Quarter of Brits on interest only mortgages

julieq

Graham_Devon wrote: »

No it doesnt, as your interest is likely to go up in inflationary environments, wiping out the gains on the actual base loan.

No, it's not likely to be more than rental. Rental will tend to be close to the yield available on capital by other means. As will interest rates on mortgages.

You're really clutching at straws now. To make this into a problem you have to assume stagnating house prices over 25 years and an environment where rents stay static over the same period. It's simply not credible.

It doesn't actually matter that you pay more for the money you've borrowed. That's the cost of living somewhere, everyone pays something similar. If there is stonking inflation then you get stonking HPI by the same token. At the end of the deal you have one house, with a loan devalued by the compounded HPI, you can choose to pay off the residue or sell up at that point. Either way you're in no worse position than someone who has rented during the same period, and in all probability would be significantly better off, since you have an asset and they don't (their landlord does).

Anyway feel free to do it your way if you like. I'm sure you know best.

Graham_Devon

Just to point out HPI is NOT guaranteed....



So someone bought in 1989. Their 25 year mortgage therefore ends in 2014.

Is it absolutely guaranteed that the house will be worth more than in 1989?

Likely, but if you look at the undershoot in 1982, compare it with the undershoot in 1996, it COULD roughly mean there is an undershoot to about £100,000 this time.

So in 1989 house was bought for £110,000. 2014 comes, and we have hit rock bottom. Houses now worth £100,000.

So this guarentee is suddenly flawed.

All of the above is obviously based on where the market goes from here, but IS based on where the market has been in history.

Graham_Devon

julieq wrote: »

Over 25 years it most certainly would Graham.

Then maybe you could prove me wrong above?

Graham_Devon

julieq wrote: »

No, it's not likely to be more than rental. Rental will tend to be close to the yield available on capital by other means. As will interest rates on mortgages.

You're really clutching at straws now.

On the contrary, I never even mentioned it being more than rental, or indeed talked about rental, so I could say the same

wageslave

chucky wrote: »

as you get older you'd be earning more so you'd have more opportunity to repay capital

Live for today and hope it all works out tomorrow?

chucky

Graham_Devon wrote: »

So in 1989 house was bought for £110,000. 2014 comes, and we have hit rock bottom. Houses now worth £100,000.

So this guarentee is suddenly flawed.

All of the above is obviously based on where the market goes from here, but IS based on where the market has been in history.

people don't usually stay in a property that long - many do but the average time in a property is 7 years.

property dropping to £100k is unlikely in my opinion - i would say if it does, i would worry about jobs, personal security and social issues if they dropped that far.
it would be political suicide for any government or political party to allow that to happen.

chucky

wageslave wrote: »

Live for today and hope it all works out tomorrow?

that would be a bit silly wouldn't it.
is that what you do?

Dan:_4

Graham_Devon wrote: »

Just to point out HPI is NOT guaranteed....



So someone bought in 1989. Their 25 year mortgage therefore ends in 2014.

Is it absolutely guaranteed that the house will be worth more than in 1989?

Likely, but if you look at the undershoot in 1982, compare it with the undershoot in 1996, it COULD roughly mean there is an undershoot to about £100,000 this time.

So in 1989 house was bought for £110,000. 2014 comes, and we have hit rock bottom. Houses now worth £100,000.

So this guarentee is suddenly flawed.

All of the above is obviously based on where the market goes from here, but IS based on where the market has been in history.

According to the Nationwide index, a house worth £110,000 in 1989 is worth £272,000 today [Q2 2009]. Are you suggesting house prices will fall 150% between now and 2014?

julieq

Oh come off it.

You have to absolutely cherry pick your dates and then make a massively improbable assumption to see no hpi between 1989 and 2014.

And in the WORST CASE where there is minimal HPI, there has been inflation during that period, so the size of the debt in proportion to your ability to repay it has decreased at wage inflation rates compounded.

And what have rentals done over that period? During that time mortgage interest repayments have gone down.

And how many of the 3.5M interest only mortgages started in 1989?

You are clutching at straws, you are hugely selective in terms of the data you use and you're ignoring anything that doesn't suit your arguments, but for all that you're perfectly welcome to do it your way. And good luck to you.

Graham_Devon

chucky wrote: »

people don't usually stay in a property that long - many do but the average time in a property is 7 years.

property dropping to £100k is unlikely in my opinion - i would say if it does, i would worry about jobs, personal security and social issues if they dropped that far.
it would be political suicide for any government or political party to allow that to happen.

But chucky, we are talking about when the 25 year mortgage has finished.

We cant say it's guarenteed HPI will have sorted out the loan on an interest only mortgage after 25 years, and then when it's shown it's not, revert to "but people don't stay in their house for 25 years". That's arguing both ways.

Where the market goes from here is neither here nor there, the point was literally that it's not guarenteed HPI will always save an interest only buyer.