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 usually assume the journalists know these people sound insane, and are putting the most extreme stories in the article to generate controversy.

It must be just as easy to find somebody whose partner was made redundant during lockdown and now can’t afford their modest 3 bedroom terrace, as it is to find some idiot in Surrey who bought a mansion they can’t actually afford.

Also agree about the expectation that folk will be nannied

Do people who think this think stuff like pension credit should be abolished?

I congratulate your financial prudence, I'm the same, but you bought your first place in 1992, house prices had dropped considerably and were in a trough that meant house prices didnt start to rise again until 1997. I bought in 1995 under similar circumstances. I was 26 as was my boyfriend, it took us only a year to save our 5% deposit plus fees. We didn't struggle whatsoever. We cut back on nothing, constantly partying going to gigs etc. We managed to choose a fixed rate at around 8% which was higher than actual rates (misjudgement on our part) but we never struggled whatsoever. We worked in Sales and Admin on very average pay in the South East of England.

My point is don't compare earlier times to now, the 1990s were EASY.

@BitOutOfPractice that's awful, they should be offering alternatives for customers in financial difficulty. Has your friend researched anything on FCA guidance? The FCA comes down hard on lenders who aren't supporting customers through financial difficulty.

https://www.fca.org.uk/news/press-releases/help-available-those-who-need-it#:~:text=The%20Financial%20Conduct%20Authority%20(FCA,7.8m%20in%20May%202022).

I work for a smaller lender and this refusal of support would never happen.

What evidence do you have that mortgage providers are being irresponsible? As I understand it, mortgage providers have tightened up considerably since 2008. People have had to show that their finances can manage interest rates up to 8%. If they lie about their finances in order to get a mortgage then it's the purchasers' responsibility. My partner and his siblings sold an inherited property a couple of years ago to a young couple who had tremendous problems getting a mortgage, even though on paper they had a significant deposit and one of them was a high earner whose salary alone easily covered the mortgage. The big fear at the moment is that mortgage providers will become so risk-averse that the property market will grind to a halt.

The 1990s were not easy.
1991 was the highest year on record for home repossessions- 75,000.
This figure is very high compared to more recent years. Though I won’t deny that things are becoming much harder for people with significant mortgages and that no doubt we will see more repossessions in the next year or so. Probably not as high as 75,000 however since lenders have now been told by Government they must offer interest only mortgages or delay repossessions for 12 months to give people a chance to take the necessary steps to avoid repossession.

And to be pedantic, if you’re already in Scotland ? Or the arse end of North Wales ? At what point do we run out of cheap places to live which are always reflected in the local wages ? We’ve learnt absolutely nothing from the pandemic. The most jobs can invite to be done from home. And we’re back to the hamster wheel because funnily enough that suits the powers that be.

To be honest I don’t see much repossessions happening that’s not gonna be the problem it’s gonna be screwing with people’s credit records and potentially putting them back six years while they repair that. Some of us have only got a limited number of six years left 🙄

When I bought my first flat in 2007 I was encouraged by various friends and colleagues to take out an interest-only mortgage and stretch myself as far as I could in terms of budget on the basis that the value of the flat would only continue to go up and that I could sell it in a few years time, pay off the mortgage and have a tidy sum to invest in my next property. I am really glad that I didn't either stretch myself or take out an interest only mortgage because that flat has only just recovered to what I paid for it at the peak of the market before the financial crash. It seems like lots of people are still deploying that type of strategy though with a view to either sizing up or eventually downsizing. They're going to get hit by interest rate rises and any decline in house prices too.

Trouble is that thinking paid off for a lot of people. One of my colleagues told me she lied about her income, took out an interest only mortgage with a tiny deposit. This was early 00s but she sold the flat 5 yrs later & made 100k profit.

I don't forsee too many repossessions either (hope we're right!) though every year there are some, and the number will rise in 2024 I think from the relatively "easy" years when interest rates stayed low year after year.

Being offered Interest Only shouldn't affect people's credit rating. I think the banks will make that an easy option for people now they have been directed by the government to do so. Not an ideal solution long term but a good temporary option in my opinion, until repayments become more managable again.

Being put on a 12 month repossession notice will probably affect credit rating I agree and is something to be avoided if at all possible. Still, it's better than being given a shorter repossession notice. Mainly my comment was aimed at the PP who suggested that the 1990s were easy. That is not my recollection (or yours, maybe).

That kind of thinking did benefit a lot of people while prices were rising quickly, it's true.

At the time I got my first mortgage it was quite common for employers to ask you what figure you wanted them to put on the form to confirm your salary. I was on a long scale and asked my manager to confirm I was at the top of the scale on the form. We both had a little laugh as I was actually at the bottom.

Maybe it's just as well the checks are more stringent these days. But it seemed like a good idea at the time, and was a reasonable strategy as long as prices & salaries were steadily rising.

Your response to my post has nothing to do with the context in which I was replying to the OP. This particular discussion isn't about being repossessed, of which yes, there were many in the early 1990s, it's about buying. In the wake of so many repossessions you point out, there was a glut of cut price houses for buyers in the early to mid 90s. Hence the OP bought and paid off their mortgage so fast, and I lived the life of zero hardship while buying a house in my mid 20s. Im illustrating that the OPs ease of paying off their mortgage was partly prudence but mainly timing which wasn' afforded to people who bought at sky high prices recently. Not comparable times.

I’m not sure your argument let’s people off the hook for not understanding interest rates/costs of borrowing and the uncertainty of economy/ housing market.

It wasn’t EASY- you were LUCKY that conditions were favourable. Sadly people in your position now, can’t expect the same conditions.

It’s like going on holiday to Scotland in July and not packing a raincoat because your friend went on holiday there last year and the weather was fabulous!

Well there's a reasonable chance that people who buy in two or three years time will find it easy because house prices will have dropped by 40% from the peak.
This doesn't mean it'll be easy for current owners or those being repossessed - it just shows that some people will benefit from other's misfortune, and that even in a downturn some people make money.

It's just slightly triggering when people make the bold statement that the 1990s were EASY.

I think it's fair to say they were easier in some ways, as you say. But also harder in others in that there were record repossessions as it was made very easy for people to overstretch themselves, and then interest rates rose steeply. And each repossession is a tragedy for a person/family losing their home as well as on opportunity for someone else to pick up a cheaper property.

It was defo easier to buy in the 90s & gain equity.

My friend got a 105% mortgage on her first flat in 2006. Had a lodger and she sold for a very tidy profit so made loads of money for the next house.

It was easier to buy definitely. Building equity not so much. Job losses and repossessions were abundant.

It's hard to be too harsh on people lying to banks, given how much banks lie to us. However people need to remember that if a bank fucks up, they get bailed out. If you fuck up, you don't

For the second time in this thread, I'll say it again, if you read the posters comments I was replying to, you'd see the context is purely about them affording a house in 1992, and paying it off in a few year, which, in my view, was due partly to prudence, but mainly good timing. It WAS EASY to be a buyer in the 90s due rock bottom prices. I was alive, i did it, friends of mine in unskilled jobs bought EASILY. You're right in your comment, the conditions were favourable, therefore I was lucky, therefore it was EASY. I also say (if you read to the bottom of my post), like you did, those conditions aren't comparable to now. See, we actually agree. We agree so much I'm not actually sure why you're disagreeing with me or what your point is.

Im not disagreeing with you!

I’m saying it doesn’t let people off the hook. You are right about conditions being much more favourable, but there has been a collective refusal to acknowledge that rock bottom interest rates were temporary.

I feel sorry for the people who stretched themselves because they really needed a home to live in, but once again, the banks have a lot to answer for…people have been borrowing right up to their limit for years which has fuelled house prices, which in turn has compounded the problem.

this government has blindly propped up the property market time and time again. It’s time to allow a crash. It will have losers, but house prices need to be more in step with wages.

🙂

Absolutely, some people have been utterly oblivious to rock bottom interest rates being highly abnormal, coupled with no understanding of what an interest only mortgage is. The clue has always been in the name.

For reasons I won't go into (life) I struggled to get back on the housing ladder (alone in the south east), so I know all about the pain of renting, while saving,. I bought again in 2019 and stress tested my repayments myself at a lot higher than rates are now. It was obvious they would rise.

I also feel sorry for the cohort of people who were trapped between high rents and astronomical house prices recently, meaning the debt they took on is huge. People who bought 10+++ years ago, and lived beyond their means, remortgaged, had HP cars, or stuck their head in the sand over their interest only mortgage = zero sympathy.

Yes, the crash wasn't allowed to happen as its should of done in 2008, instead the government piled rocket fuel on the market, leading to this inevitable conclusion. There will be winners and losers, but, as a mortgagee, I'm in favour of lower house prices.

Just adding in another thought. The government wants to reduce spending to bring down inflation. Forgive me if I’m being thick here but doesn’t that mean people spending less, so manufacturers scaling back production so job losses, shops closing and job losses, services reduced further so job losses , negative equity, rising unemployment ….. and we become again the sick man of Europe 🤨

Yeah that is what I was also thinking @Isinglass20 - makes me nervous as DH is a shift worker in a factory