over.

Likewise, boomers who kept borrowing on credit cards and then remortgaging as their house as it went up in price to pay off the credit cards have also come unstuck because banks will no longer lend like that and house prices are no longer going up. Lots of buy-to-let flats on IO mortgages were bought by boomers too as their pension. Now they are all selling these flats at a loss in our town.

It was a kind of collective madness, where people earned more by just buying flats and houses than going out to work. Indeed, wages have been stagnant for most people over the last decade so borrowing against property to fund their lifestyle combined with ever falling interest rates had to end.

Cheryl completely agree, and if you ever find somewhere to emigrate to PM me with a heads up. Seriously it annoys me intensely that savers are sacrificed in the cause of low interest rates for borrowers, obviously there is a balance to be struck but there should be some recognition of the value of saving.

Starting with a rule that the Bank of England is not allowed to drop the Bank Rate below the RPI inflation rate and that National Savings will always provide a retail savers account that pays at least Bank Rate tax free on a 3 month notice savings account would be a good start.

That way banks would have to compete with National Savings for savers cash by paying a proper rate of interest some way above the rate of inflation.

Good idea MoreBeta. It would also help out with the pensions situation by making it attractive for people to save for retirement, not to mention the tax revenue from interest payments. At present I look at my savings (even that in the ISAs) and sometimes think I'd be better off just spending it all on gold.

Yes, I'd be in favour of that too....