Is your lender coming after your IO mortgage?

Orpheo

Dan: wrote: »

Go away and learn about how IO mortgages work instead of posting silly pictures.

Sure Dan.



A thousand words Dan. A thousand words.

Dan:_4

Had to be worth a 'thank' Orpheo - made me spill my coffee over my desk !

RenovationMan

ILW wrote: »

It is up to the lenders on what terms they wish to lend though.

Yes, but they cant move the goal posts for people who are already on their mortgage books.

mcc100

I'll probably get shot to pieces by some posters, but below is an email I sent to Clinton Manning (Daily Mirror) on 16/9/2008 with my views on interest only mortgages.

Dear Mr Manning

Virtually everyone given an opportunity to air their views on television and radio is blaming the credit crunch for the sudden downturn in the housing market. However one of the real reasons is being hushed up, particularly by those involved in mortgage lending.

In 2005 the housing market had reached its peak due to the fact that the bottom end of the market had risen to a certain value whereby first time buyers had reached the limit of affordability. Normally the market would have stagnated and probably gradually fallen over a period of time.

However greedy mortgage lenders realised what was happening and as they were unwilling to lose business in the mortgage market they took the extraordinary decision to offer interest only mortgages to first time buyers without having to provide evidence of having a savings account/ insurance policy etc to pay off the mortgage at the end of its term. By doing so it meant that these first time buyers were able to afford to buy houses at a higher price than previously possible. The effect of this was to push the housing market beyond its natural peak to a level that was artificially inflated by 2007.

For example a first time buyer able to afford £600 per month would only be able to afford a repayment mortgage of £102000 over 25 years at an interest rate of 5%. The same first time buyer with an interest only mortgage would be able to afford a mortgage of £144000.

There are basically two types of first time buyers, those in their twenties and thirties who had never owned their own properties, and those older ones who had split from their spouses and were buying on their own for the first time. When offered interest only mortgages, those who queried the sensibility of them were told that they should look at it as being a better alternative to renting a property as after say five years they could walk away with several thousand pounds when the property is sold at a higher value. Those who did not query them were mainly the younger ones who had no understanding of mortgages and still believe that they will own their properties after 25 years.

Every first time buyer I know since 2005 has been offered an interest only mortgage and in my opinion it is mis-selling on a scale to compare with the endowment mortgages sold in the eighties and nineties. At least then, however badly performing the endowment policy, at least there would be some cash available to pay of the mortgage. Now there is none and the mortgage lenders have done nothing to ensure that the first time buyers have a means of paying off their mortgage. The outlook in a rapidly falling housing market for these first time buyers is grim to say the least.

Regards

X xxxxx

Graham_Devon

If there was nothing wrong with IO mortgages, and they posed no problems, there wouldn't be ongoing consultations currently about banning them.

This bloke says it all for me:

Alan Cleary, managing director of Precise Mortgages, said he believed that most people on interest-only mortgages should rent going forward. He said: “Interest only is relevant for some people but generally speaking owner occupiers should be on repayment mortgages. If interest-only deals are being used to reduce monthly payments, then that borrower can’t afford to buy.”

Dan:_4

IO mortgages will never be banned. And they you could them without proving a repayment method long before 2005. I have always been IO on all my houses since 1995 and have never been asked to provide proof of my repayment plan.

If one does not relaise they need to pay back the capital at the end of the term then maybe there is a case for the product being mis-sold but they they have to be pretty thick to think that in the first place IMO, of course.

Thrugelmir

new_home_owner wrote: »

Now rent will always go up over long term periods and so will house prices.

so as my rent goes up on my rental property ,my interest only mortgage on my own home will eventually be paid by the rental income from my btl property.

And what's your plan B. If wage inflation fails to materialise ?

As you seem to have placed all your bets on a one horse race.

Thrugelmir

RenovationMan wrote: »

Yes, but they cant move the goal posts for people who are already on their mortgage books.

Rules can be modified to meet "exceptional circumstances".

Every mortgage contract has a clause buried in the small print.

My Grandmother always said there's no such word as can't.

datostar

mcc100 wrote: »

I'll probably get shot to pieces by some posters, but below is an email I sent to Clinton Manning (Daily Mirror) on 16/9/2008 with my views on interest only mortgages.

Dear Mr Manning

Virtually everyone given an opportunity to air their views on television and radio is blaming the credit crunch for the sudden downturn in the housing market. However one of the real reasons is being hushed up, particularly by those involved in mortgage lending.

In 2005 the housing market had reached its peak due to the fact that the bottom end of the market had risen to a certain value whereby first time buyers had reached the limit of affordability. Normally the market would have stagnated and probably gradually fallen over a period of time.

However greedy mortgage lenders realised what was happening and as they were unwilling to lose business in the mortgage market they took the extraordinary decision to offer interest only mortgages to first time buyers without having to provide evidence of having a savings account/ insurance policy etc to pay off the mortgage at the end of its term. By doing so it meant that these first time buyers were able to afford to buy houses at a higher price than previously possible. The effect of this was to push the housing market beyond its natural peak to a level that was artificially inflated by 2007.

''''''remainder trimmed'''''

Do you think the 'Buy To Let' speculative stampede was also a factor in pricing first-time buyers out of the market by snapping up properties at the bottom end and pushing them towards the interest only mortgages which the greedy and improvident lenders were only too happy to sell?
The big thick property supplement in my local paper now has page after page of property lets, greatly exceeding those for sale. It never used to be like that and I can't think that all these are people who can't sell their flats or houses. I wonder if the BTL brigade are now a little overstretched and that there is an oversupply of properties?

mcc100

Yes you're right datostar, the Buy to Let market was probably a large factor in the few years prior to 2005, partly down to the fact that Buy to Letter's had access to interest only mortgages during these years.