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?

We got an interest only because for some reason it's the only way we could get a 5yr fixed deal. I'm extremely glad we did! (We have another property though and the equity in that would cover the mortgage if it came to it.)

My friends on trackers are really struggling, whether interest only or not.

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

Well, yes. However from that larger salary you need to find the money to pay for the things that taxes pay for in the UK.

The price we pay for having a (better) healthcare and social system than the USA.

You were more sensible that I was. I was buying at exactly the same time (and annoyingly missed the MIRAS deadline by a week or two).

Was buying with a friend as neither of us had a partner and we were desperate to buy as prices were rising quickly and we couldn't afford anything on our own.

Mortgage rate increased to 15% soon after. I Value of flat fell by about 20% and endowment eventually underperformed by over 30%. On the positive side, friend and I are still friends!

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?

be careful, OP. You know nothing of the ins and outs of people's lives, the circumstances at the point they took out the mortgage vs. where they find themselves today. Sometimes, people have to make difficult decisions to manage the here and now and not think about the longer term issues that might pose.

Wages haven't flatlined. Minimum wage has gone from £7.21 to £10.60 in four years. That's a huge % increase, part of the reason for rising costs. You can't have one without the other.

When interest rates were high before so was unemployment. No one was getting payrises then.

I agree, they really were sold. The only thing I can say is that we were of the 'if it's too good to be true' camp. It did seem too good. I think they were also sold as it was felt to be good insurance, instead of taking out term insurance to pay the loan people took an endowment.

Yes – but when those decisions result in serious consequences, as seen here for this lady, it is prudent for others to learn why.

Friends of mine did this intending to pay off the mortgage with inheritance money they anticipated receiving - they very nearly had to sell and downsize . Effectively they lived outside their means for years

So much judgement on this thread. People are facing unprecedented circumstances.

My husband died in 2020. His life insurance didn’t pay out because he died from a (previously unknown to us) genetic condition. I could afford to pay the mortgage alone (just!) but when the fixed rate ended I couldn’t pass the affordability check to get a new mortgage so had to go onto the variable rate. Which has increased basically every month since. It’s now more than double what my husband and I planned for in our worst case scenario calculations and I’m trying to pay it on one salary. I did everything right and I’m still fucked.

The wealthy and powerful wouldn't be able to stay that way if the plebs properly understood finances

Agree. Everything we are taught and not taught in school is that way for a reason. The curriculum is absolutely useless at preparing children for the challenges and complexities - and opportunities - of modern life/ society. So it basically comes down to the parents.

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

You also wouldn't have an occupational pension scheme, sick leave, paid holidays or pretty much any employment rights. All those things cost money and are worth money to you.

Errrr.... you don't want to compare US/EN wages like that. There are a lot of reasons that feed into the difference between salarys that make them directly uncomparable.

Good article here. Which I read up on for similar wage disparity reasons.

https://www.linkedin.com/pulse/what-average-salary-uk-vs-us-get-ahead-by-linkedin-news/

My goodness. I am so sorry this has happened to you. Have you sought legal advice re if the insurance can get away with that?

They are absolute bandits.

The whole thing about endowment mortgages was the salesmen (word used correctly) wore the same aftershave as the timeshare sharks that were preying on our parents at the time.

The Big Thing about endowment mortgages was by separating the interest and the capital, and using various hooky "investment vehicles" to pay off the capital, you would end up with a nice bonus over the 25 years as the stock market would have waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaay outperformed savings accounts.

What could possibly go wrong ?

"So", my friend said. "What if the investment vehicle doesn't pay off the capital ?"

and it was the lack of answer to that question which we all remembered when discussing what a scam it must be.

Speaking of which, aren't cryptocurrencies supposed to save us ? Or is that Batman. I rather tune out these days.

When we were looking to buy our first home lots of people gave us the advice to buy the most expensive house we could afford, that property would always increase in value and that it would be worth the struggle to own the asset.

We didn't do that we bought a nice house but one that we could comfortably afford. It's in a nice area on the edge of greenbelt but it's not a wealthy area doesn't have much in the way of shops or cafe's and lots of people we knew turned their noses up at it. However we have just paid the mortgage off in full, we have zero debt and £100,000 in savings which is now starting to benefit from higher interest rates.

Many of our friends are still renting in areas they can't really afford to buy (or even rent now) in or they have bought 4 bedroom new builds for £400,000 which they now are struggling to pay for. I don't know if I think it's totally their fault because I do think their actions are part of the UK culture along with a couple of fancy car's on lease and general desire to maintain a certain lifestyle and all that goes with it even if it is unaffordable. For a long time low interest rates made this affordable but now that has changed and its going to be more expensive in terms of interest to get a mortgage or debt. Lots of people are accustomed to a life they could never really afford and now feel hard done by when cheap debt means it is no longer affordable.

I get that is sucks, that its just been a part of the culture and even encouraged but cheap debt is also responsible for pushing house prices up. I have seen calls for a fund to help those struggling with mortgage payments due to the current interest rate increases and while I don't want to see people homeless as a taxpayer I am not sure its right to be funding the financial mistakes of people who totally overstretched themselves on their mortgage and other lifestyle choices. There are people in serious poverty who need that help more and if you have a decent job and the money to get a mortgage then you should also have had the foresight to see that low interest rates wouldn't be forever and made more sensible choices when it came to buying a home or deciding what debt to take on.

If we lived below our means for years to gain a home we own outright with no help from family and financial security then why couldn't others in our position or better do the same?

But the current situation isn't unprecedented. I've worked as a homeless officer and at the time of the 1990s housing crash I was constantly interviewing people who were being repossessed by their lenders. Often they had been perfectly OK until the rates rose to 15%. They might have been struggling but by cutting other expenditure were coping, suddenly they could do no more. I had people in tears because they thought they had done everything right, and often taken advice, to then find they had slipped into arrears. Even worse, when the property sold there was a shortfall and the lender came after them for that. So bankruptcy was the only solution. I had people who until recently had their own business, but the recession caused their business to fail and the mortgage to be unpaid. These things always go in cycles, we are heading for another one.

Yep.
Married and got our first mortgage in 1999.
Endowment was pushed heavily by building society advisor.
We went for a 3.79% capped rate (remember them!?) So our mortgage payment went down a little pretty much each month we had it.
However, dh and I have never borrowed the maximum that we could. We also chose fixed rates after that first product. We had kids by then, and we liked the security.
We bought our current house in 2011, so right in the slump after the 2008 FC.
All the mortgage products were 5%+
Those who have maxed out and didn't stress test their rate will suffer, no doubt :(

Because People are different

Not everyone is happy to act differently to the crowd, the norm

Because people take chances and risks all their lives and sone pay off and others don't - many people today bought as much house as they could afford then downsized to live off the profits - others hoped that would be their future

Self esteem is wrapped in being successful compared to others around you

Many people have limited imagination, limited ability to understand "what if" and even less ability to quantify probability and risk - which is why they will get in a car not walk down the street

I am not sure its right to be funding the financial mistakes of people who totally overstretched themselves on their mortgage and other lifestyle choices.

But we bailed the banks out. So far the media D-notice on reminding us of that is holding. But eventually someone will break ranks.

Yes, I'm a boomer and having lived through massive ups and downs in interest rates and prices I'm not at all surprised that some people are massively struggling.

I was sneered at by an ex-colleague half my age, when I cautioned against borrowing the absolute max on an interest-only mortgage a few years ago. They were adamant that no government would ever allow interest rates to rise significantly above 2 or 3%, or let house prices crash like they did in the early 90s.

I hope that this is short-lived and that we don't start seeing repossessions rise again.

Can anyone explain why on earth he thought this was a good idea? What would his rationale have been for doing this?

The bank, which is supposed to be the expert, told him it was doable and was willing to lend him the money. Not many people have the same financial knowledge as a bank representative, so when they said they thought it was good business, he believed them.

Of course personal responsibility matters, but lenders have got to take some account for their willingness to push shitty, economy-destroying products on people who trusted them, as the financial experts and behemoths, to be well informed and wise about it. After all, they don't half crunch the credit when they see things are shit.

I do agree, however some things are out of our control. We have no debt apart from our mortgage, nothing on finance etc. we owe £170k and we are currently repaying £700 a month. Last year my 5 year old became seriously sick and I have had to quit my £50k a year job to become her carer. I get £70 a week in benefits now. Our mortgage runs out in December and is going to cost us an extra £400 we don’t have. I’ve played the game my entire life and now we might lose our house because we had the misfortune to have an ill child.

A friend looks down his nose at my ex-council flat in London because he bought a shiny new-build (also in London, in a similar area), except he bought it shared ownership so only owns 25% of it and rents the other 75%. Why are people (usually men 😒) like this? I feel like shouting “my flat might not be shiny but at least it is 100% mine!”

But the current situation isn't unprecedented. I've worked as a homeless officer and at the time of the 1990s housing crash

However times have changed from then. Firstly it was possible for a single earner to buy a house. Childcare wasn't so extortionate. Housing as a %age of disposable income wasn't anywhere near what it is now. And that's before you factor in the seismic shifts in what work people do, how they do it, and where they do it.