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?

THIS

We seem to have no sympathy for ordinary people making bad choices, yet I'm expected to bail out banks and other industries all of which needed bailing out because of bad decisions, and watch this gov squander 100's of millions on failed ventures like Track and Trace and PPE equipment from Gov cronies.

There are loads of people who took out mortgages with all the stamp duty relief from this Gov, who are basically fucked now. And even for the interest only mortgage holders, 20-30 years ago, they simply couldn't afford capital and interest payments or the massive inflated rents we have in this country with no rent control. The vast majority used it correctly, they got on the property ladder and switched to capital and interest with a remortgage or selling up and moving on.

I have huge sympathy for people struggling with their mortgages through no fault of their own - increased costs, unexpected health care bills, illness, pay cuts etc. but with those who opt for an interest only mortgage with no plan be are ridiculous, did they think they could just not ever pay fir the property but remain in it forever. It's such a false sense of entitlement.

Even when times are good, there's a woeful lack of understanding about finances, debt, and mortgages. Coupled with a constant pressure to "better yourself" and keep moving up the property/lifestyle ladder it creates these ticking timebombs of circumstance when things go sour.

I really struggle to find any sympathy for many of these examples of people that have had zero prudence and that have run their debt up and up for year after year funding profligate lifestyles. Gawd, I sound like my dad reading that back.

Definitely not from me it wasn't. I was a FTB in 1988. Wasn't able to sell it until 1997 when it had just about, but not quite, recovered it's value. I've also lived through interest rates at a lot higher than 5%. I have always urged caution to Mumsnetters and thank goodness we were cautious buying our current house 19 years ago and never re-mortgaged to make improvements! I don't feel smug, I just won't be misrepresented.

There are certainly some people who dont understand what they are buying. My Mum was one of them! She brought an interest only mortgage many many years ago because she said it was cheaper than anything else. It would be Mum - you dont pay back any of the capital!

Luckily it was in London and she made £££ in the end when she sold and moved into a care home. Still had to pay off her mortage which hadnt moved in value from 30 years ago. She didnt understand and still doesnt why its never been paid off.

I also have a relative who does interest only becasue he likes to live in a big house and after all houses always increase in value.... In the end for various reasons the family had to sell and his mortgage was circa £1m!

I also remember a lady and her grown up daughter being interviewed because her husband had died and because he had a single annunity it died with him.

She couldnt understand what had happened and she had never worked herself - que the sad face interview with herself and her daughter. What had happened of course was that her late husband was given a single or join option price. The single option obviously paid out more so he closed his ears to anyone saying anything different and he went for that.

People believe what they want to believe - I am on a thread at present o another site about a Father who has done his will and split his estate (circa £1.5 m) in 3 ways. He thinks because he has done like this no tax is payable (it is!). Apparently he wont be told...

It absolutely should. But as someone else said, how will you keep the plebs down if they have knowledge?

Thank goodness the generations after us have the internet, and, hopefully, far less opportunity than us to make such naive mistakes because the internet will tell them NO.

If the news channels continue to put out such negative content they will destroy the housing and job markets. In 2008/2009 we had to sell our home at a loss. I have recently bought a new home and was made redundant two weeks after moving. I am owed back pay but I won't get it as the company has gone under due to raising business costs. I haven't been able to get a new job and am in my fifties. Interest only mortgages were not offered to us even though we have pensions we can access in the next few years. I will be asking to switch if I can't get another job but I doubt I will be granted one. Not stupidity on my part but huge bad luck.

Another one that has a mixed interest only and repayment mort. I have 3.5 years left on my fix, so hoping rates will come down a bit by then.

I put the max into my pension and I have another property with a very small mortgage with enough equity that would pay off this one. I have great equity in both so when I want to sell I will have a significant amount of cash to choose my next move. At some point we will want to downsize.

I can tell you that there are thousands of cases of customers ignoring the capital owed on their mortgage.
The media don’t have to look far. Many people spend whatever they’ve got without thinking ahead. And then they act horrified when the banks ask for their money back.

Me neither. I've been warming of the consequences of interest rate rises for decades. Of course those who did stretch themselves and got away with it, did make a killing until now though.

Could be a good opportunity for them if houses come down 30% (they went up 30% pretty quickly).

A crash is long overdue. House prices are insane.

These people wanted to stretch themselves to a point where it wasn’t sustainable. They have been living on borrowed time and the time is up. It’s a hard lesson to learn but at least they know it now

There's some truth in this, but as usual I can see it from both sides and though it would have been wiser, it wasn't easy to use restraint when so many were screeching "the market's RED HOT here" and "you don't stand a chance if you won't offer over asking price"

The stamp duty fiddling, the help to buy and all the rest have just created an unsustainable bubble - attractive at the time perhaps but in no way sustainable, especially when we remember rates are no more now than the historical average and that near zero rates were never going to be permanent

The people that made a killing in house prices by over stretching themselves are now some of the ones moaning that interest rates have risen and they cannot afford it. Happy when the price rises and they increase equity but whining because they have to pay for the loan they took out.

In school you are taught about compound interest. Many people think it is just part of Maths and don't understand the implications in rl.

If you have a teen then MSE has a booklet aimed at them.

For adults there is a short OU course on money management.

We bought our first house in 2004 and I'm sure we had a 2 year fix at about 6.3%, it was normal then. However we only paid £165k for a 3 bed semi.

I am thanking whatever prompted me to fix for 5 years last February at 1.89%, but we are going to be in all sorts of trouble in 3.5 years. Need to sit down with my husband and work out a plan to deal with it

I will add that I have huge, vast sympathy for anyone who is a first time buyer trying to enter the market today

I actually feel quite excited for them. I think there's complete devastation in for a lot of people, but FTBs could get a great opportunity. We're not talking about a slowing in price growth but big reductions IMO. We're already seeing entry level flats round here that people were asking £250k for not long ago, now not selling quickly at £180k. Also a few forced sales.

I definitely wouldn't advise buying now, but for the first time it does feel like my DC, currently 20 & 22, may one day have the opportunity to own a home.

The over leveraged will just have to keep dropping the price until it reaches the point that the first time buyers can afford, they won't want to but it will be the least worse option for them

For those saying these people must be ‘stupid’ etc.... I’m old enough to remember endowment mortgages being REALLY encouraged! My financial advisor REALLY encouraged me to take an endowment mortgage. I didn’t. I chose a repayment. But, it was portrayed to me as the ‘ideal’ option, the ‘interest’ will be paid off, your ‘investment’ will mature and pay off your loan and you ‘should’ get a lump sum back too! How brilliant does that sound? The risk was minimised.

DH and I had an interest only mortgage, it was the only sort we could get in the early 1990's. Interest rates were terribly high at the time and it was affordable with me working part time as the DC's were young. As rates dropped we started saving the difference and paid off the odd thousand here and there. We were very aware that the "borrowed sum" had to be paid off within the "term". I ended up working beyond retirement age, and DH raided his pension to pay off the principal sum.
It is a pressure to have this at the back of your mind if you intend to not downsize or soon move on and take advantage of the equity.
The thing is you know what you are getting into if you take out interest only and you have to have a viable plan in place for repaying the principal sum.

Problem with that is banks and building societies have to stress test about 4 percent higher than the mortgage rate is now. My son just bought a house 2 month's ago and he had to stress test of 4 percent at the mortgage rate he was offered even though he did a 5 year fix. He told me last night that is the policy is still to stress test 4 percent if rate goes up today he wouldn't have passed stress test as 1 Percent higher in 2 month's.

I can add that in our previous home location nothing lost value in the 2008 crash. It is a wealthy area and very few family houses came to the market. People sat on their hands. Flats and projects came and went but there was nothing for sale for years unless it was blighted. Everything came rushing to the market in 2000 for the stamp duty holiday. 20% increases were the norm. Mortgage rates were at 2%. Estate agents were being offered salaries of £100k (not London). Banks like closing the gates after the horses have bolted. If you need help you won't get it.
I think flexible mortgages are the way to go if you are young enough.
And Mr Consultant in Guildford needs to be careful. I lost all my contracts in the crash and covid. Fear causes employers to stop hiring. Contractors go first!

The £1m guy sounds like an idiot.

The poorly mum in Cheshunt sounds like someone who has tried hard to handle a shit roll of the dice.

Totally different, imo.

I agree that rate rise warnings have been part of mortgage discussions for a while. On this current mortgage, taken 6 years ago, I had to step through what payments would be like at anything up to 8%. Rates had been low since before I took an interest in the housing market, so I remember thinking 'that's mad, they'll never go that high!'. Ha!

Luckily, I am pretty risk adverse and when faced with the prospect of buying near London with a big mortgage or taking the chance to move further out for a much smaller one, I chose the smaller one. (Also lucky I was in a position to be able to do so).

I’m old enough to remember endowment mortgages being REALLY encouraged! My financial advisor REALLY encouraged me to take an endowment mortgage.

Same here. Took about 30 seconds to realise it was a scam (this was in 1988) and not to touch with a bargepole. As did 3 friends from Uni. (We were looking to buy a house in the dying days of a MIRAS per mortgagee).

Mysteriously the more insistent the salesman (and this was in the days when estate agents could sell mortgages) the less interested we were.

A deep rooted cynicism may have lost me a Nigerian Princes ransom, but it's also kept my purse firmly shut.

We have a chunk that's interest only. Cost of living increases, my health making work difficult, meant we have less cash available than planned. So we had a choice of downsize now, or turn the remainder into interest only and see where we are in 5 years time. We're waiting it out. We would probably be able to pay it off by taking part of our pensions out but we're giving ourselves the time to decide what we want to do. Right now, with one child still at home, we don't want to sell. In five years time, that may change.

We always had some interest free, we bought a larger house to make sure my Step kids had a room each for the weekends so that's stretched us.

Wages have flatlined so people are seeing their mortgages going up without making enough money to pay for that.

It's actually shocking how crap wages are in this country compared to comparative economies - for example, if I was doing my job in the US I'd be on well over $100K and I earn about half that over here - but we're such an insulated and entitled island that nobody seems to realise quite how badly off we actually are. Loads of economies we've historically viewed as 'poor' are already overtaking us.