to wonder why anyone in their right mind would want to take out a 125% mortgage?

[wannaBe]

Obviously these mortgages aren't really as available now as they were a year or so ago.

But earlier I caught the end of a discussion about Northern Rock and how people didn't consider the reality that when they take out a 125% mortgage they are already in negative equity as soon as they move in.

I can kind of see why someone might take out 100% although even that would be risky IMO, but 125%? why why why? Surely if you had that much debt that you needed an extra 25% of the value of your new home to cover it then that's not really the best time to be considering buying a house in the first place?

I heard this too
'toxic chickens coming home to roost'
I thought the same.
Mad idea

well people who thought house prices were going up quickly and who anticipated their earnings would soon be going up too

buy house that needs doing up
Have you never watched grand designs?
Buyold pile of castle then spend like mad doing it up
Mental I say

Well, Kirsty Alsopp says house prices only go up. So obviously if you borrow 125%, and sell it for twice the price you paid for it, you're quids in and on the housing ladder.

Like, duhh.

madness

did you hear the Gov are planning to suspend stamp duty to try anc kick-start the housing market? why can't they just accept it is a fecking CYCLE and let it progress?

...it's easy to believe the sales hype, most mortgage "advisors" should be termed "salesmen".
They tried this line on DH and I, unfortunately I'd gone through the mortgage details and underlined all the things I wanted him to clarify and noticed most of the time he couldn't and DH sat there and did the repayment maths in his head faster than the advisor could do on his calculator.
He soon saw he was onto a loser and stopped trying to sell us an endowment.

Interestingly we bought a big place on a big mortgage and immediately took in lodgers to cover the repairs and mortgage and we're paying it off early.

So you can do it, if you plan, but most of the time the advisors are to blame for being far too glib and not explaining the risks.

it is hard to have sympathy for such folks.

Agreed, if you can't afford to save the extra for either the deposit / fees / furniture (not all, but at least some of it), then I think it should be telling you something. 125% mortgages are just madness.

TBH - the banks have created the credit crunch with all their irresponsible lending - 125% mortgages being prime example of this.

IMO, BOTH the banks who lent irresponsibly AND the borrowers who borrowed irresponsibly to pay over-inflated prices are equally at fault.

My friend got a flat at 110% in 1996 and it's all worked out fine for her.

She had no deposit, but she did need somewhere to live, and was prepared to have to stay put for years to come.

To be honest, for some people it would have been a marvellous idea. Remember all those episodes of Property Ladder where the owners wrecked the house/overspent hugely and still made money because of the rising market?

Cuckoo makes a good point. If you are staying put for years then the mortgage amount does not matter. Interest rates putting the payments out of reach is more of an issue. I would be more worried about 4 or 5 times income mortgages.

I thought she was crazy at the time. But the flat was in Eltham, shit area, but handy for her work, her family were in Essex. She had a steady but not brilliantly well paid job and she needed somewhere to live. It was a 2 bedroom flat and she could have got a lodger..

I think it depends really. If I were the main breadwinner supporting a family of four or five, I would not do it now though.

It's easy to criticise now though, isn't it?

Friends of ours got a 125% mortgage because it swallowed up the loan they had, which they were paying a higher rate of interest on at the time.

We got a 110% mortgage as we were first time buyers, the house was cheap and needed totally doing up - it's all worked out fine and there's no chance of us slipping into negative equity any time soon as we've been here 5 years and will probably be here another 5. People like us are not stupid or ignorant of the risks - we did not want to be renting with a little one on the way and desperately needed to get on the housing ladder quickly. We also made sure we had a fixed rate and could afford the mortgage and all our bills on DH's wage alone so when I went back to work we had quite a lot of disposable income.

Oooh, no 125%?! Yikes. NOt in this climate.

In 1998 we bought our first property with 100% mortgage but we were in London and in that market we were never going to lose.

They are making silly decisions but desperate ones - it's not all greed.

My SIL did it. Desperation in her case as four years ago prices were rising so fast and it was her and her DP's only chance to get on the property ladder. They did not want to be stuck with a lifetime of insecure renting with a baby on the way. Now she is screwed as her second 2 year fix is coming to an end and she will really struggle to make the higher mortgage payments.

On other threads currently on MN there is a landlord who intends to throw out a family who have just had a baby because he thinks the flat is too small and another poster who has been subject to harrassment by her landlady and is now under enormous pressure. These stories are common. In that context it is not surprising that people were so desperate that they were willing to sign over an amazing proportion of their future earnings.

We've been renting for yeee-ars... and have two little ones now. I would much rather that than overstretch ourselves and run the risk of going into negative equity, or rates meaning the payments become unmanageable.

Ok, I've been swayed by my German DH, who is himself influenced by Germany where the culture is to rent for years and years and years, and it is seen as quite okay and normal, but, still, it makes sense, and has done for the last 5yrs.

And, we started to think about buying at a time where all the warning signs were pointing to a downturning market. So, the last three to four years or so. We very nearly bought, and I am bloody glad we did not. We didn't because, shock horror, we READ the predictions, looked at what advisors were saying, and also at how historically the UK market has generally followed the American one a year or so later.

Why get into such a MASSIVE purchase / debt, without being fully informed and knowing what you are getting into, and what the chances are of the market going up or down...? It's just common sense.

Seems everyone on here who's got a 110% / 125% mortgage has done so on pretty secure footing, and I am not trying to slate that, but I find it very hard to have sympathy for people who walk into these things without thinking, just desperate to get on the all-important ladder, and do not read up on it first!

We were actually encouraged by our mortgage advisor to take more than 100% mortgage, he said we were the perfect people to do so, first time buyers, buying a place that needed a bit of work, on progression ladder at work.

He said that more likely by the time we actually completed we would already have equity or break even with value!!!

Luckily for us, we chose to ignore that advice! We went with Northern rock anyway with the Together Mortgage, but with a deposit of our own (albeit only 5%). We did get some equity, but with house prices dropping, we would now be in negative equity if we had followed the advice.

The Together Mortgage itself works for us, as we made lots of overpayments, and when I found out I was pg two weeks after moving in to our new place, took a maternity break, which I dont think many other mortgages offer.

But there is no way I was going to take more than the value of the house just to buy a car or a new kitchen ffs!

I know a couple who took out a 125% mortgage with Northern Rock.3 years ago now, thinking of it.They thought it was the right thing to do at the time, like manyothers who are desperate to get out of renting propertyand into buying.

see I don't think it's all down to the banks.

I think people need to take personal responsibility. If you borrow beyond your means you do so by choice, yes the banks are offering the money but no-one is holding a gun to your head and making you do it.

People who get into massive debt are often all to quick to say "but it's the bank's fault for lending us the money" no it isn't, it's your fault for borrowing it.

I agree that people who borrowed more than they could afford should take personal responsibility for their own problems. But they did this in a context where the conventional wisdom was that house prices only ever go up, where social housing is effectively unavailable, and tenants in private rented accomodation are regularly taken advantage of and have no security of tenure.

House prices tripled over the course of a few years and the media insisted it was good news. There seemed to be hardly any questioning of "good news for who?" and little sympathy for those who did not already own property. Even now, we have to listen to smirking idiots like Kirstie Allsop twittering about how we all benefitted from the boom and the government must intervene to keep the cost of housing high.

Accomodation is essential to our wellbeing - that the price of it increased so fast would have been treated as a problem by any responsible government.