Quarter of Brits on interest only mortgages

Entertainer

Not only are you leasing your home from the bank you are also taking a highly geared play on the property market. Effectively these people are selling a £300,000 put option on the property market, without even realising it; individuals who would recoil at the idea of putting £20 on a roulette table.

This debate about 25 years is a complete red herring; of course prices are going to be higher in 25 years time - that's not the issue. Given the enormous scale of the boom, if you bought at the peak of the market you could be facing 25% negative equity immediately- 7 years of all the associated problems- not being able to remortgage, move house (people's relationships break up, you can't guarantee you will stay in the same house forever). Why inflict that on yourself with no backup of owning equity in your house? A person is effectively insolvent for all that time, a zombie borrower.

These interest only mortgages lead to inflation in the housing market and the prevalence of them could explain why prices are still overvalued. Of course there are responsible borrowers like Dan but how many do you think are like him? The whole nation's future is being mortgaged to permanently low interest rates. When that ends, it means insolvency of the banks and individuals as well.

Pobby

Entertainer wrote: »

Not only are you leasing your home from the bank you are also taking a highly geared play on the property market. Effectively these people are selling a £300,000 put option on the property market, without even realising it; individuals who would recoil at the idea of putting £20 on a roulette table.

This debate about 25 years is a complete red herring; of course prices are going to be higher in 25 years time - that's not the issue. Given the enormous scale of the boom, if you bought at the peak of the market you could be facing 25% negative equity immediately- 7 years of all the associated problems- not being able to remortgage, move house (people's relationships break up, you can't guarantee you will stay in the same house forever). Why inflict that on yourself with no backup of owning equity in your house? A person is effectively insolvent for all that time, a zombie borrower.

These interest only mortgages lead to inflation in the housing market and the prevalence of them could explain why prices are still overvalued. Of course there are responsible borrowers like Dan but how many do you think are like him? The whole nation's future is being mortgaged to permanently low interest rates. When that ends, it means insolvency of the banks and individuals as well.

Interesting read. Thank you.

JonnyBravo

Dan: wrote: »

In theory, yes. But you will have much more flexibility to pay off the balance on an IO product. For example, the first few years you are paying very little capital anyway, so unless you intend to run the full 25 year course, it makes little sense to be on repayment. Also, you can usually make a lump sum payment at anytime on IO.

It all comes down to individual attitude to risk, and personal financial discipline.

And it comes down to the individual product.

Saying you're only paying a small part off in the first few of the 25yrs is again meaningless. So? You're paying off even less on I/O.
If someone wants to pay their mortgage off early it's really not about the type of mortgage they have more the individual product that is important.

(Please dont mistake this as anti I/O.... my mortgage is I/O)

bluey890

Entertainer wrote: »

Not only are you leasing your home from the bank you are also taking a highly geared play on the property market. Effectively these people are selling a £300,000 put option on the property market, without even realising it; individuals who would recoil at the idea of putting £20 on a roulette table.

put options are optional for the buyer. They are not the same as a house purchase.

Have I misunderstood...?

nearlynew

Really2 wrote: »

Have you never had a mortgage?
I should be mortgage free before fifty, can't say that gives me the right to look down at people with mortgages and call them "debt junkies"

Sorry I quoted you before you thought better and deleted it

I don't know why that post was deleted. So I'll post it again............


Each to their own I suppose.

I just like the idea of having no debts (including mortgage) at an earlier age.
I can now spend the next 10 years or so adding to my savings and other investments right up to retirement.

It might not be very MSE but I'm comfortable with it.

Really2

nearlynew wrote: »

I don't know why that post was deleted. So I'll post it again............


Each to their own I suppose.

I just like the idea of having no debts (including mortgage) at an earlier age.
I can now spend the next 10 years or so adding to my savings and other investments right up to retirement.

It might not be very MSE but I'm comfortable with it.

So have you never had a mortgage?

nearlynew

Really2 wrote: »

So have you never had a mortgage?

Yes. Several over the last 20 odd years.

Why?

Really2

nearlynew wrote: »

Yes. Several over the last 20 odd years.

Why?

Just that you go on about mortgage holders as debt junkies that is all.

nearlynew

Really2 wrote: »

Just that you go on about mortgage holders as debt junkies that is all.

No I don't.


I refer to HPI cheerleaders as debt junkies.

Really2

nearlynew wrote: »

No I don't.


I refer to HPI cheerleaders as debt junkies.

Ok, my mistake. I must admit the way you posted I had you down as a lot younger than 40/50. Though.

OK I am off your debt junkie list then.