MSE News: Interest-only mortgages could be 'thing of the past'

RenovationMan

JimmyTheWig wrote: »

And we come back full circle. If you overextend yourself on a repayment mortgage you have the option of going interest-only...

Not if they're no longer available you won't.

To be fair, a lot of people on the DFW board over the past couple of years have been reporting that a lot of lenders are stopping them from going IO from their repayment mortgages. As someone has already said on this thread, it's not a foregone conclusion that your lender will allow it. Better to be on IO and making 'repayment style' monthly overpayments and know that you can definitely go IO in an emergency than have have a repayment and not be allowed to go IO.

gingeralan

RenovationMan wrote: »

Overextending yourself has nothing to do with IO mortgages. You can overextend yourself with a repayment mortgage.

Overextending is where people lie about their income and borrow too much. That is already in the process of being sorted with tighter lending restrictions and the removal of self-cert.

It has everything to do with i/o mortgages!

You take an i/o mortgage to reduce monthly payments, correct? why do you want to reduce monthly payments? So you can borrow more. Is there a risk that you will still have an outstanding balance at the end of your mortgage term? Ofcourse.

Jimmy raises the very good point that it is more important to stop people from having the option to ruin themselves financially if they really shouldn't.

The fact remains the the ultimate risk does not lie with you the i/o mortgage holder, it lies with everyone else, we have to take the hit when they keep interest rates at historic lows to ensure that the only thing that we own that is cheaper is the mortgage while everything else goes up rapidly due to the narrow focus of trying to keep mortgage costs affordable. Quantitative easing has robbed us all for the irresponsibility of the few.

There are many options for somene on a repayment mortgage to reduce their payments other than go onto interest only, they could even look at extending the term of the mortgage if they have sufficient time left before retirement. Interest only is a toxic time bomb that will leave many people reeling in it's wake.

I am sorry it might inconvienience you personally, but I would rather everyone has a definate end date on their mortgage. I/O is not good and you will not convince me otherwise, I do not care about your personal circumstances, and all the figures the FSA publish, they are only over the last 8 years, so they ignore all the plonkers who started mortgages on this basis before that.

jamesd

gingeralan wrote: »

You take an i/o mortgage to reduce monthly payments, correct?

Not correct.

gingeralan wrote: »

why do you want to reduce monthly payments? So you can borrow more.

No. Because it's cheaper. You probably don't consider an income multiple of around 1 to be high.

gingeralan wrote: »

Is there a risk that you will still have an outstanding balance at the end of your mortgage term? Ofcourse.

Yes but highly unlikely when I already have twice the mortgage balance in repayment vehicles.

gingeralan wrote: »

The fact remains the the ultimate risk does not lie with you the i/o mortgage holder, it lies with everyone else, we have to take the hit when they keep interest rates at historic lows to ensure that the only thing that we own that is cheaper is the mortgage while everything else goes up rapidly due to the narrow focus of trying to keep mortgage costs affordable. Quantitative easing has robbed us all for the irresponsibility of the few.

QE and low interest rates aren't primarily to do with mortgages. They are to try to stimulate the economy and keep it out of a recession caused by insufficient lending by banks.

gingeralan wrote: »

I am sorry it might inconvienience you personally, but I would rather everyone has a definate end date on their mortgage. I/O is not good and you will not convince me otherwise, I do not care about your personal circumstances, and all the figures the FSA publish, they are only over the last 8 years, so they ignore all the plonkers who started mortgages on this basis before that.

The FSA figures do not ignore interest only mortgages started more than eight years ago. They show up perfectly fine in the chart I referred you to earlier. And yes, it's clear that you will ignore the facts on this and stick with your opinion in spite of them. You seem to be blaming interest only mortgages for things that have little to do with interest only mortgages.

RenovationMan

gingeralan, we're going around in circles with this.

I say that IO mortgages aren't the cause of people overextending themselves.

You say they are because they allow people to borrow more.

I say that this is a failing of the banks affordability criteria, not IO mortgages.

You say that affordability criteria is too complex to implement and we should use salary multiples.

I say that salary multiples won't stop people who have heavier outgoings due to debt repayment or 'hollywood lifestyles' from overextending themselves. Nor is it fair that someone who is thrifty and a 'homebody' gets the same mortgage as a spendthrift on the same salary.

You think, "I'm ignoring that statement because it's true and undermines my argument", so you say that IO mortgages cause people to overextend themselves.


Seriously, I doubt we will ever agree on this unless you come up with a good response to my salary multiples vs hollywood lifestyles question. That's the stumbling block because for me the only solution you could have is to look at the borrower's outgoings as well as income, which means we are back to affordability, which wipes out your argument.

Interstingly, what also wipes out your argument about IO mortgages is if we did follow your salary multiples idea. 3.5 times salary is the same whether it's IO or repayment. However we can't use your salary multiples until you respond to the spendthrift / 'hollywood lifestyle' issue.

gingeralan

RenovationMan wrote: »

gingeralan, we're going around in circles with this.

I say that IO mortgages aren't the cause of people overextending themselves.

You say they are because they allow people to borrow more.

I say that this is a failing of the banks affordability criteria, not IO mortgages.

You say that affordability criteria is too complex to implement and we should use salary multiples.

I say that salary multiples won't stop people who have heavier outgoings due to debt repayment or 'hollywood lifestyles' from overextending themselves. Nor is it fair that someone who is thrifty and a 'homebody' gets the same mortgage as a spendthrift on the same salary.

You think, "I'm ignoring that statement because it's true and undermines my argument", so you say that IO mortgages cause people to overextend themselves.


Seriously, I doubt we will ever agree on this unless you come up with a good response to my salary multiples vs hollywood lifestyles question. That's the stumbling block because for me the only solution you could have is to look at the borrower's outgoings as well as income, which means we are back to affordability, which wipes out your argument.

Interstingly, what also wipes out your argument about IO mortgages is if we did follow your salary multiples idea. 3.5 times salary is the same whether it's IO or repayment. However we can't use your salary multiples until you respond to the spendthrift / 'hollywood lifestyle' issue.

You don't seem to have come up with a way to mitigate the additional risk. I have stated before that even though there are people who use them correctly the risk is too great. You seem unable to acknowledge that there are people who do not use i/o mortgages in the manner you prescribe, I am sure the scale is much greater than anyone will admit.

I don't know if you ever had the misfortune to go to a free inside track seminar before they went bankrupt, but they got people started with interest only mortgages no repayment vehicle other than house price inflation. There were many thousands of people taken in by them and many like them. Just because no one will admit there is a problem diss not mean there isn't one. The few have the power to make everyone else fall like a house of cards as we have seen.

Gambling should not form part of retail banking.

RenovationMan

gingeralan wrote: »

You don't seem to have come up with a way to mitigate the additional risk. I have stated before that even though there are people who use them correctly the risk is too great. You seem unable to acknowledge that there are people who do not use i/o mortgages in the manner you prescribe, I am sure the scale is much greater than anyone will admit.

I don't know if you ever had the misfortune to go to a free inside track seminar before they went bankrupt, but they got people started with interest only mortgages no repayment vehicle other than house price inflation. There were many thousands of people taken in by them and many like them. Just because no one will admit there is a problem diss not mean there isn't one. The few have the power to make everyone else fall like a house of cards as we have seen.

Gambling should not form part of retail banking.

You've avoided the "hollywood lifestyle/spendthrift" question again.

gingeralan

jamesd wrote: »

Not correct.

No. Because it's cheaper. You probably don't consider an income multiple of around 1 to be high.

Yes but highly unlikely when I already have twice the mortgage balance in repayment vehicles.

QE and low interest rates aren't primarily to do with mortgages. They are to try to stimulate the economy and keep it out of a recession caused by insufficient lending by banks.

The FSA figures do not ignore interest only mortgages started more than eight years ago. They show up perfectly fine in the chart I referred you to earlier. And yes, it's clear that you will ignore the facts on this and stick with your opinion in spite of them. You seem to be blaming interest only mortgages for things that have little to do with interest only mortgages.

You are the exception, I am not having a digg at your personal decision. You are not going to convince me it's sensible, but it's your life. Do as you want, what I think should not bother you unless you doubt your own decision perhaps this us why you have both been going crazy trying to justifyyour own decisions to yourselves.

Hollywood lifestyles, if you owe too much you would get rejected for a mortgage a has always been the case. You both have failed to explain the link between debt levels rising and changing thre criteria on which banks will lend.

You are both seemingly sensible people yet you create agreement where there needn't be any. You both claim to have borrowed low amounts in relation to your income so what difference would it make to you if i/o lending was banned surely you would be able to afford the payments if it is no cheaper on i/o.

You have very inconsistent arguments yourselves.

RenovationMan

gingeralan wrote: »

Hollywood lifestyles, if you owe too much you would get rejected for a mortgage a has always been the case.

How will they reject people if the criteria is based on salary multiples alone?

RenovationMan

gingeralan wrote: »

You are both seemingly sensible people yet you create agreement where there needn't be any. You both claim to have borrowed low amounts in relation to your income so what difference would it make to you if i/o lending was banned surely you would be able to afford the payments if it is no cheaper on i/o.

You have very inconsistent arguments yourselves.

Where have I claimed that?

What are my inconsistent arguments?

shortchanged_2

gingeralan wrote: »

You are both seemingly sensible people yet you create agreement where there needn't be any. You both claim to have borrowed low amounts in relation to your income so what difference would it make to you if i/o lending was banned surely you would be able to afford the payments if it is no cheaper on i/o.

You have very inconsistent arguments yourselves.

Try asking RenoMan what his salary multiple was again. If I remember correctly is was quite high, 5 or 6 times.

That is why RenoMan will always take the position he is now in trying to defend high multiples, hence why he needs house prices to stay high and wishes for the lending conditions of the boom years to remain in place.