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.

My parents had an interest only mortgage. Both are now dead (Dad died last year). The mortgage co won't tell me what is outstanding without probate. Probate want to know what's o/s on the mortgage! And he didn't have life insurance....

Badvoc, good. I was just interested.
I think the budget changes (in effect supporting low interest rates and house prices) have helped too.

Mrs C I would up my father's estate. Just about everyone I contacted gave me every detail I needed if I produced the original of the grant of probate. I could even do a credit reference search in his name. Just ask the executors for an original of the grant of probate and then email it and post it to the mortgage company having first asked to speak to their "deaths department" which seems to be the way to get through to someone who will speak to you even though you are not the borrower.

On endowment policies which people often took out with interest only loans in the old days I had not remembered that many years back the lenders were more protective. This letter in today's Times explains.

" Sir, Margaret Thatcher was noted for her adoption of the monetarist theory that the way to beat inflation was to limit the supply of money. It is regrettable that the same principle was not adopted to avoid the boom in house prices caused by unrestricted mortgage lending. Before the deregulation of building societies it was not possible to borrow more than the guaranteed maturity value of the associated Life Assurance Policy. In good years this led to a healthy bonus pay-out on maturity, easing the homeowner into retirement. What has now happened was entirely predictable.

Peter Schofield
Oxford "

It's odd, actually.
We literally had the choice between 2 mortgage products from different lenders.
Back in the day (2000-2006) we changed lenders twice at the end of our fixes and we could have had the chicken between hundreds of products...and now there do seem to be more than there were even 15 months ago.
Why is that do you think?
Is it that the govt is actually forcing lenders to lend again?

Chicken!?
Choice, I meant.

We have no chance of a penny of residential mortgage, but they will lend to us freely when it's a btl mortgage, with rates of just 3% without providing info on our incomes. It sounds like the new self cert.

Arf at chicken [pendant]

Why is it easier to get a BTL IO mortgage than a residential one?

Dunno, Jenai, our mortgage broker is quite creative. He has got DH two mortgages using a loophole, now closed, on whether your accountant was certified or not. And now he says if you own a property and let it out for 6 months you can get further btl mortgages off the back of it. So we bought a small flat in cash and are hoping to be able to buy property in 6 months. Property we would never be given a mortgage on as individuals.

If its a btl it is a business venture, so they look at the rental income against mortgage payment and make a decision on that basis.

Of course, you can live in it if you want, hardly going to bump into your lender over breakfast. But you are liable for capital gains tax when you sell it, unless it is your sole residence for 3 months I think (haven't checked that in a while).

Sorry, the btl mortgage isn't IO, it's repayment.

Thanks Xenia - there are no executors yet. I'm doing the probate myself. I can't afford a solicitor, but once I have the admin permissions then I'll be straight back to the mortgage co. For now, the probate forms will have to be accompanied with a copy of the mortgage statement which appears to show the outstanding amount. Although it could be the 'paid' amount. It's a very badly designed and worded statement!

Why is it easier to get a BTL IO mortgage than a residential one?

I'm assuming because it's lower risk - the property can be disposed of without making yourself homeless (although obviously it may make your tenant homeless ).

Chicken is right up there with pendant on this thread. The power of auto-correct.

I find this thread quite sneery, smug and patronising. People with IO mortgages are not stupid, as some posters have suggested. We had a repayment mortage. Our financial circumstances have changed drastically and unpredictably so we switched to IO. I don't know when we will be able to switch back. I don't know that anyone is 'bleating' or expecting the government to bail them out. Some rather unpleasant, self righteous posters on here.

We have used IO at various points. We were specifically advised it was our best option when buying an investment property (for me to live in short term,as we had to live apart for work for a couple of years, now rented out). As I receive bonuses etc, we were advised that as long as we were disciplined about using them to clear capital, we would clear it quicker than on repayment.

We have just taken another one on another property as a re-mortgage. We had fully paid off a repayment mortgage on it but can't sell at the moment (relative living there rent free [grrr emoticon ]) but need our capital elsewhere. Its only about 70% LTV. I am not concerned in the least as we will be able to sell within about 5 years and will be able to pay it off easily.

Haven't seen any sneering, but I have seen lots of people saying they flhave IO mortgages and fully understand the risks.

What cyclingtreadworn said.

The only other option would be to sell and rent...paying out the same each month, but with the fear of the landlord ending the tenancy.

also as tripot said - the amount of effort the bank has to go to help you with a BTL mortgage rather than a residential is a lot less - you stop paying and they can go to repossession much quicker than if it's owner occupied. Far less risky for the bank.

Surely if houses are worth 3 times what they are worth now in 15 years, it makes sense that that nice cottage or smaller house will also cost 3 times what it is worth now ???

I cant imagine that this will be the case( 3 x rises) as many people are struggling to get on the housing ladder now .Where is the money going to suddenly appear from when salaries arent going up and the cost of food,fuel,childcare etc rocketing ??
Im rather risk averse and I cant think of anything worse than having to sell my house aged 60 plus when I may have other significant life events- retirement,ill health etc.
Franklin had it right when pronouncing that the only 2 certainties in life are "Death and Taxes"

Yes, the BTL seemed so much easier for my daughter because they include the rental income as your income so if you're making say £18k a year rent plus add on your salary the income you have is both.

I would not recommend anyone taking out a BTL but never intending to let as that breaches the mortgage conditions. What my daughter's broker said was when she can afford to mvoe into it which may in say 2 years' time then you apply to convert the BTL loan to a residential one, the interest rate goes down as BTL interest is higher and by that time her own salary will have risen, may be even doubled, so she can get that residential loan - that is the theory anyway.

It certainly crossed my mind though that people could get these BTL loans if they have 25% deposit which of course most people don't have, and then live in the place.

I agree about CGT if we think any gains will be made - you will pay 28% on the profit on your sale of a buy to let although if you live in it then that is not letting and no CGT.

(Deaths - that's true - we had to fill things on the form to get the grant of probate but had all the files. Surely the dead parent has files at home on which every mortgage statement is retained so you could not need that from the lender?)

It certainly crossed my mind though that people could get these BTL loans if they have 25% deposit which of course most people don't have, and then live in the place.

there are a few divorcing people that have the capital but are still strapped for cash and want a cheaper way to do things - they may have maintenence to pay etc and once that is paid they can change around

Surely if houses are worth 3 times what they are worth now in 15 years, it makes sense that that nice cottage or smaller house will also cost 3 times what it is worth now

so If I buy a house in 1990 for 52k and it trebles in value

A nice small house or flat was 28k and that trebles in value

I sell the house for 156k and pay back the original 52k which leaves me 104k

now the flat is for sale at 85k

that leaves me 19k

Juliecarp - i know you said 15 years but I was using real figures over 23 years which would of course be the life span on a lot of mortgages and those are pretty much real figures of property prices in my area in 1990 and now in 2013

For a lot of people at 60 they might not want to look after a larger house, it is a drain on their finances and they may want a smaller place and release captial to take a few holidays as they retire.

In my experience people don't really want to downsize.

We sold a flat that was an ideal downsize (gardens maintained by maintenance company, ground floor, near to local shop/GP/dentist/pub, not far from naice walks, etc) and I lost count of the downsizers who hadn't realised that reception rooms in a 2-bed flat would be smaller and with lower ceilings, etc, than the reception rooms in their Edwardian 5-bed houses. Well, duh.

IvyI was referring to the post upthread that estimated that in 15 years time the current price of their house would have trebled and so they would sell and use the equity to pay off the IO mortgage and in addition buy a small cottage.
I really cant imagine that if the current house is worth 500K then in 15 years time there will be a queue of people wanting or being able to pay 1.5K given that salaries are not increasing and bonuses cut ,not to mention living costs etc.
Sorry if Im being unclear -Im not referring to myself or my situation.
I bought my property in 1987 so am well aware of the way in which property prices fluctuate but surely they have reached a point where they are becoming unaffordable for so many.What would happen if interest rates shoot up is unthinkable or maybe I dont understand property prices at all.

I don't know who has sneered. It think it is interesting pooling of information. Also it's a gamble. My daughter and the other 4 children when they buy they don't know if they will sell at a loss as I did in the 90s or make a profit. There are no guaranteed profits in property and if you buy to let the profit over your interest is really hardly worth the effort unless there is capital appreciation which there may not be.

However for a home most people do for psychological reasons do best if they can buy so I think it's worth a risk to get you started even if it means a few years of no holidays and scrimping and saving.

The deposit issue is the big one. If you can get 90% interest only loans as someone said on the thread above you still need that 10%. The first house we bought now costs £275k (outer London) so assuming both husband and wife work full time as plenty of us do that means each of the two partners raising £13,750 from their savings or loans from parents. Not easy for many and you need a joint two full time working salaries or large one salary to allow you to borrow £275k less 10%.

(mir, law. Trainee £40k. 2 years qualified £70k+ and onwards. So not quite doubling but in 3 years if you're good. Most people aren't good and plenty don't earn much in most professions. The pay is published www.rollonfriday.com/InsideInfo/CityFirms/tabid/68/Default.aspx

It does illustrate the importance of ensuring daughters do know about wage ries in teaching, medicine, call centre worker, Tesco etc etc so they can make informed choices about their lives in their teens rather than hanging out on mumsnet credit crunch threads in their 30s scratching around to save 50p on a pack of beans)