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?

@Spinet

'why not just rent?'

*it's cheaper!!'

capital from increased price in property.

• no landlord
• no being evicted
• make improvements to YOUR property
• decorate how you like
• harden how you like
• no inspections

Etc etc

years ago I had an IO mortgage. I wanted to reduce the monthly repayment while I worked part time & renovated the property.

when I'd renovated & worked FT I went onto a repayment mortgage.

it's fine when you make the decision understanding what it means.

Whoops, quote failure. Apologies.

A cousin of mine from the scruffy side of the family bought their council house under right to buy in the early 1990's with an interest only mortgage. In those days if you claimed Income Support they covered the mortgage interest with benefits resulting in them pretty much paying nothing for it.

25 years later and they sold up at a massive 200K profit as the area has been heavily developed over the years and house price went a bit crazy, paid off the tiny mortgage and moved in with their elderly Mother to take full advantage of her nest egg.

No idea how they managed to get an interest only mortgage for a right buy but it was certainly very profitable for them.

All explained in my post before the one you quoted.

This is probably why HB isn't available for owners. You're giving people an asset, if they ever have any chance of paying off the principal.

@magic, it's 10% of the original mortgage (well the ones I know about anyway)

They have a far better healthcare system over there. That's the reason anyone with say a serious cancer case who can afford it, goes to the States. Not to mention long waiting lists are literally unheard of.

What we've got is a FREE healthcare system. Well, free at the point of use.

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.”

I read an article somewhere — can't seem to find it now — that a lot of people taking out a PCP to buy a car (you pay a deposit and then an amount each month for 48 months) expect to own the car outright after that period. Apparently many have no idea that there is still an outstanding lump sum of thousands that they need to pay before they own the car outright. I suspect people don't read the small print or fully understand the consequences.

A few years ago an elderly neighbour got into trouble with equity release and asked me to go through his paperwork. He had no idea what he'd got himself into (he'd signed an agreement that involved compound interest and his debt had escalated). He didn't understand compound interest: he didn't even seem to realise that interest was being applied to his loan. The house had to be sold and he ended up in much-reduced circumstances.

There should be a public awareness campaign about equity release, given it's unlikely to become illegal. It's an absolute nightmare.

My condition is not insurable. I tried multiple brokers. It is what it is.

Lucky for them. I guess they may have been prepared to take risks because they knew they would get bailed out.

Yes it's often why they are higher earners in the first place. they have that safety net.

The reason many of us had endowment mortgages is because of mortgage tax relief at the time, we were told the endowment policy would pay off the mortgage and a bit beside . In my case we overpaid the interest when we knew it wouldn't make enough , I am grateful we could do that .

I don't think anyone would be in favour of mass homelessness, not even the government.
If these people find rentals and keep their job they are unlikely to be eligible for HB. Different if they have no job anymore.
I think the government will put increasing pressure on banks. I have said this a few times already but there may be arrangements formed with banks for some people where they essentially rent from the bank for a period. Other people may choose to downsize or sell and move in with family. It's impossible to know just how many people will be effected at present.

Sometimes but definitely not always.

No? I’ve never had any sort of life insurance or mortgage insurance. I don’t have any dependents so it would be a waste of money.

Sorry, aimed at the original poster not you @VitoCorleoneOfMNMafia

I don’t think anyone is suggesting bailing out homeowners by subsidising their mortgages. From what I’ve seen the suggestions are to allow people to be more flexible with their payments - allow people to move to interest only; more payment holiday options; extend mortgage term etc, but also allowing people to switch back once their circumstances are more settled.

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

Didn't the Nationwide just give away £340 million because they've made more money from (amongst other things) higher interest rates ?

To the extent there has been a suggestion that there should be an equivalent windfall tax on bank profits.

Apparently the Nationwide gave away 15% of their profits, so that sounds like a good benchmark.

I think the government will put increasing pressure on banks

Tails don't wag dogs.

I'm massively risk averse so we only bought a small house that was really affordable. I was annoyed at the time that two people on professional salaries couldn't comfortable afford a bigger property.
I don't blame anyone for getting interest only mortgages. House prices have been ridiculous and people just wanted to buy the best they could afford.

I’ll correct that for you, it’s why housing benefit isn’t available any more for homeowners. As late as 2008 housing/mortgage benefit absolutely was paid at a rate of 6% of whatever your mortgage was. With no obligation to pay it back at all. I know somebody who had a mortgage at 4% and literally pocketed the difference in addition to paying off the mortgage and it’s entirety.

Given we’ve had the schemes before and 10 guesses which generation benefited from it, I don’t see why we shouldn’t have them again.

Let's see. The government still owns a large percentage of some of them. They can certainly pile on the pressure.
The BOE has been constantly doing the government's bidding. This will probably become a more strained relationship nearer the election though!!

There should be a public awareness campaign about equity release, given it's unlikely to become illegal. It's an absolute nightmare

It certainly can be, yes, and I'm firmly convinced this will become the next mis-selling scandal ... if, like endowment mortgages, it isn't already

For the population as a whole the U.K. is better than the USA because whether you get cancer treatment doesn’t depend on whether you can afford it.

My American friend of a friend went blind because she couldn’t afford an operation to save her sight.

If you look at maternity deaths for example, the USA is shockingly poor.