Quarter of Brits on interest only mortgages

Entertainer

julieq wrote: »

The roulette analogy is interesting. I understand risk, and I understand that roulette is a losing proposition on average so I wouldn't take the £20 bet. Buying a house isn't. Most people who bought on interest only mortgages (or any sort of mortgage) will come out ahead, because overwhelmingly most of them won't be forced to crystallise a loss. And to participate in the game they pay an amount which is comparable to that which anyone renting will be paying, and unless that renter eventually joins the game they will be paying that amount every month for their entire life, which implies vastly increased pension provision to achieve a like for like outcome.


So it's really demagoguery to claim that a house purchase is a bet similar to roulette, the maths doesn't support that statement.

You must be confusing me with someone else. Nowhere did I say that a house purchase is a bet similar to roulette. I was stating that people who buy a hugely leveraged property investment do not have an awareness of the risk they are taking on, most of them couldn't even spell the word derivative.

julieq wrote: »

Anyone buying on any type of mortgage at a peak before a crash is in negative equity, and has precisely the same problems. It really makes only a marginal difference if you're on a repayment mortgage in versus an interest only mortgage, and in both cases you have precisely the same option to fix the problem, which is to build up some sort of offsetting savings or investment.
Buying just before a fall is really the risk you run when you buy a house.

There is a world of difference between someone buying with an equity cushion and someone who has a 100% interest only mortgage who immediately puts themself into negative equity by buying at the peak. Any fall in any market can be waited out, somebody could go and buy a £200000 stock derivative today on the basis that the market will be higher in 20 years time. In the meantime they will face margin calls if the market falls. The fact that you do not have the immediacy of margin calls in property investment doesn't disguise the fact that people are making themselves technically insolvent if the same thing happens.

We don't know what proportion of those interest only mortgagees are responsible but there are a few clues namely the fact that the entire Western banking systems has been rendered insolvent in the last two years because of individuals who haven't met their commitments. High leverage whether it be through high LTV mortgages, high income multiples or non repayment terms will therefore be an issue for public policy in the years to come.

Entertainer

HAMISH_MCTAVISH wrote: »

That is without a doubt the most effective destruction of an opponent's argument that I have ever seen online.

Well done.

You're easily pleased.