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

Of course he did; the commissions were so much better than on a straight repayment mortgage

I'm also old enough to remember when "low cost endowments" were brought in - same idea, but with less so-called investment protection to pay off the capital in the end
Of course many didn't focus on that; they just saw "low cost" and so the problem continued to build

Oh, they can. His mum died from the same thing but at the time we didn’t know it was genetic.

We are in a similar boat to you Chulak. We didn't have a crystal ball when we took out out 5 year fix and it's now due to end next year and we are going to be a bit screwed. We will just about manage and are taking steps now to slim down our outgoings (though there isn't so much more we can cut).
Im pleased for those on here that had great foresight to have avoided this issue by buying smaller houses than they needed or budgeting for potential huge increase rates rises. We didn't really have much choice as to where we lived geographically (blended family and other parents houses, 2 sets of kids schools location etc plus work to consider) nor the size of the house-we have 4 kids and two already share a room. We had to to do what was best for our family with the available knowledge at the time I guess. And it was a gamble bigger than I thought it was, which is now seems will not pay off.

What is castatrasophic for a lot of people is that low interest rates have fuelled a hige escalation in house prices. Well now the chickens have come home to roost. About time house prices fell and that would give people a chance to get on the housing ladder.

Same I did the same in 2010.
And lost out so much because I didnt over borrow.

Any way moved house last year- again didnt overborrow- and luckily we will be fine no matter the bank interest rate. It probably wouldn't have taken so long to get our family house if we hadnt been overcautious

Nope. Wrong. I'm uninsurable due to cancer right now. A specialist broker and agency took a look and said they would maybe reconsider if my next scan remained clear (Its thyroid cancer, almost never terminal in people my age and frequently curable) though it would be expensive but right now no way. Which does not surprise me honestly but it seemed the responsible thing to ask.

Even if I do finally get it I expect a list of exclusions so long that it may be entirely pointless but we'll see.

😂👏

That's a good idea. Replace RS with basic financial training eg budgeting, interest rates, mortgages, pensions, credit etc.

True if you're on a fixed-rate repayment mortgage deal. Repayment mortgages on a standard variable rate (as mine is) are generally much more flexible. I can overpay anything up to 100% of my outstanding repayment mortgage off without incurring penalties.

We took out IO in 2009- there were so many warnings from the bank before we signed that it was impossible to go into it without realising the potential consequences. We were asked what our plan was to repay, but werent asked for any proof. It worked out perfectly for us- we wanted it as it was offset so our current and savings helped reduce the interest and there were no overpayment limits which meant that when we stopped paying for nursery fees we could put that money straight into paying extra on the mortgage. We never used the IO option, choosing to always put money towards repayment. At the start we had very little in savings but by the end were effectively interest free due to the offset. We ended up paying the mortgage off in 10 years which wouldn't have been possible with the other mortgages that were on offer at the time. It was the best financial decision we've ever made, but we were very disciplined on the goal of being mortgage free asap.

Yep, it was probably the worst financial decision we made tbh, being over cautious. Benefit of hindsight.

I work in a team that has to “touch base” with the interest only side of our mortgage department - within our company at least - we start to write out about the upcoming end of a mortgage 10 years in advance and every subsequent year then on until it gets to about 2-3 years out and the letters ramp up.

I feel like people have had no real idea what they was taking on with I/O mortgages and they refuse to accept the fact that they agreed to sell their property or use their pension lump sum to clear the balance. I appreciate things have been misold in the past but people are given ample time to make arrangements

‘d’H left me in September last year. The fixed rate came to an end in Feb. The intention was always to remortgage and fix in good time for that happening but I can’t do anything until we resolve the financial settlement and he’s dragging his feet. So I am going to struggle. I can make cutbacks but not much as I have cancer - thankfully still on full pay or I really would be screwed.

Back in the 90's you took out an endowment to pay off said mortgage. It usually had critical illness cover included.

I actually have friends who had and still have interest only mortgages without endowment to cover it!!? Honestly I was shocked that they were still paying Interest 30 years later.

Some people just don't understand how it works.

Not only are they extreme, they're not very good if they are supposed to be encouraging sympathy. I'm sure their must be much more sympathetic stories out their but the BBC in particular is very bad at picking examples for these kind of articles on the cost of living crisis. A woman who re-habilitates hedgehogs and tortoises? Really?

TBF interest only mortgages were readily and easily available in late 90s and early- mid 00s , we and a lots of our friends had them. Most of us have now switched to repayment. I think it originated from endowment mortgages not meeting requirements- originally advised to get interest only mortgage and an endowment and endowment would pay off mortgage and a lump sum left over at end of term. This is what my parents did in 70s/80s but by late 1990s endowments were very quickly no longer projecting predicted payouts. However banks still offered intetest only mortgages very easily with no repayment plan and you always thought, ill overpay, get an inheritance, downsize to pay off after 25 years etc.
So yes buried head in sand but banks facilated it and it wasnt umcommon practice 15-20 years ago.
Although no way ideal its still better than renting .

What is castatrasophic for a lot of people is that low interest rates have fuelled a hige escalation in house prices

I agree, Viviennemary, but nobody seemed to mind when their home's supposed "value" was rocketing ever upwards, and anyone sounding a note of caution got little but abuse

As said earlier, rates now are increasing to roughly their historical average and god knows what would happen if we ever saw 15% again

Whatever happened to gap insurance ? It was quite a thing a few years back.

"There are no cheap houses anywhere" there are loads of cheap houses round where I live, they have all been bought up by BTL landlords who then illegally let them out to at least 5 tenants (they are 2 -3 bed small terraces) who do not stay long and then another set moves in. These landlords tend to not even live in the same city, they spend no money on the upkeep of the homes, rent them to people who have very little English and consequently not much understanding of their rights. The whole area is getting more and more run down by the day, BTL is another factor that has wrecked the market. When I bought my house, people bought round here to actually live in them, they were small but not bad as starter homes for young families, nowadays even though they are affordable, nobody buys them to live in as the area has gained such a bad reputation. I am wondering if the BTL market is going to collapse, will have to wait and see , it has certainly contributed to the housing crisis.

Yeah our house as supposedly increased in value by almost 50% in the past 8 years which is nice I guess but what difference does it really make when everything else (all housing and so on) has gone up in value / cost too plus higher interest rates.

Exactly, louladybug. Just about the only folk who'd benefit are those downsizing, but of course that's less common than the reverse

There is that.

I read a sob story about a couple who were both working and were devastated that their mortgage was doubling. One of them had to work several nights a week on top of their full-time and reasonably well-paid job (certainly paid more than mine).

Sad, right?

Except the mortgage payments were going from £300 to £600.

I kept putting their numbers into mortgage calculators, and the only way I could make it work was if they'd had a sub-100k mortgage for a while at just over 1%, and for some reason, their rate had risen to around 6%.

Like, am I supposed to feel sorry for two working adults with decent jobs with a mortgage that was half of mine (and I'm a single working woman), who thought interest rates were going to be about 1% forever and didn't bother making overpayments? Not to mention that their combined income is probably around double mine and I have a pretty nice lifestyle...

It turns out that we have acquaintances who are likely to be badly affected by the rise in interest rates. Apparently their lovely old farmhouse with its smallholding was bought on an interest-only mortgage. They also have interest-only buy-to-lets and apparently those are now not financially viable. I assumed they'd both inherited serious money from grandparents and other elderly relatives, but it seems not.

I really don't think that the government should be propping them up at the cost of all the people whose UC etc doesn't cover the basics. It's people in social housing and private rentals with rents and costs going through the roof who should take priority, not people who've taken what seems like a pretty reckless bet on interest rates.

Absolutely. In the first few years even if you are on a repayment mortgage you are paying nearly all interest and your debt reduces only by a tiny bit . The lenders allowed high salary ratios and if they had not then no one could buy a house . I know two really hard working couples with young children who have been hit with high fuel bills and high food prices who will be hit very very hard by this and unless they can extend the mortgage they could lose their houses . And no they are not in position to get extra jobs as one works shifts and the other couple have children with medical problems .

it is a shit storm waiting to happen .

but who could have foreseen the war in Ukraine and the economic pressure worldwide caused by the pandemic .