One million homes face Interest-only remortgage threat

amcluesent

More than one million homeowners on interest-only mortgages face a repayment timebomb when they next come to remortgage.

Interest-only loans are increasingly difficult to find as lenders tighten criteria ahead of a crackdown by the City regulator.

More than a million homeowners with no loan repayment plan were sold interest-only mortgages between 2005 and 2009, according to the FSA.

The regulator is worried these borrowers are sitting on a mortgage time bomb, due to explode between 2024 and 2033, unless they devise a way to repay the capital.

FACT - That's a lorra, lorra peeps with no means to repay the capital while permanent work dries up, businesses close and the public sector lays-off 800,000. Could be some very attractive houses being sold at fire-sale prices soon!

Really2

Call: Can you pay back your debt at the end of the mortgage.

IO Mortgage holder: Yes.

What can they do, the loan is in place and they cant force them to submit details. All they can do is ask if they can repay or how they will look to repay.

Heyman_2

amcluesent wrote: »

due to explode between 2024 and 2033

Pretty imminent then, 14 - 23 years time. :T

I'd expect most of these will have come out in the wash one way or another by then!

nicko33

amcluesent wrote: »

More than a million homeowners with no loan repayment plan were sold interest-only mortgages between 2005 and 2009, according to the FSA.

What does this bit actually mean?

The FSA knows for a fact that the borrowers have no repayment plan.

Or that the borrowers do not have a repayment plan/investment account/whatever with the same bank as their mortgage

Or the information about the repayment plan is unknown.

botchjob

Although it's not the "safe as houses" approach to borrowing, I don't see the problem with interest only mortgages, even if borrowers don't have a repayment vehicle in place. So long as borrowers go into it with their eyes open (i.e. knowing the house will never be theirs), and are able to afford a reasonable rise in rates, it's a reasonable gamble given HPI history. i.e. Buy a flat/house for £300k interest only with a £270k mortgage, in 10 years it's likely to be worth around £600k. Net gain of £330k. I know of quite a few people in London in their 30s who have this as a strategy, on the basis that they'll move out of London one day and will be able to trade up when they move to the sticks and have a repayment mortgage. Under the right circumstances - and with interest rates as they currently are - there are pefectly sound arguments for it.

Really2

I have an offset and the mortgage part is IO as standard. I dare say I am in those figures but my bank only need look in to my savings and mortgage accounts to see how I am doing.

we can now get it down to 999,999 people

RenovationMan

This is an article in the Daily Mail. Need we go any further?

Really2

botchjob wrote: »

Although it's not the "safe as houses" approach to borrowing, I don't see the problem with interest only mortgages, even if borrowers don't have a repayment vehicle in place. So long as borrowers go into it with their eyes open (i.e. knowing the house will never be theirs), and are able to afford a reasonable rise in rates, it's a reasonable gamble given HPI history. i.e. Buy a flat/house for £300k interest only with a £270k mortgage, in 10 years it's likely to be worth around £600k. Net gain of £330k. I know of quite a few people in London in their 30s who have this as a strategy, on the basis that they'll move out of London one day and will be able to trade up when they move to the sticks. Under the right circumstances - and with interest rates as they currently are - there are pefectly sound arguments for it.

Indeed selling at the end of the mortgage is a way of repayment.
Not one the FSA want to here but in 25 years you have to expect a house to have at least gone up some way nominally in value.

Mini_Bear

worst thing that could happen to these people is that house prices stagnate at current levels, so in 20 yrs there will be a lot of people with nothing to show for 20 yrs of essentially rent payments.
Not sure how likely this is but prices can't keep going up with adequate wage rises.
sister-in-law is in this position, currently paying about 100 a month on her interest only mortgage, when i asked her whether she was saving the difference to pay towards capital she just laughed and said why?!

RenovationMan

botchjob wrote: »

Although it's not the "safe as houses" approach to borrowing, I don't see the problem with interest only mortgages, even if borrowers don't have a repayment vehicle in place. So long as borrowers go into it with their eyes open (i.e. knowing the house will never be theirs), and are able to afford a reasonable rise in rates, it's a reasonable gamble given HPI history. i.e. Buy a flat/house for £300k interest only with a £270k mortgage, in 10 years it's likely to be worth around £600k. Net gain of £330k. I know of quite a few people in London in their 30s who have this as a strategy, on the basis that they'll move out of London one day and will be able to trade up when they move to the sticks. Under the right circumstances - and with interest rates as they currently are - there are pefectly sound arguments for it.

I'm not convinced a repayment mortgage is that safe either. If a person on an interest only mortgage puts the equivalent amount of money away in a decent savings account as someone on a repayment mortgage, then if they hit difficult times, not only does the person with an interest only mortgage have less outgoings each month to service his mortgage, he can also use the money in the savings account to keep up the mortgage payments.

I dont understand the thinking behind 'the house will never be theirs' either. Hands up anyone who is in their 40s and 50s and have children who are still living in their FTB house. Anyone?

Isnt the average number of house moves something like 6? Its very unlikely that anyone pays off one house completely before they move to the next house.

The only house that needs to be paid off is the one you retire to, and even then if you go into rented accomodation, not even that one.

phil_b_2

amcluesent wrote: »

Could be some very attractive houses being sold at fire-sale prices soon!

LOL! Can but dream.

I am one of those statistics. Bought with IO mortgage. The deposit was nearly 50% though so the lender wasnt too fussed.

I've been filtering overpayment money into a seperate account (gaining a bit of interest) ready to pay off a big chunk at renewal in a year or so (prob another 15% at least). This gives good flexibility as I dont have to worry about a bigger monthly fixed outgoing, and can setup my own repayment model which IMO is more effective than a repayment mortgage.