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

shortchanged_2

RenovationMan wrote: »

You argue with empty rhetoric, soundbites and dogma. There is nothing to be gained from debating with you, no insight, no knowledge and no satisfaction. Sorry.

That's a shame RenoMan, I thought you enjoyed giving the posters on here that disagree with your mantra a good spanking.

Wobblydeb

jamesd wrote: »

It's also worth remembering that interest only borrowers aren't all stereotypical first time borrowers desperate to buy a place. They include people like me who can now pay off the mortgage twice over or pay the interest and all of the other bills for life if I lost my job, plus clearing the mortgage by the time it's due.

Here here! :T

shortchanged wrote: »

It was you who brought up the point of breathing space on mortgages RenoMan.

I merely stated the fact that I disagree with you in that I believe you have more breathing space if you are suddenly in a difficult financial position if you started out on a repayment mortgage rather than an IO mortgage because you can possibly go onto an IO mortgage from a repayment one to temporarily reduce your outgoings. Some people already on an IO mortgage may well not have this option.

What is so difficult to understand about this point?

The difficulty is the assumption that the person on the IO mortgage didn't start out paying the same sum as the person on the repayment mortgage. I want an interest only/offset mortgage, and will ensure that it is paid off long before retirement age. However I want the flexibility to overpay when times are good, and pay the minimum possible if there is a sudden drop in income. This breathing space is a) more immediate and b) more within my control with an interest only mortgage. It makes the most sense for someone who has an emergency fund.

I don't want to be treated like a child by either the government or my lender. Why should I be, because a proportion of the rest of the population are incompetent with money?

gingeralan

Wobblydeb wrote: »

Here here! :T
The difficulty is the assumption that the person on the IO mortgage didn't start out paying the same sum as the person on the repayment mortgage. I want an interest only/offset mortgage, and will ensure that it is paid off long before retirement age. However I want the flexibility to overpay when times are good, and pay the minimum possible if there is a sudden drop in income. This breathing space is a) more immediate and b) more within my control with an interest only mortgage. It makes the most sense for someone who has an emergency fund.

I don't want to be treated like a child by either the government or my lender. Why should I be, because a proportion of the rest of the population are incompetent with money?

I think you and many other posters on this thread severely underestimate the scale of this issue. I know many many people who are first time buyers and took interest only mortgages. I can't recall who said it but I think we have got a time bomb waiting to go off, it's probably too late to do anything really now, but the sheer fact people have borrowed to the max payment they can afford on interest only has distorted the market. These people renting off the bank will really struggle in the next 5 years as interest rates will inevitably increase

Wobblydeb

gingeralan wrote: »

I think you and many other posters on this thread severely underestimate the scale of this issue. I know many many people who are first time buyers and took interest only mortgages. I can't recall who said it but I think we have got a time bomb waiting to go off, it's probably too late to do anything really now, but the sheer fact people have borrowed to the max payment they can afford on interest only has distorted the market. These people renting off the bank will really struggle in the next 5 years as interest rates will inevitably increase

I understand that, and have a friend in this exact situation. But is this not a case of shutting the door after the horse has bolted? Removing IO mortgages is not going to help her.

I would happily see minimum deposits and maximum earnings multiples attached to IO mortgages rather than removing them completely.

gingeralan

Wobblydeb wrote: »

I understand that, and have a friend in this exact situation. But is this not a case of shutting the door after the horse has bolted? Removing IO mortgages is not going to help her.

I would happily see minimum deposits and maximum earnings multiples attached to IO mortgages rather than removing them completely.

It's a case of shutting the door before they all stampede and cause major damage. The vast majority of people do not operate their i/o mortgages in the manner you and many other posters suggest.

The idea of the flexibility is great, but if only 20% of people use it in this manner and the rest just use it as a way to save 200 quid a month for booze and nights out, I am sure you can see the problems and how they could escalate.

Wobblydeb

gingeralan wrote: »

It's a case of sitting the door before they all stampede and cause major damage. The vast majority of people do not operate their i/o mortgages in the manner you and many other posters suggest.

The idea of the flexibility is great, but if only 20% of people use it in this manner and the rest just use it as a way to save 200 quid a month for booze and nights out, I am sure you can see the problems and how they could escalate.

It would be interesting to see what the percentages actually are for those who are expected to face difficuly and those that should be fine. Or perhaps revisit in 5 years time.

What about those that make use of genuine wage increases? My first mortgage was a graduate mortgage (HSBC) and IO for up to 3 years before switching to repayment. Worked exactly as anticipated as I was a professional in the early stages of my career.

gingeralan

Wobblydeb wrote: »

It would be interesting to see what the percentages actually are for those who are expected to face difficuly and those that should be fine. Or perhaps revisit in 5 years time.

What about those that make use of genuine wage increases? My first mortgage was a graduate mortgage (HSBC) and IO for up to 3 years before switching to repayment. Worked exactly as anticipated as I was a professional in the early stages of my career.

I would be willing to check back on this in 5 years. On the subject of wage increases perhaps you were lucky in your chosen profession. My job required no academic qualifications, there are other selection criteria and a lot of training though. I would say that it is a little optimistic for anyone to plan on future wage rises through promotion etc.

I earn more than most of my friends who choose to do university and their expected pay rises have failed to materialise. They are earning less than half my current salary yet were given strong indications that they would be earning around 50k before they were 30.

RenovationMan

gingeralan wrote: »

Yes he does as he started the discussion about affordability. The discussion had moved onto how i/o allows people to afford a mortgage, we cannot keep saying the same thing over and over.

Iwill state staying that I think lending both 140 rather than offering one 260k! Is much more preferable

You keep avoiding discussing the drawbacks of salary multiples by creating strawman arguments. I mean, where did the £260k come from??! You've created it from thin air. How about answering this:

Do you think that two people on £40k should be lent 3.5 x salary regardless of how much debt they may be in and regardless of what their outgoings are?

gingeralan

RenovationMan wrote: »

You keep avoiding discussing the drawbacks of salary multiples by creating strawman arguments. I mean, where did the £260k come from??! You've created it from thin air. How about answering this:

Do you think that two people on £40k should be lent 3.5 x salary regardless of how much debt they may be in and regardless of what their outgoings are?

Check post 70 that's where I got the suggestion of 260k from.

I have stated that their needs to be an absolute limit which may be subject to further reduction. I have issues with the affordability ideas mentioned so far as the idea presumably is that these people wanna borrow more than 3.5x for some reason. Otherwise they would surely agree an absolute limit based on earning should exist, no?

shortchanged_2

RenovationMan wrote: »

You keep avoiding discussing the drawbacks of salary multiples by creating strawman arguments. I mean, where did the £260k come from??! You've created it from thin air. How about answering this:

Do you think that two people on £40k should be lent 3.5 x salary regardless of how much debt they may be in and regardless of what their outgoings are?

Is this not hijacking a thread as you so politely put it RenoMan?