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

jamesd

Merel, the FSA has mentioned pension and ISA so most providers should be willing to accept at least those two.

Barclays apparently requires that the repayment vehicle has been around for at least a year before the mortgage and ignores any investment gains when working out what has to be paid in to allow the mortgage to be repaid.

Agreed that a guide to who wants what would be helpful but I suspect that until the FSA's Mortgage Market Review proposals become regulations it'll be in flux. Another useful area for a guide would be lending into retirement or lending after retirement.

Thrugelmir

jamesd wrote: »

Doesn't seem reasonable to me, in part because I know that wage inflation will make the mortgage more affordable as time passes, so it's cheaper to defer capital repayments until you're making more money.

You may know that your personal wage inflation will deflate your debt away.

However disposable income is being squeezed for many at the current time. A view that lenders will take to in setting lending criteria in the current economic climate.

gingeralan

Pincher wrote: »

They are setting one size fits all rules because nobody at the branch level is able to make any decisions any more.
Depending on the area, the downside risk is clear to anyone local.

An interest-only loan makes plenty of sense for a mobile workforce who would prefer to buy than pay rent. A two bedroom flat is about £250,000, or £1,000 rent a month in North London. The £12,000 rent is like paying 3% on £400,000 interest-only. It makes far more sense for a couple with a child to put down £50k and get an interest-only loan at 3%, and borrow £200k, so the yearly interest is £6,000, monthly payment £500. Blocking such a couple from the interest-only loan is actually making them waste £6,000 a year, which they can use to pay off the mortgage.

You might say buying incurs £3,000 in fees and stamp duty, but when you realise you are saving £6,000 a year, you are glad to pay it.

I don't think u seem to realise that £6,000 a year on an interest only mortgage is not paying off the mortgage, the balance still needs paying, the example you mention it's basically just renting off the bank

jamesd

Not really renting off the bank. The owner gets the property value changes and much better security of tenure than on an AST. It's part of why I'm not greatly keen on the FSA's approach to interest only, since interest only places people in a more secure position than an AST.

RenovationMan

The Council of Mortgage Lenders were moaning about the FSA's stance on interest only mortgages, arguing that the expense of monitoring customer's repayment vehicles on an annual or indeed 5 year basis would be prohibitivly costly for the banks and the customer they passed these costs onto.

Santander is simply cutting out the avalanche of bureaucracy by dumping its IO customers.

gingeralan

jamesd wrote: »

Not really renting off the bank. The owner gets the property value changes and much better security of tenure than on an AST. It's part of why I'm not greatly keen on the FSA's approach to interest only, since interest only places people in a more secure position than an AST.

I disagree. If you are renting and become unable to pay your rent, you can start claiming housing benefit much quicker than you would be able to get assistance meeting your mortgage payments.

I have bought a house myself purely as I am fed up of crappy landlords who don't look after their property properly or are difficult to get hold of etc.

While it might b nice to get the "increase in value" (I feel though this increase is purely subjective as it will almost certainly be used in the next purchase which will also have increased by a similar amount therefore not actually making you richer), you are taking a big risk with you're families accommodation. You will need too at some pint clear the debt so why not make sure that happens, the only way to b certain is a repayment mortgage!

If anything interest only mortgages are a highly leveraged risky product, the sooner they stop becoming available to everyone the better. While you might gain the perceived benefit if prices increase what of they fall, as the adverts say your losses may exceed your initial deposit.

shortchanged_2

jamesd wrote: »

Not really renting off the bank. The owner gets the property value changes and much better security of tenure than on an AST. It's part of why I'm not greatly keen on the FSA's approach to interest only, since interest only places people in a more secure position than an AST.

But with the added bonus of being responsible for repair and maintenance costs of your property that is rented off the bank.

RenovationMan

shortchanged wrote: »

But with the added bonus of being responsible for repair and maintenance costs of your property that is rented off the bank.

Yep, that 5 yearly new roof and central heating system won't install themselves you know! :cool:

property.advert

Knee jerk reaction and overdone.

I do see a problem when Mr and Mrs Average on average wages find that they cannot sell their house for millions and buy a smaller place for 50p and in the process pocket oodles of cash to fund a luxurious retirement.

Yet this idea of repayment only is completely at odds with working longer and retiring later in life. Once the kids are gone, free cash is greater, the mortgage debt has been somewhat eroded by inflation and you are quite possibly at your maximum earning capacity.

It also makes no sense for those requiring larger loans who need to pay it out of post tax income when that same income could be put to better use in a tax free environment.

As for Barclays wanting to see a repayment vehicle in place for a year beforehand, then I hope they accept the savings you have been accruing each month building up the deposit as such a vehicle.

gingeralan

property.advert wrote: »

Knee jerk reaction and overdone.

I do see a problem when Mr and Mrs Average on average wages find that they cannot sell their house for millions and buy a smaller place for 50p and in the process pocket oodles of cash to fund a luxurious retirement.

Yet this idea of repayment only is completely at odds with working longer and retiring later in life. Once the kids are gone, free cash is greater, the mortgage debt has been somewhat eroded by inflation and you are quite possibly at your maximum earning capacity.

It also makes no sense for those requiring larger loans who need to pay it out of post tax income when that same income could be put to better use in a tax free environment.

As for Barclays wanting to see a repayment vehicle in place for a year beforehand, then I hope they accept the savings you have been accruing each month building up the deposit as such a vehicle.

I am sure you are aware that this idea wages always go up is not reallythe case, we have had 4 or 5 years where incomes have remained steady or even fallen, many have lost their jobs. A 25 year gamble that your wage inflation will allow you to clear your debt when you might not even have a job, you may die and leave your loved one with a large financial headache, YOU might also lose your job or become unable to work due to illness.

I fail to understand why people think it is sensible to gamble with their homes, its your home, its security, it is allows you to get all the things you want in life (shelter, warmth etc.) Why risk your home? I do not think it is sensible or desirable to place ones family in such a position.