End to Interest Only Mortgages????

brit1234

Is the interest-only mortgage endangered?

Now branded high-risk by the FSA, the product popular with those on a tight budget may just have stored up trouble.

They have helped probably millions of people on to the housing ladder during the past two decades. But could low-cost "interest-only" mortgages be heading for the chop?

This week, the Financial Services Authority officially branded interest-only home loans as "high-risk", lumping them in with so-called liar loans and mortgages for people with dodgy credit records.

Rest on link below:

http://www.guardian.co.uk/money/2009/oct/24/interest-only-mortgage-endangered
Rupert Jones
Saturday 24 October 2009

I read this and thought of a few friends who got them, one getting their parents to act as a guarentor. Then I thought "Hang on a minute, what about buy to let?"

Now if interest only is phased out it will be a quicker death bed for buy to let than interest rate rises. It would end house price speculisation as we know it and provide a more stable market. Have the FSA the balls to do it knowing the tidal wave it will cause in the housing market.

It will mean an end to people like Fergus Wilson buying up all the properties in the area with none of his own money and calling people poor as they can't get on the housing market because he has inflated the price.:mad:

http://www.youtube.com/watch?v=x9lrqXLVw-E

leveller2911

We can but hope Brit. The problem is and always has been the FSA were/are toothless.

Its about time we had some real regulations.It just isn't right to be able to borrow money with zero equity in the property.

It has amazed me over the years how self employed people who have years in business were seen as high risk over BTL.

I hope im wrong and it does END interest only mortgages and those existing people who TBH were idiots to have even tried it will be found out.
There is so much wrong with our current system it needs a thorough overhaul.

kriss_boy

I think its more important there is an attempt to regulate house prices themselves rather than the mortgages available to finance them.

Although in saying that I bought my place in March 2008 after months or walking away from dozens of properties selling for funny money. In the end I got a beat up small house because I couldnt bare the thought of paying all that for a rubbish 1 bed flat.

There should be an attempt to regulate house prices.

silvercar

The FSA doesn't govern BTL, so even if it found its balls it would be powerless to act.

Old_Git

didint everyone with an endowment policy pay interest only .look how well the endowment policys are doing .

michaels

So by your logic a 90% repayment mortgage is as 'safe as houses' but a 50% interest only is the devil's own instrument...excuse my French but what a load of boll*cks...

I pay interest only as my mortgage rate is 2% and my cash isa pays 5% - how risky am I to the bank...

Oh yeah, forgot to add - interest only means you are not paying to increase the equity in your property - exactly like renting; they had better ban renting while they are at it.

lostinrates

I also hate the idea of interest only payment being banned: whether or not it has hlped reduce price drop (which migh personally be less helpful) being able to go interestonly might well have helped people stay int heir homes. I viewed a house today where they said they have been IO since one of them was made redundant earlier this year. On a personal scale I'm glad they are not forced yet. (although it sems they over leveraged from conversation with them, which is something concerning.)

Pobby

Old_Git wrote: »

didint everyone with an endowment policy pay interest only .look how well the endowment policys are doing .

I and many got pulled into that. Without understanding the implications, smooth talking sales people promised future riches, oh dear.

misskool

kriss_boy wrote: »

I think its more important there is an attempt to regulate house prices themselves rather than the mortgages available to finance them.

Although in saying that I bought my place in March 2008 after months or walking away from dozens of properties selling for funny money. In the end I got a beat up small house because I couldnt bare the thought of paying all that for a rubbish 1 bed flat.

There should be an attempt to regulate house prices.

Prices are regulated by supply and demand. Where more people want to stay, house prices are higher. It's not rocket science. If people are willing to work hard and pay for their house, it's their choice.

vivatifosi

I'm really in two minds with regard to IO mortgages. Having had one attached to an endowment, I know from personal experience how seeming prudence can lead to getting your fingers burned like pobby. I am also wary about people who buy houses on IO and mortgage themselves to the hilt because there's no plan B. However both lir and Michael have made very reasoned arguments as to where they work. Help! I just don't know...

julieq

Old_Git wrote: »

didint everyone with an endowment policy pay interest only .look how well the endowment policys are doing .

Anyone with an endowment policy based mortgage now has an asset worth many many times the purchase price of their house given HPI since endowments were available, and a shortfall which is probably less than a couple of percent of that value. It's hardly an issue to anyone.

There is no such thing as an interest only loan anyway. There are loans which charge interest only during the term and require a repayment of the whole amount at the end. It's frankly no-ones business but the lender and the borrower whether they use one of these loans, but it's hardly risky. Over 25 years there is more chance of seagulls nesting on the moon than negative HPI, so there is no risk to the lender. There is no risk to the borrower either since they will have paid less over that period than rental of an equivalent house given modest assumptions on rental increases and inflation.

And it doesn't even make a lot of difference to house prices now. The multiples available are the same, the only difference is it gives an initial leg up with affordability in the early days of a mortgage when finances can be stretched.