Interest-only mortgage crisis looms report

michaels

I admit there are tax advantages to putting capital into a property (same effect as offsetting) but everyone in this thread seems to be very hung up that having equity in a property is the best thing to do with any spare income. I do not think this is the case for everyone - reasons already mentioned are flexibility, having a savings cushion etc.

And I really don't buy this arguement about the risk of negative equity - if you have positive equity and the value of the property falls you are making the loss. If you have no equity and the worst happens in the end it is the lender who loses...

lisyloo

missk_ensington - I totally agree with you about the benefits, but I am concerned about lowis because they say they can't afford standard repayments.
Your situation is slightly different because you are operating it a bit like a business and have profit factored in.

if you have positive equity and the value of the property falls you are making the loss

In many cases a "paper" loss.

If you have no equity and the worst happens in the end it is the lender who loses...

Only if you have absolutely nothing else.
If the lender reposseses and there is negative equity then they will want to get hold of your savings, car, jewelry or anything else you have of value.
If you have a MIG then the insurance company will pay the lender and then come after you personally to get it back.
So your statement id only true if you have no other assets which is not particularly a posistion I want to be in (especially as you get older).

lowis

lisyloo

if push came to shove i could do repayment - but it would make things very tight for me, with little breathing space. i therefore decided that IO was best with an overpayment each month - it gives me flexibility but still allows me to pay off some of the capital. i have got an equity isa in place ready for payments once the mortgage starts - but to be honest I think it would make more financial sense to make overpayments each month.

i am currently renting a flat - the same one that i am buying - i am exercsing my Right To Buy. The rent is £330 a month, the IO mortgage will be £384 a month. The flat is worth considerably more than I am paying for it! Another reason I have IO is beacuse I am buying a flat in a block - I therefore need to be able to save each month in case I get any nasty repairs/maintenance bills.

Long term plan is to obviously get a repayment mortgage :-) but for the next 2-3 years this current scenario suits me.

lisyloo

OK, makes sense if you getting a significant discount.

EdInvestor

Miss Kensington

It doesn't bother my mum too much as she tends to focus on commercial property and businesses

This is entirely different from residential BTL.

..but it's not fair that cowboy Landlords have jumped on the bandwaggon and try to get cash without declaring it, and keeping it on a normal domestic mortgage!

The rates for BTL mortgages are not much different from ordinary mortgages these days. Lenders will often agree to landlords retaining their ordinary mortgage especially if they are letting out their former home - usually they either charge a small fee or increase the interest rate a bit.

Mortgage interest can be claimed on your tax return as an expense against rental income, so most landlords are not liable for tax.

There's nothing illegal going on at all.

nearlyrich

lisyloo wrote:

please don't make assumptions about us I/O mortgage holders.

We don't all have dodgy repayment vehicles or no plans to pay it off.

I didn't make any assumptions about you Lisyloo, you seem to have your head screwed on and a plan in place, I was talking about people that I work with who can't really afford to live in the south east.;)

nellis10

sometimes life throws a curve ball at you and you find yourself living with an I/O mortgage that you thought was investment and turns out to be your house!!!

I bought said property Nov 05 50/50 split on payments with mum -£72000 I/O on an £80000 house...which when I get it valued next week should be up to £90000 - same as in the area.

Anway was bought as an investment property for my dad to look atfer my son when I work - part-time 3 days per week. £72000 over 5years @ 4.99% fixed.

Hubby and I have now split so this becomes my home and he gets the big one in the next town!!!!!!!

I have an old endowment policy that I could use temporarily for my half £36K funnily enough but I think I shall cash it in soon.

So I need to buy out mum (about 12K) and take on the £72000 myself. Now I expect to get at least £25K from hubby so that will leave me with £13K to stick onto the mortage....I can pay 10% off capital in each year Jan-Dec. I reckon by 2010 I should get it down to the £40K's in which case I can then afford to go repayment and get one of those flexible ones that allow you to overpay.

Yes I am in an oK job...being part-time with a young son means I ahve the option in future to go back full-time. Pay increases each year are fixed based on performance at £1K to £1.5k, so I ahve an idea of what I may be earning either part-time or full-time by 2010 (hopefully in the same job!!!).

I take all your points about I/O being for the short-term or for those who can pay of big whacks etc, but sometimes you find yourself in situations where is it your only option and hey...you grin, bear it, and figure the best way forward. In my case it pays to remain I/O for the forseeable, overpay when I can and then reassess when I can afford to take it all on repayment style.

:j

david29dpo

i have no problem having an IO mortgage. i am collecting the capital in my own way, not letting the big boys in london do it for me, anyone remember the endowment scam? i can do a better job of it myself.

Miss_Penny_Pincher_2

I think we have digressed slightly... the difference here is that many of you are financially aware and make overpayments to pay off the capital when you can or, like michaels, are using interest only to invest elsewhere. Getting back to the Guardian Money article, the concerns that it raises are that there are thousands of people who are not doing that! The point it makes is that:

"One in four borrowers are taking out low-cost "interest-only" mortgages as the only way they can afford sky-high property prices - but with little hope of paying off the capital sum."

Also, in contrast to MSEers who have IO mortgages, the Guardian reports that there are a 'significant number of borrows' who: "believe they are paying the mortgage when in fact they are simply paying the interest on their loan." This is the key issue - when people are unaware of the type of loan they have and the possible risks! Like I mentioned earlier - the mortgage advisor we initially saw did not highlight these risks to us, just the cheaper monthly payment, which I can see would be very alluring!

lowis

i can't believe poeple are so thick as to be unaware as to what an IO mortgage is! it does what it says on the tin so to speak. or is it a case of having being badly advised by the mortgage arranger?