UKs biggest lender ends IO mortgages without evidence.

shortchanged_2

julieq wrote: »

Because it's fairly easy to beat mortgage rates with safeish investments or savings bonds, and having that cash available to you in case of need will buffer you against shocks. It's a hell of a lot more savvy than repayment or overpayment which locks your cash away where you can't get it and doesn't save you from repossession, there's no particular benefit in owning a fraction more of a house but having no cash if you lose your job for a year or two.

As shortchanged notes though it does need discipline. Not for everyone.

I think the issue julieq is the lack of understanding which some people obviously do have about IO mortgages. It's amazing how many people think of them as just a cheap mortgage without having a real understanding of the risks of them.

How many people do we see posting on these boards who have an IO mortgage with no repayment vehicle in place? It's all too common a sight, which highlights really that there was a large number of IO mortgages that can only be described as mis-sold.

geneer

HAMISH_MCTAVISH wrote: »

200,000??? Out of 12,000,000 mortgages....

Like I said, vanishingly small.

Yeah..... Nice straw clutching there.

You missed a bit didn't you Hamish.

By 1999, 31% were interest-only with a repayment plan, but the percentage sold without a plan shot up to 22% of all mortgages, equating to almost 400,000 new home loans in that year alone.

julieq

shortchanged wrote: »

I think the issue julieq is the lack of understanding which some people obviously do have about IO mortgages. It's amazing how many people think of them as just a cheap mortgage without having a real understanding of the risks of them.

How many people do we see posting on these boards who have an IO mortgage with no repayment vehicle in place? It's all too common a sight, which highlights really that there was a large number of IO mortgages that can only be described as mis-sold.

That's a fair point, but you don't know the answer to your question (and neither do I). It's going to be smaller than the total number of IO mortgages certainly, because many of those will have brought endowments with them.

The question is how much it matters. Worst case a borrower gets 25 years use of a house for less than it would cost to rent over the same period. In most cases incomes will inflate and the repayment won't be a problem in the event, just as it hasn't been for many of those with endowment shortfalls. By the time it becomes an issue there is the option of taking a repayment loan or taking some sort of action.

There will be savvy, medium savvy and clueless in the total mix of IO mortgages most certainly. I took IO myself, and it worked very well for me, but I would have had no problem meeting the criteria in any case. I don't think today's proposals do anything at all one way or another to be honest, but it would be a shame if lowest common denominator rules clobbered those who are sensible and who understand finance.

DervProf

HAMISH_MCTAVISH wrote: »

I'm sure you missed an "in my opinion" there.

I suspect the numbers that couldn't afford a repayment mortgage were vanishingly small.

Maybe it was just a coincedence that I once had a close relationship with someone who was in that exact situation.

Come to think of it, a friend also switched to I OWE for a while.

ninky_2

it's not that they consider these loans more risky than they ever did. it's that they consider the housing market on a downward trend. lenders always get nervous when they fear their security is losing value. that's what all this tightening is about. they couldn't give a !!!! if people end up being repossessed if they were guaranteed to get their money back from the property sale. however, in this climate that guarantee is less assured.

julieq

The lenders would rather not have restrictions. The proposals are coming from the FSA review. Lending is actually being extended to higher LTV ratios due to competition, you wouldn't expect that if they were fearful of sustained price falls.

Jimmy_31

HAMISH_MCTAVISH wrote: »

Bollox.

I reckon the numbers who took I/O mortgages because they couldn't afford repayment ones were vanishingly small.

Every single person i know who took out an interest only mortgage did so because they couldnt afford a repayment mortgage, every single one of them.

Graham_Devon

Jimmy_31 wrote: »

Every single person i know who took out an interest only mortgage did so because they couldnt afford a repayment mortgage, every single one of them.

This is a vanishingly small number of people.

Vanishingly small, I say.

Really2

Jimmy_31 wrote: »

Every single person i know who took out an interest only mortgage did so because they couldnt afford a repayment mortgage, every single one of them.

I took out an IO mortgage because I wanted to repay fast without penalty (well offset)?

Anyone mortgaging in the last 3 years would be unlikely to get an IO mortgage if they could not afford a repayment as the affordability criteria are the same. You cant borrow more because you are buying on IO.

DervProf

Graham_Devon wrote: »

This is a vanishingly small number of people.

Vanishingly small, I say.

I think you meant to say "Vanishingly small".