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

Thrugelmir

mic200202 wrote: »

Interesting - so you essentially had an interest only 100% mortgage- if the FSA and other have their way you would not have been able to get this mortgage.Or indeed nothing much like it.

Was 95%. Though we had to pay a MIG premium of 5% of the difference between 75% and 95%. The lender was Lloyds.

Originally we were going to buy a smaller new build property. However when I met the bank manager ( yes it was like that), and ran through our budget. He said that he was prepared to lend more, so we could buy a property on the next level up if we wished.

In those days bank managers had discretion when it came to lending. Mind you I had banked with them for around 8 years so they did know me.

jamesd

gingeralan wrote: »

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.

There are some advantages to having tax relief on pension contributions pay off a mortgage.... It's very cheap compared to repayment.

The problem is, I'm not an exception. I'm doing one of the things that the FSA has specifically identified as a normal use for interest only mortgages.

The FSA has also said that if there are no credible repayment vehicles in place, an interest only mortgage must be assessed on repayment affordability criteria. So how does that allow more borrowing when it's using repayment as the cap?

Did you even know that the FSA has said that repayment affordability criteria should be used? It's in the report I referenced earlier.

gingeralan wrote: »

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.

Some may sufficiently old that lending into retirement criteria apply and could cause unnecessarily high repayments if repayment vehicles were ignored and they had to use repayment mortgages instead. Anyone older than 40 is going to have their term limited to less than 25 years by some landers. Others may value the much higher efficiency/lower cost that interest only provides for suitable borrowers. Or they may have investments or inheritance trusts or other things that mature at fixed times or provide ways to clear a mortgage other than repayment.

gingeralan

shortchanged wrote: »

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.

This explains a lot.

Again if someone starts a mortgage after the age of 40 they will need to pay it off at some point. If they cannot afford the repayments then wait till said investment matures then put down a larger deposit, you still are not convincing me James.

jamesd

So, a 40 year old plans to use a pension as the repayment vehicle to benefit from the tax relief. The minimum legal age at which they can access a pension commencement lump sum is 55. You want them to wait until they are 55 before they buy a place? Or until they reach state pension age at say 68?

How do you propose we handle the case of a person using a repayment mortgage, which won't be paid off until the end either and will be something like half owed even after 15 years of a 25 year mortgage. Should we also require them to accumulate the whole property purchase price before they buy the property?

You seem to be missing part of the point of interest only: it's so you can use investments to pay the mortgage off at the end, not at the start. Repayment to, it's so you can live in the place while you're paying for it.

What do you make of the FSA's proposed requirement that lenders use repayment affordability checks where there is no credible repayment vehicle? That should at least eliminate your concern about affordability compared to repayment in those cases.

Nothing will persuade you. I'm just pointing out some of the most significant errors and preconceptions in your comments.

property.advert

It can't help that some people want to look at mortgages in complete isolation and seemingly forget about pensions, kids, life in general perhaps. They miss the need to multi task in financial terms, to balance and rebalance the various timelines. Of course some can't, they are not capable, but perhaps we should not all be dragged down to the level of the lowest common denominator.

gingeralan

jamesd wrote: »

So, a 40 year old plans to use a pension as the repayment vehicle to benefit from the tax relief. The minimum legal age at which they can access a pension commencement lump sum is 55. You want them to wait until they are 55 before they buy a place? Or until they reach state pension age at say 68?

How do you propose we handle the case of a person using a repayment mortgage, which won't be paid off until the end either and will be something like half owed even after 15 years of a 25 year mortgage. Should we also require them to accumulate the whole property purchase price before they buy the property?

You seem to be missing part of the point of interest only: it's so you can use investments to pay the mortgage off at the end, not at the start. Repayment to, it's so you can live in the place while you're paying for it.

What do you make of the FSA's proposed requirement that lenders use repayment affordability checks where there is no credible repayment vehicle? That should at least eliminate your concern about affordability compared to repayment in those cases.

Nothing will persuade you. I'm just pointing out some of the most significant errors and preconceptions in your comments.

They could buy somewhere smaller/cheaper. If you learn an area there are usually pockets in areas perceived as bad that are actually quite pleasant, yet the overall impression helps you get the place for a reasonable price.

RenovationMan

gingeralan wrote: »

This explains a lot.

Again if someone starts a mortgage after the age of 40 they will need to pay it off at some point. If they cannot afford the repayments then wait till said investment matures then put down a larger deposit, you still are not convincing me James.

Sorry to disappoint, but shortchanged doesn't explain anything, he's started to resort to trolling rather than discussing (again), which is one of the reasons I've decided to ignore him.

My personal circumstances are a good example to why IO mortgages work and why affordability is a better criteria than salary multiples.

Let's look at IO mortgages first. I have always had IO mortgages and I have always bought houses that needed work, my first house needed a lot of work. I use the reduced monthly payments provided by IO mortgages to supply the funds required to renovate the house. I have done this with three houses and each time, the renovations have increased the value of the house more than repayments would have reduced the size of the mortgage over the same time period. Once the renovations are complete, I make substantial overpayments to the mortgage to reduce it down. My tactic is a double whammy of increasing my equity in the house, firstly by increasing the value of the house by bringing it up to standard and secondly by reducing the mortgage.

I now own a 5 bed 18th century farm house and we are currently renovating it to reduce our utility bill outgoings (packing it with insulation & modernising the heating systems) and we have converted a stable into a 1 bed apartment for my parents. The 'granny flat' conversion will have added thousands to the value of the house, part paid for by a low rate BoE tracker and the lower repayments of an IO mortgage.

Let's look at the affordability. My current mortgage is coincidently 5 times my salary (just my salary, not the household income). I bouht post credit-crunch and so I had to prove my income and out goings and convince the bank that I could more than afford the repayments. This takes us back to the example I gave you about outgoings - I probably have similar outgoings as yourself but I earn 50% more. Apart from the renovations to our farmhouse, I have also paid down my mortgage by £50k in the 2.5 years that we have lived here. I m on course to reduce my mortgage to a 50% LTV.

These are hardly the actions of someone who is struggling financially and desperate to maintain the 'status quo'. I simply believe in what I am debating about, I have no VI or political (demi-religious) stance on any of this. I just think the current system is fine and just needs a few tweeks. The problem was caused by lax lending rules, not by a particular mortgage product.

gingeralan

RenovationMan wrote: »

Sorry to disappoint, but shortchanged doesn't explain anything, he's started to resort to trolling rather than discussing (again), which is one of the reasons I've decided to ignore him.

My personal circumstances are a good example to why IO mortgages work and why affordability is a better criteria than salary multiples.

Let's look at IO mortgages first. I have always had IO mortgages and I have always bought houses that needed work, my first house needed a lot of work. I use the reduced monthly payments provided by IO mortgages to supply the funds required to renovate the house. I have done this with three houses and each time, the renovations have increased the value of the house more than repayments would have reduced the size of the mortgage over the same time period. Once the renovations are complete, I make substantial overpayments to the mortgage to reduce it down. My tactic is a double whammy of increasing my equity in the house, firstly by increasing the value of the house by bringing it up to standard and secondly by reducing the mortgage.

I now own a 5 bed 18th century farm house and we are currently renovating it to reduce our utility bill outgoings (packing it with insulation & modernising the heating systems) and we have converted a stable into a 1 bed apartment for my parents. The 'granny flat' conversion will have added thousands to the value of the house, part paid for by a low rate BoE tracker and the lower repayments of an IO mortgage.

Let's look at the affordability. My current mortgage is coincidently 5 times my salary (just my salary, not the household income). I bouht post credit-crunch and so I had to prove my income and out goings and convince the bank that I could more than afford the repayments. This takes us back to the example I gave you about outgoings - I probably have similar outgoings as yourself but I earn 50% more. Apart from the renovations to our farmhouse, I have also paid down my mortgage by £50k in the 2.5 years that we have lived here. I m on course to reduce my mortgage to a 50% LTV.

These are hardly the actions of someone who is struggling financially and desperate to maintain the 'status quo'. I simply believe in what I am debating about, I have no VI or political (demi-religious) stance on any of this. I just think the current system is fine and just needs a few tweeks. The problem was caused by lax lending rules, not by a particular mortgage product.

I can see you obviously u have high exposure to the risks of the current system so I understand your worries. I think that I am starting to form the same opinion of you as you have of shortchanged. You keep making the same points over and over, and regardless of what you say you have a vested interest as you need property prices to continue to rise. While you may feel your improvements added to the value of the property, and I am sure they helped, how much did the market"increase"in those areas where places hadn't has any alterations? academic really, as you can't prove a negative.

You feel the need to keep justifying yourself on am internet forum and as I have stated before, if you were totally happy with your current financial state of affairs you would not feel this constant need to keep arguing your point with strangers on the internet.

RenovationMan

gingeralan wrote: »

I can see you obviously u have high exposure to the risks of the current system so I understand your worries. I think that I am starting to form the same opinion of you as you have of shortchanged. You keep making the same points over and over, and regardless of what you say you have a vested interest as you need property prices to continue to rise. While you may feel your improvements added to the value of the property, and I am sure they helped, how much did the market"increase"in those areas where places hadn't has any alterations? academic really, as you can't prove a negative.

You feel the need to keep justifying yourself on am internet forum and as I have stated before, if you were totally happy with your current financial state of affairs you would not feel this constant need to keep arguing your point with strangers on the internet.

LOL, I don't see your viewpoints changing and you also seem to be going around in circles. At least I haven't dodged questions like you.

Can I ask what my 'high exposure to the risks' are?

Can I ask what you think my 'worries' are?

Can I ask how you know better than myself what value I added to the houses I have renovated?

Can I ask you to point out why I even mentioned my personal cicumstances on this thread?

gingeralan

RenovationMan wrote: »

LOL, I don't see your viewpoints changing and you also seem to be going around in circles. At least I haven't dodged questions like you.

Can I ask what my 'high exposure to the risks' are?

Can I ask what you think my 'worries' are?

Can I ask how you know better than myself what value I added to the houses I have renovated?

Can I ask you to point out why I even mentioned my personal cicumstances on this thread?

1) a rather expensive property in relation to income if you earn around 50% more than me.

2) see above, and previous posts of you weren't worried you would have made your point and left it, not carried on for days justifying your decision.

3) many people feel they played the market well yet simple analysis shows that the houses around increased in value anyway and if you just looked at the % increase in price paid it would have been more than the "profit" they made.

4) don't know it's your prerogative to divulge information. If of you are trying to claim it's because I asked you or someone else, please send me 500k. If that works so well I will pm you with the details of my Nigerian bank account.