Mad mortgage sob stories – what am I missing?

[amluuui]

I've seen a couple of slightly mad stories in the paper in the last few days, of people who have owned their homes for decades, yet have been on interest-only details. And now they're suddenly panicking about interest rates.

Like this bloke, who seems to have owned his house for over 20 years, remortgaged to pay for improvements and still has nearly half a million left to pay off.

He says: "We’ve geared our lives around the low interest rates of the past 13 years. I am the only earner in the family. If interest rates hit 6%, I’ll have to find an extra £1,480 per month – well over double what we pay now. That is totally catastrophic for our family, absolutely terrifying.”

Can anyone explain why on earth he thought this was a good idea? What would his rationale have been for doing this? (As a renter who is trying to save to buy, hell no I don't want to bail him out.)

Another woman here, who's owned her home for several decades and is on an interest-only mortgage. Why? It does seem she's had health problems, which is rubbish for her, but how was she planning to eventually pay off the mortgage?

Am still getting my head around mortgages and genuinely want to understand this, if anyone can help. I thought only landlords got interest-only deals?

But you had a plan and downsized. I'm talking about the people who complain that they want to stay on these houses when they can't even service the interest only repayments.

Similar here, my endowment paid off, with a tiny amount left over, mostly because for some of its term it was earning reasonable interest and because I later made payments on the capital. When interest rates for endowments fell the return dropped .

Unfortunately a lot of people who took out interest only loans really seemed to think that paying the interest would magically also repay the capital. I wonder who will be the first company to start advertising” Mis sold an interest free mortgage? Contact our legal team now.”

Over consumption is a moral issue in my opinion. Nobody is owed a 4 bedroom new build with a garage just because it fits with their desired image of themselves or an SUV and so on. There are also environmental factors that come into play and it just isn't sustainable for everyone on planet earth to just consume more and more stuff and that goes for those than can afford it to.

Also I say very clearly that I know that not everyone who is affected by this is guilty of the above but we just can't keep bailing out a system that doesn't work that relies on unsustainable growth or a personal or global level.

It's been flagged for years that mortgage rates will go up, I'm not sure why people are surprised. 6 years ago I got a 5 year fixed rate because I was expecting this scenario. Then last year got it fixed for another 5 years at a (to my surprise) slightly lower rate. What possessed anyone to take out tracker mortgages in the past couple of years?

Seems you knew more than Andrew Bailey!

I wonder who will be the first company to start advertising” Mis sold an interest free mortgage? Contact our legal team now.”

It's been happening for ages, viques:

https://commonslibrary.parliament.uk/research-briefings/sn00570/

I took a 2 year tracker because I planned on moving.

Then last year when interest rates started going up I fixed for 5 years as due to personal events I worked out that I didn't need to move for 5 years.

While I can port my mortgage I am not allowed to buy a new build with it and I know due to the price and competition for properties in my area, people happily buy new builds as they are tend to be done by small developers.

I don't think the question is bailing out, more so what are alternative housing arrangements?
There was a lot more social housing available before the turn of the century.

If people lose their homes the government is still going to be expected to house them - presumably if they could afford private rent (which is usually much higher than a mortgage even at these rates) they wouldn't have defaulted on the mortgage in the first place.

If that is they can even find a rental with the current shortage in areas that people actually want to live in.

We don't have rentals, we don't have council houses - where are they going to go??

Maybe I'm imagining it. Happy to see figures that show the opposite...

Also if the government is going to pay Housing Benefit anyway to defaulters - what's the difference in if going to the bank or pockets of a LL?
Either way we the taxpayers lose X amount of money.

We could just let them be homeless I guess?

We don't have rentals, we don't have council houses - where are they going to go??

That's the unknown bit. Is the gov expecting family to rally around and help?

Some people have interest only mortgages that run into their retirement age and no idea how to pay it off.

I actually completely agree on the over consumption. I'd personally ban SUVs!

What I'm objecting to is the tone of a lot of posts, like anyone struggling is a fool with no foresight, unlike the sage, financial expert that is the poster. For most people I know under about 40, "over stretching" was the only way they could buy a house at all - any house! Not necessarily a McMansion or somewhere desirable. And having struggled to get that deposit and buy the house, they're now faced with this - and a kind of more-fool-you commentary

These people have been exceptionally luck up to now. Frankly, they have lived above their means and fuelled house price rises for others.
This strategy will not work for the foreseeable future though and many people like this will need to sell.

@rainingsnoring tbf the ones I know will be fine. They will just have to cut back a little & bomad will likely step in.

Totally agree.

We've always been prudent and stayed well within the amounts lenders would allow us to borrow. Equity in the house of around 60%, fixed rate repayment mortgage that we've overpaid when we could. But the financial squeeze on income is beginning to really bite - over £400pm on gas/electricity/water alone. And when our fixed rate ends next year we'll be scrambling to find an extra £600pm on the mortgage.

And we have it so much better than many, many others. Frightening.

Well if you look I didn't actually say everyone was guilty of that but lets be honest some people did and perhaps need a reality check, they still have assets to sell and incomes. Support needs to go to those who need it to survive not to those who wish to maintain an unsustainable lifestyle.

Things need changing in general, a reorientation of values, less in equality with an eye on what our planet can actually sustain, but of course it won't happen.

We took an interest only mortage then got stuck as income changed and we couldn't remortgage. However we saved and overpaid as much as we could. Then finally managed to switch years later

Why would the defaulters automatically get housing benefit? They'll still have their jobs

People who can't afford to rent are already being helped out by family. I don't know how many spare rooms and sofas people have.

I have an interest only mortgage, 100% handed to me on 14k salary, self certifying, 17 years ago! A change in circumstances made it very difficult to remortgage but I've consistently overpaid and chucked a couple of lump sums at it. XH currently lives there so the interest rate hikes are hitting him but it's still a reasonably low monthly payment. The house must be sold in just over 8 years under the terms of our consent order which will clear the balance and give us both a decent lump sum, unless he decides to buy me out prior.

It is a risky way to buy a house, the mortgage company ring every year to check the plans for repayment but at the time it was the only way to buy

McMansion is a very specific US term so I'm not sure why people are using it here.

If the UK had lots of land to build millions a lot of large, aspirational (if badly designed) executive detached homes then we wouldn't be in the shit we were in.

I owe twice the original purchase price of my house on an interest only mortgage. I will now focus on repayment, but LTV is less than 30% and the debt itself is less than my annual salary.
Why the debt? Sandwich generation paying for parent and parent in law who were profligate and financing my child through Higher Education.
It's not a good look for a man on a £575k salary, who quickly found £65 billion to cover the butts of the casino pension fund bosses, who respects market forces in energy, groceries and other necessities but feels that those on the minimum wage should show restraint.

My friends with families moved in with their families, the couples or singles either rented privately or house shared. There wasn't alot of social housing in London even then.

I agree with @louladybug but I don't think someone needs to have a McMansion or an SUV to be living beyond their means. How many times have we seen posters advise to buy a family home before you have children because once you factor in childcare costs, potentially reduced earnings and the cost of having dependants the bank will offer you a lower mortgage amount? It is actually spelled out there that once you have to pay for a child and/or are earning less you cannot afford that house. But rather than factoring that into their budget and finding a cheaper house, people are advised to buy now before their costs go up and the bank tells them no.

These people have good intentions and may think they're doing the right thing by their family, they're just trying to provide an ordinary home for their kids, but at the end of the day they can't afford it. Buying a house is more than just saving up the initial deposit. You need to be able to make the payments throughout the whole length of the mortgage, through all different life circumstances.

Also - If that is they can even find a rental with the current shortage in areas that people actually want to live in.

They will probably have to live in those less desirable areas.

They're the ones who the taxpayer did bail out at great expense 15 years ago, and now they're benefitting from huge increases in mortgage repayments due to interest rate rises!

Kindly, you need to go back and do Economics 101 again. The banks don't make more profit the higher the interest rate rises.

We have an interest only mortgage. The repayment vehicle is agreed as "selling the house" as we have a lot of equity.

We have some years to go on the mortgage so we have plenty of time left in which to sell in order to repay the outstanding balance.

But in the meantime our monthly mortgage payment is much lower than it would have been on repayment. Our monthly payments have trebled as we're on a tracker but we can still afford it.

Bizarrely, interest only mortgages only seem to be available if you have a high salary (over £100k I think was the stipulation when we switched to IO) and if you are not trying to sell.

If lenders get any whiff of financial difficulty they won't let you go on interest only. Which is when you might most need it.