MSE News: Interest-only borrowers could be mortgage 'prisoners'

magpiecottage

Meeper wrote: »

Interest-only borrowers being mortgage "prisoners" is not news. That has been the case for about 2 years now.

It has always been the case.

Given that for the last 11 years there have been worries about endowments leaving borrowers with a shortfall between what they have available and what they need to repay their mortgage anybody with an IQ above about 10 ought to realise without any repayment vehicle at all the shortfall will be equal to the amount borrowed.

Furthermore, for the last seven years lenders have issued prominent reminders to borrowers each year that they need to make sure a means of repaying is in place.

I cannot see whose fault it is that they do not act on it other than the borrowers'.

jamesd

It hasn't always been the case that interest-only borrowers are "prisoners". You only get that effect when prices drop or available loan to value levels decrease so it's no longer possible to get a new mortgage to replace the old one.

shortchanged_2

steve237 wrote: »

I took a "breather" when my wife had our baby. Switched to interest only with Abbey (intention was for 6 months only). This ended up turning into more like 18 months as you get used to the money and spend accordingly (saved nothing).

This is exactly the problem why IO mortgages are dangerous for many.

And why so many now have been saved by luck more than judgement by the low base rate.

MiserlyMartin

Interest only mortgages were only ever supposed to be sold with a repayment vehicle, eg an endowment. Classically called an endowment mortgage. The idea of having one without an endowment is financial sucicide, but this was all viewed as the new 'normal' during the irresponsible credit expansion that lead us to where we are today.

woolly_wombat

Pay down the principal! Every little helps. Take advanage of low interest rates while you can.

Take it from someone who remembers 15% mortgage rates!

Why bother with this constant remortgaging - all those lovely fees are just boosting someone else's profits. Help yourself - pay it down!

Thrugelmir

Meeper wrote: »

Interest-only borrowers being mortgage "prisoners" is not news. That has been the case for about 2 years now.

Interestingly recent figures from the CML have shown that 96% of new FTB mortgages are on a repayment basis. Seems as if both borrowers and lenders alike have learnt from the mistakes of the past.

Meeper

Probably moreso the lenders, as FTB's generally have less than 25% deposit and interest-only is not readily available at this level.

In addition, probably worthwhile giving a little praise to the adviser community here, as interest-only is being discussed less and less than it used to be.

riseabove

Help please everyone i have a repayment mortgage currently at 4.44% , it is relatively new and my initial 2 year period is due for renewal very very soon. I really fancy renting my property and going on an interest only mortgage, as i would like to put money aside to save for a deposit on another property as prices are low at the minute. Would this be a good idea taking into consideration all the above??? After the initial 2 year period is up i qualify for a rate of 3.99%, is it worth me looking around for a better deal as i just missed out on the 0.5 base rate? Or should i go down the route of int only for a second home? On the Flip side would it be beneficial for me to take some of my deposit out of my property and use this as a deposit for a second house? I am new the property world and i am intrigued please help :-) I dont know how the system works could i be facing a fee for taking money out? and would i still qualify for the same int rate with the money withdrawn?

Thrugelmir

You've missed the boat with what you are proposing. Lenders have changed the rules of the game.

Suggest you build some more equity before playing back and red on the roulette wheel. Danger is you could lose your shirt as well the money staked. Something that many overlook. As prices do go down as well as up.

Blondeblitz

I don't know if anyone is still posting on this forum but I have a dilemma so here goes! I am in my forties and I took out an interest only shared ownership mortgage in October 2007 with the Nationwide to buy my first home. (This was all that my housing association would allow me to do). My flat was then worth £130,000 and I bought a 50% share. I took out a 2 year fixed mortage with the nationwide at 6.25% as this was the best deal I could get at the time and I put down a deposit of £7,000. Ironically the interest rates started dropping the month after I took the mortgage out!! It should be noted that I was planning to pay the mortgage back with the lump sum I would receive from my final salary pension. When my mortgage term ran out I was unable to get another mortgage from any of the very few shared ownership mortgage lenders. The reason given by all was the loan to rate value due to the drop in property prices. My overall property price according to the Nationwide had dropped by £12,000. So my half had dropped from £65,000 to £59,000. I could not understand why they did not look beyond that. I have never been in debt, my mortgage is the first loan I have ever taken out, and my wages had increased by nearly £2000 since the beginning of my mortgage term plus I had always made all my mortgage payments on time and in full. Hardly a bad credit risk then. Yet no lender even bothered to check that far. So I am currently on a standard variable mortgage and paying 2.5%, which means my payments have dropped by £200 a month and the Nationwide would rather that money went into my coffers and not theirs. How can I get my head around that! Anyway I have been paying the £200 a month into an Abbey Cash ISA and getting 3.5% interest, I have saved just over £4000 by doing this. Am I right in doing this or should I be paying it off the mortgage? Also I am now being made redundant and getting a small sum and could afford another £5000 towards the mortgage on top of my savings. Again should I pay it off or should put all the money in a high interest savings account? Any advice would be gratefully received!