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?

Bought a flat in 1992, paid it off in 10 years, still have it. Bought a house in 2010, paid it off in 6 years, it’ll be our retirement home and at some point we’ll sell the flat when I stop work. We did it by cutting back on holidays etc, didn’t do swanky improvements, both places are small but in good areas. Didn’t buy into the competitive big expensive home thing. Could have made more money if we had, and some people we know look down on us, but we made enough, we’ve been lucky to have got on the ladder in the 90s, to have had good jobs and we’ve slept at nights without debt anxiety. Both from working class backgrounds, no help from parents.

We had an interest only mortgage that we new the endowment would not cover, but we couldn't afford any of the other options that were suggested to us my husband became disabled and I his carer. We got very little help with mortgage payments it was about 5 pounds do a month for about 10 years I worried about what we would do at the end of the mortgage. It was a very sad time we had 3 young children at the time. All of whom were born when we were both working. Circumstances can change in a heartbeat

I work in mortgages and interest only are very popular. Lower monthly payments so more disposable income. Most people look to downsize to pay off the capital owed at the end of the term. Others may have another repayment vehicle i.e. second home.

Most people look to downsize to pay off the capital owed at the end of the term.

How does that work our, given prices almost always rise overall over time? Does that not mean they end up getting a smaller home than they've paid for?

It’s because prices rise overall over time. They buy a house for £200k, it trebles in price, they sell it, pay off the £180k mortgage and downsize using the £420k profit to buy another house outright. Most people would be able to do this as their kids would have left home.

Well that was a bad idea when my patents had a mortgage 30 years ago…

Yep spot on @Blossomtoes

I’ve been surprised by how little people have been warned about the dangers of the interest rate going up. It has never been discussed for years- even though with such low interest rates, it was inevitable that interest rates would rise!

when I bought a place in early noughties, interest rate was about 4.5% and Halifax mortgage advisor warned me that this rate could do down or up, so I needed to be sure I could afford a rise of a couple of per cent.

18 months ago I had a mortgage advisor telling me he couldn’t see interest rates going up anytime soon! Thank god I didn’t take his advice and got a long term fix ( which was relatively expensive, but looks a bargain now)

I had an interest only mortgage and every time I had spare money I used to pay it off the principal, it really made a difference

A long term variable rate linked to the base rate has been the standard mortgage term since the second world war if not earlier. I don't understand why people think that there is anything odd about it. I don't understand why anyone thinks that the banks or the taxpayer should be bailing anyone out for an increase in mortage rates - they didn't in the negative equity debacle of the 1990s. It was blindinly obvious to me in 1990 that an interest free mortage and an endowment policy wasn't a guarantee that the mortgage could be paid off at the end of the term so I got one of those "long term variable agreements that are dependent on BoE interest rates." aka a variable rate repayment mortgage. WHen I bought my second property I went for a fixed rate as the borrowing was substantial and I wanted to be sure it was affordable (and I had a savings plan attached to pay the sum off at the end of the fix). At that time I was aware that the rates at the time were lowish (5%) and was concerned that they might rise back closer to the historic average. I linked to the base rates in my last post - if you go and have a look you'll see that the problem isn't rates increasing massively beyond the norm but rising a little towards what they usually are.

My Grandparents had an interest only mortgage for 25 years with no intention of ever paying it off, they planned to live in it until they died then the remaining mortgage would be paid on sale. They thought this seemed like a fine plan in the 1990’s.

Now my Grandma is widowed and the mortgage has tripled to nearly 1k a month.

Believe it or not repossession is already a last resort. Banks don't just swoop in and kick you out the moment you miss a repayment they have to try other avenues including a payment holiday, interest only mortgage, etc.

it doesn't benefit them either - they will lose what they lent on the value of asset if it's negative equity. All the sad face stories are oddly from people who have had mortgages for decades and could have paid them off under normal circumstances.

But I think the biggest group in trouble will be those stretched themselves

Overstretched as in high danger of being in negative equity! Borrowing the most they could

Any lender would support a borrower who expressed financial difficulty even before the current crisis. They are literally regulated to have such provisions in place. They will assess and agree reduced payments for a period of time, a payment holiday, switching from repayment to interest only temporarily, or a term extension. It's not their job to just lower interest rates though. They respond to the BOE rate changes.

I was responding to your other post (see above).
I know that banks don't immediately move to repossess. The government spoke to lenders the following day after I posted although I don't think the agreement represents a sig change.

Nor me, but whenever I've advised caution on MN threads regarding increasing house prices and low interest rates, I've been shouted down because
'it was different in 1988 and those rules don't apply anymore'

@Macinae i was chatting to a friend just last night. He’s been struggling with the mortgage (on a tracker) for months. He has begged his mortgage provider (Lloyds Tim looking at you!) to go interest only for a short time. They refused. Point blank.

Thsts just an anecdote of course. But if the banks were actually already being so helpful and flexible, why did the chancellor have to drag them to Downing Street yesterday and why are they now announcing they’ll be giving mortgage holidays, switching to IO etc In reality they’ve not been doing what they should because…well you guess…too busy counting the excess profit.

Also, while I agree that some people have been silly, where is the responsibility of the mortgage advisors and mortgage providers who have been making substantial profits on the back of these unwise decisions, made on their advice?

If you are the type of person who will save and sensibly manage your finances then it’s a great product

True enough, neenaw20, but it's maybe not so good for those who see only the cheaper monthly cost and fail to think beyond that

Also agree about the expectation that folk will be nannied, except it still doesn't stop it all being "someone else's fault" when things go wrong - as if people couldn't have worked out for themselves that near zero rates were never going to last forever

Then there are those who lie about their finances to get the mortgage in the first place, something that's often encouraged on here without apparently thinking what good it's going to do in the long run

Then there are those who lie about their finances to get the mortgage in the first place, something that's often encouraged on here without apparently thinking what good it's going to do in the long run

I wouldn't have believed this until recently when I saw a thread by a SAHM with quite a lot of children whose high earning husband couldn't get a mortgage. And yes indeed, she was advised to get any old job for the mortgage application and then quit as soon as it was all approved. It was eye opening.

Did they not anticipate interest rates might rise?

As someone who lost their home a year ago because we have a disabled child who needed a ft carer, I have no sympathy for these people.

They had/have choices and interest rates were never going to stay low forever.

We moved our family 200 miles and bought a cheap, tiny house outright.

We are very happy and I regret struggling for all those years when the solution was there all along.

what if you’re already 200 miles away from your family and you’re already in a tiny house? Where do you go from there?

They sound like my in laws - no financial sense at all. There was obviously no sense in them ever planning to live for the exact term of the mortgage - 25 years - these things are unpredictable.

My in laws plan to die within a short time of each other or the remaining one will be left in a financial mess. I can see a financial mess for one of them on the horizon.

Scotland? (wouldn't really wish that on anyone but it's cheap)