Lloyds TSB blocks interest only mortgage switch

neverdespairgirl

Ian_Griffiths_Halifax wrote: »

<interesting reply snipped>

thank you - very informative!

neverdespairgirl

teabelly wrote: »

Also if you don't own your own home when you die it reduces the amount of IHT your children have to pay.

Well, yes, in the same way as taking a 50% paycut reduces the amount of income tax you have to pay!

sabretoothtigger

imfedup - Thats how interest only should be used, putting the capital repayment towards higher cost debt is very good

setmefree2

Ian_Griffiths_Halifax wrote: »

I have a mortgage and I'm a Mortgage Consultant.

I am single with no dependants and have a mortgage on an Interest Only basis.

I have nobody to leave the property to if I die so why do I need to pay the mortgage off?

Due to Investment Vehicles performing very badly and having been grossly mis-sold, why should I even consider a repayment vehicle?

So long as I keep up with my mortgage payments the lender will receive their interest and when I die, they will get the proceeds of the house sale, with the balance going to my estate. If I retire and have insufficient income to pay the mortgage, which due to inflation will be a low monthly payment in 25 years time, then I could down size or rent.

I personally would say that lenders should, to protect them selves against plans such as mine going pear shaped, insist on a %age of the mortgage being on a Repayment basis. 25% should do it and not cause the payments to rise too much for customers in comparison to their interest only payments. Obviously the term of the mortgage would make an impact on the monthly payments of the repayment element.

Interest Only mortgages are a Lifeline to some people in difficult situations and I would be surprised if Lloyds TSB/C&G could enforce this as they would not be 'Treating Customers Fairly'.

Hi

I can't understand why anyone would want to be a house with an interest only mortgage.

£100,000 repayment over 25 years, say 6% interest costs total £193,291
£100,000 nterest only over 25 years, 6% interest costs total £250,000

£200,000 repayment costs £386,582
£200,000 interest only costs £500,000

So a £200,000 house would end up costing £500,000 interest only

and a £300,000 would cost £750,000:eek::eek:

Nor very MSE or is it just me:rolleyes::o

RabbitMad

I find this whole Lloyds approach very worrying. A blanket ban on people swapping just seems daft and as said earlier probably isn't TCF!

IO mortgages have a place and a purpose and when used correctly are fine but when used incorrectly are not.

Imagine the situation where a person owned a very desirable £500K house and had a mortgage of £100K on repayment basis. Now they lose their job and their savings will only cover the morgage and their living costs for 6 months, in that situation it would make perfect sense for the owner to swap to an IO mortgage to give themselves some more breathing room and allow them to hunt for the right job rather than jumping for the 1st job they are offered.

On the other hand I don't think a 100% IO mortgage for a new build city centre flat "valued" at £200K just because the borrower can't afford the repayment mortgage on £200K is sensible.

RabbitMad

setmefree2 wrote: »

Hi

I can't understand why anyone would want to be a house with an interest only mortgage.

£100,000 repayment over 25 years, say 6% interest costs total £193,291
£100,000 nterest only over 25 years, 6% interest costs total £250,000

£200,000 repayment costs £386,582
£200,000 interest only costs £500,000

So a £200,000 house would end up costing £500,000 interest only

Nor very MSE or is it just me:rolleyes::o

Each to their own (And I'm Repayment) but the logic is you get more than 6% growth on your investment vehicle. Thus in the IO version you have paid £150,000ish interest and 35-40K ish in investments which have grown to £100K+ therefore you are actually better off.

Its interesting but previously IO mortgages with a repayment vehicle were considered the correct advice for FTBs who planned to move in the next 3-5 years and a repayment would be considered a mis-sale

WTF?_2

RabbitMad wrote: »

I find this whole Lloyds approach very worrying. A blanket ban on people swapping just seems daft and as said earlier probably isn't TCF!

I doubt that it will really be a blanket ban - I expect that a switch to IO will be allowed where it suits the bank.

eg. House is in neg eq, borrower loses job and can't pay - but the state will fund mortgage interest. I can't see the bank not allowing a switch to IO under those circumstances.

On the other hand, where the borrower can't repay but the bank reckons there is equity in the property, repossession is likely to be swift.

The grey area will be where the borrower has a job and the house is in negative equity and the borrower now can't meet the payments ... but maybe could service an IO mortgage. They'll probably look at how much they expect to be able to recover through immediate repossession and how much further prices are likely to fall before deciding whether or not to chuck the family out of their home and into probable council bedsit-land.

Nice people, those bankers.

setmefree2

RabbitMad wrote: »

Each to their own (And I'm Repayment) but the logic is you get more than 6% growth on your investment vehicle. Thus in the IO version you have paid £150,000ish interest and 35-40K ish in investments which have grown to £100K+ therefore you are actually better off.

Its interesting but previously IO mortgages with a repayment vehicle were considered the correct advice for FTBs who planned to move in the next 3-5 years and a repayment would be considered a mis-sale

Of course this assumes that House prices only ever go up Prices down 15% already - what if they fall 50%?


Personally, I'd rather borrow £100,000 over 10 years - house costs £133K

Or even better £100k over 5 years - house cost only £115K

versus a house cost of £250k over 25 years interest only...

That way you'd make much more money....:p

vigesimal

Halifax may be doing the same as lloyds from what this poster has said in number 14
http://forums.moneysavingexpert.com/showthread.html?t=1234961

Gorgeous_George

Interest only compares better to renting than to a repayment mortgage.

With interest only:
> Your payments are fixed (or follow mortgage rates if on SVR) - no inflationary increases that rent will attract.
> No Landlord (could be a good thing but you get to pay for repairs etc.)
> Security of tenure (pay the mortgage and you won't be evicted whereas a renter could be evicted for many reasons and at the whim of the LL).

There are people who would prefer an interest only mortgage because they can get better savings rates in cash ISAs or, are expecting a large inheritance or, are guaranteed a golden goodbye from their employer.

GG