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 also agree with this. It's lazy thinking.

Yes, house prices today are many more multiples of average salaries than they were in the 90s. But the issue raised here is the affordability of mortgages when interest rates rise and that is no different now than it was then. In 1995 when I bought my first house, most mortgage lenders would not lend me more than 3.5 x annual salary. I chose the only lender that would lend me 4 x my salary which was the only chance I had of buying a house (and even then I had to cough up a 30% deposit which represented around 18months salary).

Basically, 4 x your salary is 4 x your salary and if you have borrowed the maximum and not made much inroad into paying it off, it's going to hurt when interest rates rise, no matter what the value of your house is. It hurt in the 90s and it hurts now.

Thinking back to the 90s, when the average factory worker could afford a house, this wasn't simply because house prices were lower, it was because there were more houses available, so a greater proportion of society could buy a home.

So how come there were 4 million social housing properties if the average factory worker could afford to buy? Say a family of 3 in each: 12 million people in social housing in the 80s and 90s and lots of others in private rental accommodation. 25% of the population who didn't own their homes. I'm not arguing with you but your statement sent me off googling.

My father was really traumatised by the high interest rates of the 90s. He and my mum were preparing to retire and despite living very carefully and prudently all their lives (both of them worked once the kids were in school) their plans for a modestly comfortable retirement were wrecked by recession, high interest rates and stock market crashes. The company he'd worked for for the last 20 years went bust and at 61 he couldn't get employment. He went into a major depression that he never fully recovered from. I was in negative equity for years, stuck in a flat I hated. I knew two people who had suicides in their family caused by financial pressure.

We've had an interest-only mortgage for nearly twenty years. You have to accept that your monthly payments would be much more sensitive to interest rate rises (and so take a conservative approach on things like fixed-rate products).

And you need to have fairly reliable assets available to sell to be able to pay off the loan at points when a fixed-rate expires and you need to set a new budget, (or be ready to sell and downsize if rates change and start eating up too much income).

It's made sense for us over the years, but I think they are all but unavailable now for owner-occupier mortgages?

Yes. I posted earlier on in this thread about how easy it was to buy property in the 90s. Apparently some people don't like to hear that as it undermines their perceived "struggle". As a 20 something I saved for one year with my OH and bought a house in the south east. Unskilled worked friends buying detached places etc. There was a real sense of get a job, save, and you could achieve a decent standard of living. That contract is broken now.

That is exactly right; the contract is broken.
So not only are younger people frequently unable to buy their own home as their parents could due to crazy prices relative to incomes, they are also loudly criticised for not being frugal enough by older people who don't grasp that frugality will make little difference to the majority. Some older people really take the moral high ground here when it was, in fact, pure luck relating to their years birth in the main.

@SilentHedges
I agree with what you say but there are many expenses on family household income that did not exist in the early 90's.

TV subscriptions. SKY Netflicks.
Mobile phone contracts.
Home internet/broadband
Spotify.
Multiple car families.
Student loans
University tuition fees.
Metered water bills (water rates were fixed £)

When you add up these 'small' individual monthly payments they soon add up to a significant annual amount which could pay towards a mortgage.

Life was simpler and cheaper.

@Bewilderedandhurt I agree, 90s life was simpler and cheaper generally. OK I could quibble that Spotify is far cheaper than buying physical vinyl and cds. Mobile contracts are cheaper than sometimes hefty landline bills. However no Tuition fees, access to gold plated pension schemes and cheap housing meant life was easier.

@rainingsnoring I just looked up my first house on Land Registry. Two up, 2 down terrace, bought in 1995, £68,700. Interest rates were 6-7% ish. Not far off where we are now. Myself and OH were mid 20s, I was a PA on circa 15k, OH on around £20kish. So house price was 1.96 times our (non skilled) joint salaries.

The same house sold in 2022 for £390k. So two 20 somethings need to earn £198,976 joint salaries for the same deal.

I'm also beyond tired of people telling younger (any) buyers trying to get on the ladder to save harder, save more etc, because it's always been hard. No it hasn't.

@SilentHedges it was undoubtedly much easier to buy previously. Mid 90s was a particularly good time to buy your first home.
I'm not saying that the crash in 1990 wasn't terribly hard for many people because it obviously was but the narrative that young people could afford to buy if they didn't blow all their money on takeaway coffees and new iPhones is total nonsense. You only need a basic level of maths to refute it.

Pocket change for anyone that must be in London

I bought my first flat at 3.5 times my salary for £75k in Clapham SW London with a fixed rate of 10% and £5k deposit that I had scrimped and saved for. Had a lodger. Various friends had evening jobs in bars or catering to make ends meet. Same flat recently sold for over £550k when I looked on Rightmove.

I have immense sympathy for the younger generations now. In many areas of the country it’s just so out of reach, not for all areas admittedly.

Nowadays one needs a high deposit and large salary x 2. The numbers are very different and the salary multiplier considerably different. But there is a problem in the fact that we’ve had artificially low interest rates for a considerable period of time.

I agree with all of the above. These things just weren’t there. People’s expectations were lower as well. There wasn’t the same splashing of cash on certain things.

I am from a generation that was brought up to save for things, holidays and such like and not just use credit cards etc.

But the difference now is that home ownership has become so unrealistic for so many that the desire to save isn’t the same as it was. Years ago you could be frugal for a number of years, save all that you could and get a deposit together. But today it’s very different. The deposit you need is huge and at the same time the rental market is brutal.

I think at least part of it is that the attitude to home ownership wasn't the same in those days. At least not for everyone. I know someone who was working as a labourer in very expensive area during the 90s, and he could have afforded to buy a house there on his single wage

However, he was living with family in a council house at the time, and didn't see the point in buying. I think it was the same for a lot of working class men who grew up in council properties or rentals. They could have afforded to buy, but didn't really understand the benefit.

Obviously a huge mistake which he now regrets. The average house price in that area is now over a million. It was always an expensive area, but now it's just ridiculous.

But you had a home. If that time was now, would your dad have been able to afford to buy the house in the first place? Maybe you would have been living in a rental.

The 90s may not have been easy, but housing was certainly a lot more affordable than it is today.

And yet home ownership is greater now than in the 90s - only a couple of percentage points but still higher.

The thing with the 90s, as well as there was a ladder. You bought a cheap crappy house, you made it look pretty you sold it for about 10% profit. You bought the next one. And you probably did this three or four times before you got to the 4 Bed detached.

It has been a huge issue with large sums of money being lent to people, and effectively skipping those individual stages because I don’t want to sound like an arsehole, but the banks made more money that way.

So the house always wins as they saying gambling terms, one way or the other they are now going to get their money out of you. And it feels like jumping straight into the 4 Bed new build whether that’s buying 100% of the house or through help to buy is the bank clawing it’s cash back.

I don't think it is. Not for people under 65 anyway

This makes no sense to me. Can you try and explain?

"house prices today are many more multiples of average salaries than they were in the 90s."

I get that lending then was still tough. But because of your quote above. So many people are priced out. And those that aren't priced out live in smaller homes. Surely, it's not lazy thinking to say that is harder.

As a specific example, I earn well 6 figures but I live in a house (3 bed semi) which is similar to friends parents growing up who were teachers or nurses. Teachers and nurses can't afford a house like mine.

I do want to understand your perspective though as I didn't experience the 90s as an adult

And many over 65 have not downsized like the previous generation did. So the big house are often occupied by 1 or 2 pensioners my way

This example is great.... In that it illustrates how much harder it is.

For you to be in the same situation now you would need to be earning £157k (550/3.5). That's like a director at a big tech firm. Or a senior lawyer. I wonder what job you did?

But we’re not talking about just people under 65.

I left uni in 96 and moved straight into my own house. It was 43000 and my boyfriend had a newish job while I had £5000 spare after working through uni. The same three bed is around £20000 now. The same student would be tens of thousands down. The house was triple my first wage and would now be 8 times the wage of a similar employe.

But we’re not talking about just people under 65.

@Blossomtoes

Well we are if we're comparing the difficulty of getting on the ladder now, in comparison to the 90s. I don't think that's relevant to many over 65s!

Baby boomers own 3 quarters of the countries property wealth, so if you include them, then of course ownership rates will be higher than the 90s. Their parents would have been more likely to rent.

We are though. We are talking about people with mortgages which very few over 65s are. And we are comparing the difficulties of buying a first home now compared to the 1990s when it was far easier. I can't see anyone over 65 trying to buy their first home now.
Home ownership in over 65s has risen but home ownership in your generations has fallen significantly.

I think that maybe the situation is exacerbated by building companies getting greedy. On a new development near us recently the tiny two bedroom houses were priced at nearly £300k ! Modern building methods are a lot cheaper than they were a few decades ago and developers profits have skyrocketed (a Taylor Wimpey project manager told me that, so he knew what he was talking about). I know it makes sense for businesses to make as much profit as possible, but it's getting ridiculous 😒

To reframe, what you said is true for over 65. Not true for under 65.

So to @MidnightMeltdown point .... But we're not talking about just people over 65.