Active discussions

Meet the Other Phone. A phone that grows with your child.

Meet the Other Phone.
A phone that grows with your child.

Buy now

Please or to access all these features

Talk
News

See all MNHQ comments on this thread

Original poster

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

307 replies

minibmw2010 · 02/05/2013 09:06

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.

OP posts:
Talkinpeace · 03/05/2013 18:04

LaQueen
in 15 years time, we're fairly sure that our house will have at least doubled in price, from what we paid for it 6 years ago, and will most likely have tripled, if not more
You are very optimistic.
House prices in Japan - which has been in a long slow recession similar to the one the UK is now in - are currently just below what they were 20 years ago.
House price inflation UK style - at greater than real inflation - was a bubble that has now burst.

ExcuseTypos · 03/05/2013 18:08

Agree Talking.

There is no way house prices are going to triple in the next 15 years. I'd be very surprised if they didn't remain very stagnant(apart from London).

handcream · 03/05/2013 18:14

We have been in our house 15 years (South Bucks). It has doubled but we did a huge amount of work on it and a extension. I am thinking of my DM in West London. She paid 90K for a small 2 bed which is now worth £380-£400k. Its in a nice road 2 mins from the tube.

But that was 30 years ago. So I guess its possible

LaQueen · 03/05/2013 18:16

This reply has been deleted

Message withdrawn at poster's request.

LaQueen · 03/05/2013 18:18

This reply has been deleted

Message withdrawn at poster's request.

Talkinpeace · 03/05/2013 18:20

Laqueen
We've already had one couple, perfectly happy to pay us £120K more for this house, than we paid for it 6 years ago
But you still live there so that is a hypothetical figure.
My house is "worth" more than four times what I bought it for.
But until that money is in my bank it is worth what I owe on it. Not a penny more, not a penny less.
AND
what house I can buy with any funds I receive is limited by the same factors.

Houses are not an "investment" - they are houses.

Xenia · 03/05/2013 18:32

90% of people with IO mortgages have a means to pay them back or a plan so it's only the 10% where there is a problem and they need to be reminded of the risks. A lot of women on the mumsnet divorce threads have a house with negative equity on divorce and the argument is over who keeps up the mortgage when they part and how wants the debt.

In some ways we were the converse. We paid off our first mortgage entirely and on two flat by the time I was about 33 and then bought this house on only a 10 year mortgage - very expensive but if you can afford it imposes quite good discipline on you. I don't think I would ever want to downsize.

Sometimes IO mortgages though are right for people. The main thing is that people listen to the name - interest only. You would have to be pretty stupid not to assume from that that you only pay interest and are paying nothing back.

Virgil · 03/05/2013 18:33

We are interest only and thank god. This week I have suddenly found myself technically unemployed. If we were on a repayment mortgage we would immediately be unable to cover our outgoings. As it is we are fine. As long as we cover the interest nothing happens in the short term.

JenaiMorris · 03/05/2013 18:33

Yes you LaQ! Wink

The cottage I rented was sold by my landlord for £50k in 1992-ish. Last time it sold was in 2008. For £180k.

Back in 1992 there is no way I could have raised a 10% deposit, but the payments on an IO mortgage would have been less than I paid in rent and even if I'd never bothered with an endowment I still would have been quids in.

Instead we have a mortgage for £150k on a less nice house, bought in 2006.

LaQueen · 03/05/2013 18:34

This reply has been deleted

Message withdrawn at poster's request.

JenaiMorris · 03/05/2013 18:34

I was living in the cottage when it was for sale btw (I have had Wine sorry)

LaQueen · 03/05/2013 18:36

This reply has been deleted

Message withdrawn at poster's request.

Talkinpeace · 03/05/2013 18:52

I won't have made a fortune, but I will own my house mortgage free within two years .... despite being on an IO

LaQueen · 03/05/2013 18:58

This reply has been deleted

Message withdrawn at poster's request.

JenaiMorris · 03/05/2013 19:35

That is making a fortune though Talkin. In two years you will no longer ever have to worry about paying to put a roof over your head!

Talkinpeace · 03/05/2013 19:55

LaQueen and jenaimorris
I've not done it in 2 years.

The original mortgage was taken out in September 1987.
THe endowment paperwork - which I still have stated £48k : reality was £22k
Between now and the end I have another crap endowment coming in.

But DH and I stopped relying on house price rises the day (in 2005) I discovered that IOs without repayment vehicle were standard.

Molehillmountain · 03/05/2013 20:04

I am not surprised people have interest only mortgages-part of our mortgage is interest only and with a well performing endowment it's not a problem. I'm also not surprised if people go interest only for a few years when they need to, perhaps when childcare costs are high, knowing that they'll need to accelerate their saving later. I am amazed that anyone takes one out with no plan and I can't see how mortgage companies can let this happen. Smacks of misselling to me.

Xenia · 03/05/2013 21:31

I don't think it is mis-selling because as most people own a home for 10 - 20 years even someone with a 100% interest only is likely to have some equity increase in that period and if times go badly can sell. I do not believe it is the duty of lenders to bail out those interest only people who fall behind with their mortgages and have to sell when they are in negative equity. Nor do I think the risk that some people fall in that category means all interest only deals should be abolished.

However if a broker told someone their endowment would more than cover their loan and if they can prove he or she said that then yes that could be a mis-selling case.

AudrinaAdare · 03/05/2013 23:24

Starlight's post about responsibility being a luxury these days struck a real chord. So true.

However, there are some utter idiots with a huge sense of entitlement out there and they are not those who are struggling to feed their children and heat at least one room. Shona Sibary and Poor Keith for example. "Free money" culture indeed.

Wuldric · 04/05/2013 01:06

A lot of people (particularly those with self-certification mortgages) took out interest-only mortgages without an endowment. Once upon a time, this was possible. I have a friend in this situation. I think she was planning that galloping inflation would erode the value of the debt over the term of the mortgage, then they would be able to sell up and buy a smaller property at the end of the term.

Inflation has not been galloping so far.

mamateur · 04/05/2013 07:10

What Jenaimorris says resonates with me. My zero-deposit, IO loan got me on the property ladder and away from the uncertainty and expense of renting which I would never have been able to do on a 10% deposit plus repayment mortgage. In fact it allowed me to 'earn' 125k which I took out and have since invested and doubled. I rented my flat out for over 2k a month before tax and my IO tracker mortgage payment went as high as 1700 before dropping to 415. If I hadn't done it I would not be financially secure now. It was the only sensible financial decision I have ever made in my life.

I never had the slightest intention of living there until the end of the mortgage.

CalamityJ · 04/05/2013 07:41

Can I be a pendant on this thread and remind people that the past participle of buy is bought not brought? If in the present tense you would use the word buy then the past tense is bought. If in the present tense you would use the word bring then the past tense is brought.

For example I brought a house at the height of the market in 2007 is incorrect as in the present tense when you were buying the house you wouldn't have said I am trying to bring a house at the moment

Correct use in the past tense is When I bought my house to rent out... and When I brought my child to school by car... because you would say in the present I buy houses to rent out and I bring my child to school by car Yes I'm a pendant but it does annoy me when people say they brought a house because they wouldn't bring it, they would buy it.

Ledkr · 04/05/2013 07:46
Biscuit
tribpot · 04/05/2013 07:48

Calamity I'm afraid auto-correct has rather undermined the point you were wanting to make :)

Xenia · 04/05/2013 08:22

Did anyone say they brought rather than bought a house? It is not a very common error. If it were done then presumably it is more likely to be a typo.

mamateur's example shows how having a relatively free market which allows lenders to offer IO loans where they think the person is worth the risk is a good idea as it gives people opportunities.

I certainly think it wise that the FCA is requiring lenders to advise those whose loans mature by 2018 or whatever it is who are on IO that they will need to have a means to pay the loan off however.