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?

I thought the same when I read this article yesterday

https://www.bbc.co.uk/news/uk-england-norfolk-65761233

it all just sounds far fetched to be honest

When I divorced I was stuck on a fixed rate interest only for 2 years until the term finished as they wouldn’t lend to me otherwise.

I could have just paid the interest but it didn’t take much intelligence to realise I would have to pay the capital at some point and doing so would help reduce what I borrowed when o came to remortgage, so I scrimped every penny to also make capital repayments.

this has now allowed me to be ‘worthy’ of a new fixed rate capital repayment mortgage which they previously said I couldn’t afford (I could).

many people have over stretched themself on low interest rates and now are finding out just how painful that is when they go up. I feel bad for these people and wouldn’t wish financial hardship on anyone. At the same time they had all the information everyone else did and chose to buy at low interest with no way of affording as higher rate

I recall one building society back in 2010 trying to talk us into an interest only mortgage. It was so cheap, they'd lend us twice what we wanted to borrow, it was totally irresponsible and thank god we'd have enough experience to run a mile. We'd previously got stung with 15% interest rates, negative equity & an underperforming endowment mortgage - remember them ? By 2010 we had put all that behind us & were looking to move again. An in interest only mortgage would have been madness and put us right back to square one. Unfortunately too many people either don't understand what they are buying, fall for the sales patter or just cross their fingers and hope for the best, "worry about it another day". Also for some, it's the only way to get a roof over their head but it's rarely a secure one.

You don’t think nutrition is important?

I hate all the negativity about interest only mortgages. They aren’t bad mortgages. If you are sensible they are great vehicles that allow you to diversify and invest your money.

i have had an interest only mortgage over the last 16 years and I’d never go back to repayment. I have, at the start of this year signed up to another 10 year interest only.

Interest only offers a greater level of flexibility to manage your finances. But you have to be sensible.

I have paid £125 a month in recent years on a 180k mortgage to live in zone 3 in London in a 3 bed house. I couldn’t even rent a room for that in London.

I have been able to live my life and spend my money as I want to.

if I had had a repayment mortgage, my outgoings would have been fixed at a higher rate and my payments would have been inflexible.

i appreciate it’s seen as a higher risk but it’s no higher a risk for you as the consumer. If you are the type of person who will save and sensibly manage your finances then it’s a great product.

i have been able to invest the money I would otherwise have paid into the mortgage and this has allowed me to do a house extension, travel the world whilst still having enough money in my isas to pay off my mortgage if I need to and to provide a safety net in case I lose my job.I have also been able to top up my pension saving 40% tax on my money and providing me with a tax free lump sum which, should I need to, I can use to pay off the mortgage.

I hate this nanny culture where we have to protect people from themselves. Which then means products of this type get removed/reduced.

If you are silly enough to take a product of this type and not understand the implications and manage the situation then to u have to live with the consequences.

And I say this as someone who has worked hard all my life to make ends meet. I don’t have a privileged lifestyle, my parents were working class and I was brought up on a council estate. I have been given nothing and had no special financial education. I was just interested enough to find out about financial opportunities and I hold myself accountable for my own situation and would never expect someone else to bail me out.

I hate all the negativity about interest only mortgages. They aren’t bad mortgages. If you are sensible they are great vehicles that allow you to diversify and invest your money.

Oh certainly - all things have a use, and done properly that's fine.

The problem in England with interest only mortgages is they were a perfect vehicle to connect two greedy entities with no oversight. In this case rapacious salesmen who were getting a commission on every endowment they sold, and people who think there is such a thing as a free lunch and that "small print is for losers."*

At that point you had a perfect circle.

Eventually there was some grudging oversight and Estate Agents stopped being mortgage brokers. In hindsight it seems amazing that no one (apart from my parents) thought it odd that the person selling you the house also sold you the mortgage with no conflict of interests.

Absolutely spot on exactly how I feel . You are a great example of how people should live their lives. Taking responsibility for our own situations and not expecting bailouts ! 👏

When I bought my first home, I had an endowment policy to back up the interest only debt. The policy was a 'full cost endowment' which meant if you borrowed 30K the minimum the policy would pay out would be 30K so you knew that the mortgage was going to be cleared. When I bought my second home endowments had moved to 'low cost endowment' which meant the assured sum was a fraction of the mortgage and came with the 'assurance' that the with profits would possibly add to the sum assured and clear your mortgage debt.

Sadly the low cost endowment policies failed miserably and there were many court cases regarding mis-selling.

Then it became possible to get an interest only mortgage with no vehicle in place to repay the debt which to me was just madness. I don't understand how borrowers can get a mortgage statement for years and years showing the debt is exactly the same as it was when they took out the loan and not know they have one day to repay it.

What an insult and a load of bollocks . We knew exactly what an interest only mortgage was and did not take out an endowment . We had every intention of treating it like a repayment mortgage and were disciplined enough to do it .There are plenty of people out there paying their repayment mortgage with a credit card every month because they are skint , without the credit their mortgage is fucked.

What an insult and a load of bollocks . We knew exactly what an interest only mortgage was and did not take out an endowment .

And therefore aren't included in the flood of sad faces that started appearing in the late 90s and noughties saying "Nobody told us ...." as they failed to repay the capital on their house which I was referring to.

Or did I imagine that ?

That’s not correct. We took out an endowment mortgage in 1991 with an endowment policy, The mortgage wasn’t interest only though. When the scandal about misselling endowments came about, we claimed on this, got several £1000’s back, and paid off a hefty chunk.

Yep you're right And if I remember correctly people had compensation for it ?

And to be trueful there are a flood of sad faces for almost anything & everything these days 🙄and on here people are parishes for having their shit together and doing well !

Pariahs 🙄

There was a woman on newsnight a few nights ago saying her mortgage had gone from £1000 to £1200 a month and she was living ‘hand to mouth’ before the increase. All I could think was why the hell would you put yourself in that position? They had moved down the road to have a bigger garden. I can’t understand why they weren’t stress tested? If they could barely afford the £1000 a month why did they do it in the first place? There has to be a level of personal responsibility here in understanding that rates can change surely? I know that some people are in very bad situations but this seemed like a terrible example for Newsnight to use in my opinion.

I have a relative on an interest only mortgage. There are various reasons why he's have ended up in that situation.

Divorce. Being the RP, being ripped off big time by alcoholic ex-spouse. Not getting any of her pension. She didn't pay maintenance either. Class A bitch actually.

Health failing, endowment not performing as it should have. Health failing to such an extent couldn't keep up payments on the endowment.

He knows it's rubbish. But it was the only way he could be housed. He's selling now and moving abroad. He'll be able to pay off the mortgage and maybe have a little extra.

My ex sil has an interest only mortgage. She was on long term incapacity benefit, and her social worker told her to get an interest only loan as the DHSS would pay the interest.

Seems allowing people to switch to interest only mortgages (well, telling the banks they have to allow people to switch to interest only mortgages) is the governments Big Idea for now.

Which - if they had a plan that would stabilise things for the future so this stopgap makes sense - would be a good idea.

As it is, we'll get to this time next year (assuming an annual cycle) and run out of road.

Again.

None of which will address the artificial housing crisis caused by not building houses.

I had an interest only mortgage in the mid '00s
It was for a couple of years while the kids were small and we were on a single income.
Once I started working we put it back on repayment.
But I recall the lending criteria were really irresponsible. You could tell the bank whatever salary you liked, they never asked for proof.

Moving on to now I was going to do an extension last year so did the additional borrowing application. They were much more thorough on checks but they only stress tested to 5% as that was the highest it had been in the last 10 years.
I was quite surprised as I remember my parents trying to hold onto their house during the 90s and sadly they had to sell up as they couldn't manage to get through it.
A lot of younger people haven't seen high interest rates. One of my colleagues was due to renew his mortgage this year and he was quite shocked that the bank wouldn't renew his fixed rate at 0.5%
I don't think he understood how mortgages work 😬

This makes interesting reading - all the base rate changes back to the 1970s

https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

The low rates were quite an anomaly.

In the US there was a huge housing crisis in 2008. There were predatory mortgages that caused it. They called them option arms (adjustable rate mortgages). People got them because the payment amount was smaller. There was a tiered system to them, hence the option portion.

Basically you could pay less than just the interest, just the interest, or the full payment. Each year the amount you had to pay went up until you were paying the full payment. Many people just looked at the smaller payment and never thought about interest rates changing, which they do with an adjustable rate mortgage. So that $1300 monthly payment they could afford then, but became $3600, or more, in 5-7 years was way out of reach. That’s why so many houses were foreclosed on.

I got an option arm then, but I looked at whether or not I could afford that full payment in the future. I didn’t get caught up in that insanity. I eventually got a standard 30 year mortgage with a fixed rate.

The predatory lenders all went out of business. They didn’t care if the person’s Income could eventually support the actual payment. Most people don’t triple or quadruple their income in 5-7 years.

I'm a buy to let landlord. Several properties on interest only mortgages. When I began in this game, I opted for fixed rates for only 2 to 3 years, no longer than this because you never know if rates are going up or down. A few of my fixed terms have ended and I was offered a variety of new terms and again chose short term fixed rates. Sure, monthly payments have all increased, but all are still thankfully covered by the rental incomes. I'm stuck to understand how people are tied into longterm variable agreements that are dependent on BoE interest rates. Surely everyone should be released from these crippling deals and given other options by their lenders? They will still be repaying the loan but without the considerable heartache that so many are now facing. It is disgraceful that lenders aren't jumping in to help people out of this crisis.

We are those stupid people who thought we were clever . I’m 65 , husband 70 . On a tracker mortgage. Been paying £500 monthly for years .Now £4000 pcm . I haven’t slept in months and feel sick every moment of every day . Not suicidal, but can see why people are .

I have no idea if someone has already posted about this (too many comments to catch up on) but I was flabbergasted by the Telegraph’s ‘accessible’ example of a bloke who had I think a £2.5m mortgage, half fixed half variable. Very wealthy of course but apparently his payments are set to rise from £8,300 per month to £20,000 per month.

Well I'm stupid too, we were repaying no worries, then I had to give up work and go self employed due to a family crisis, so from 2007 we were on interest only. Then no one would give us an affordable deal as I was self employed - I didn't earn enough to apply for my own mortgage.

We're 60s now and we are trying to sell to repay. It's shit, it happened, we'll have to sort it out. But what I'm confused about is how my situation or that of @Tirtytreeandaturd affects anyone else? People made mistakes, they'll have to deal with it, a few are on TV. I think its a lot of people on this thread who are doing the sad faces! "Poor us, we have to hear about people who had interest only mortgages! Pity us!"