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

[minibmw2010]

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.

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.

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

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.

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!

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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).

Typical ... Arriving late at the party

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 :(

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

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
www.money.co.uk/mortgages/interest-only-mortgages.htm

There seem to be 90% loans around still, not sure if they are interest only however
www.knowyourmoney.co.uk/90-percent-mortgages/?gclid=CMm_gfOG_LYCFVMftAodomUAgQ

Pendant. That's priceless

There's all sorts of conditions that you sign when you get a buy to let mortgage....ie 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....

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.