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?

My relatives had an interest only mortgage for yrs but the house value is more than 10 times the mortgage value

Do mortgages not insist you have insurance to pay out the mortgage in the case of one of the people dying?

no

Unless they have lived there for years then it would not make a huge amount of difference anyway as their debt would only have gone down fast towards the end of the mortgage . So they probably thought they would downsize and pay the mortgage off if the worst came to the worst . But now with a combination of pressures they may not be able to do that.

For every person who has made very poor financial decisions or based their life on exceptionally low interest rates so lived beyond their means, their are half a dozen others who have done all the 'right' things but still struggle

agree

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.

The one big advantage is makes - to mortgage holders - is that is can massively improve your LTV % when you come to remortage.

With 50% value increase, you could easily see yourself go from 90% to 60% LTV (or lower) - obviously depending on original value and repayments etc.

That means you are protected from the very worst of the interest rate increases, because you are likely to be offered the best the bank can do.

Years ago we used to , now it’s only a recommendation. Because people have such varying incomes and circumstances you can’t force them to take out life assurance .

So many comments seem smug and sanctimonious on this topic. Like they're enjoying people suffering as long as they van pat themselves in the back for being so much cleverer than others.Yes, there are some well chosen examples of poor financial planning. It's not like no one ever overspent before 2008.

I am not defensive, I did borrow half I was offered etc - but I see this as a great privilege I was able to! I definitely don't think I am superior to and wiser than my neighbours who are devastated about mortgage rises, I'm sure they would have much preferred to buy the house for what it cost in the 80s but alas that wasn't am option for them. Its a not especially enviable zone 3 london suburb, so they're hardly over extending to live the high life- its just what houses cost around here, and they've already moved significantly away from where they used to live to find somewhere more affordable.

Also many people who did throw caution to the wind & take on risk have been very financially rewarded for it did to huge gains in the late 90s/early 00s

I have never really understood interest only mortgages either (why not just rent?), but maybe people take a risk assuming property prices will go up as they have the last few years.

I know a few high earners who have the 1.5m house on interest only. They have good equity & get to live in a great house for cheaper then renting plus benefit from increases in prices. Obviously it's now a bit of a different landscape

It could possibly change if the war in Ukraine ends as that is putting a huge pressure on prices . We can but hope for all sorts of reasons .

We took out an interest only mortgage and it happened to serve us well . But I understand for all types of situations this rate increase on top of everything else is really really bad .

Why ? You just move to a smaller house if necessary or you can overpay If you want or you only leave the equity to you family not the whole house ?

It worked for us . No regrets and mortgage free now .

but have great sympathy for those who have not been through increases in interest rates like this before .

You can’t blindly trust a mortgage salesperson advisor. I remember being recommended interest only in 1995 and being told how endowment policies never fall short. But all that I could think was, but what if it does! Opted for repayment as I wanted to see the balance reduced.

Of course it isn't all one story people have suffered unexpected losses of jobs, separation or ill health but loads of people who should have known better defiantly should have known better went for the bigger house, car, loan to fund a lifestyle they couldn't afford because they felt entitled to it. I think some of us who did do the sensible thing and lived below our means would find it annoying to see all those people bailed out at our expense now. Having said that I don't really want to see people lose their homes but there are people in more desperate need of taxpayer help than people who overstretched themselves to buy a McMansion and lease a couple of SUV's and not are upset they can't actually afford all that. They need to downsize, move area and lease a cheaper car.

These landlords tend to not even live in the same city,

In many cases you are lucky if they live on the same continent, let alone the same country.

"Selling England by the Pound" was supposed to remain as a slightly dodgy Gabriel-era Genesis album. Not become a market ambition.

The average Interest rate since 1970 has been 7%. Since 2000 many have only grown to know historically low interest rates. Unfortunately many have based the affordability of their loan repayments at these low rates. Now rates are rising many have found they have over stretched themselves and have no reserve in budget especially with combined with the cost of living rises.
Financially it always.makes sense not to overstretch and if your payments drop to save the remainder or continue the higher payment and reduce the mortgage term.
As many have said interest only mortgages were run alongside endowment investments, at low interest rates these have not performed well enough to pay off the lump sum at the end of the term.
I have come to the conclusion there areany Financially inept individuals who do not keep a close eye on the health of the biggest debt/ loan most will ever make. I really don't think it's up to the government or taxpayers to bail out these poor decisions.

This is not true in case of low rates. Our mortgage on 1.9% had about 2/3 of capital vs 1/3 of interest. So capital was reducing substantially from day 0 of repayment. And it got closer to 3/4 vs 1/4 towards the end. Not exact figures, but out of £800 monthly mortgage payment only £200 went towards interest (started with around £500+£300)

Of course rates have been higher but the salary ratios we’re LOT a lower and the price fuel and food was not as high as it is now .

so carry on having no sympathy if you want but I think there are going to be a lot of people through no fault of their own who will be struggling .

It's been flagged for years that mortgage rates will go up, I'm not sure why people are surprised. 6 years ago I got a 5 year fixed rate because I was expecting this scenario. Then last year got it fixed for another 5 years at a (to my surprise) slightly lower rate. What possessed anyone to take out tracker mortgages in the past couple of years?

I took out a really irresponsible mortgage for my first house. The monthly repayments were more than our individual salaries. Rates were 7% and we were hardly paying off any capital at all.

Our logic was simply that we didn’t want to rent, and we were at the start of our careers hoping for promotions.

Shortly after, the big interest rate crashes happened, and I can’t believe how long it’s been low for. Saved our asses and we paid off the mortgage a while ago. Could have gone very differently!

This seems like such race to the bottom bullshit. Do you really think there are more flashy types with expensive SUVs than there are normal families just trying to do their best? Or does it not matter what happens to them as long as flash Dave has to send back his SUV?

Sensible in the way you're using it just means more risk averse, it's not inherently morally better. In fact for years flash Dave has been making a mint in house price rises! Is that why there's this almost glee that at last he is getting his just desserts!

And why are we all taking pot shots at each other- be furious with the banks. They're the ones who the taxpayer did bail out at great expense 15 years ago, and now they're benefitting from huge increases in mortgage repayments due to interest rate rises!

What's a McMansion?

HNRTT but acquaintances in the City tend to have interest-only mortgages when they can get a much better return on their capital by investing elsewhere. Their plan to swap their 'long short' arrangement can sometimes be scuppered by divorce/investment losses/career problems but it is in some respect a different world.

I had an interest only mortgage for a couple of years to get into a house I could easily afford because I didn't earn much. But I made it a repayment after that and aggressively overpaid. I made quite alot of money when I sold it.

Someone my bf knows only had interest only on a not desirable property and took out the equity. He rented it out, paid the mortgage and spent the rest of the money. He refused to make it repayment. He is now selling at a loss. Because he thought you get interest only, property goes up in value and it makes you money. Not this way it doesn't.

Someone else had a tracker mortgage 20 years ago and within a few years had to sell because they couldn't pay the mortgage. And they've just bumped along to cheaper and cheaper houses.

I've got very little sympathy for people who don't see mortgages as a debt or live well beyond their means. It all crashes and burns eventually.

Everyone knows interest rates fluctuate.

I don't see why they should be bailed out. I saw friends being repossessed in the 90s when it wasn't all their fault and they weren't helped.

We have an interest only mortgage but it’s small, we have an endowment that will pay off2/3 of it and pension lump sums that will take care of the rest. It allowed us to pay school fees and uni accommodation. Modest terraced house with mortgage of 145 k though so different kettle of fish.