Is interest-only really a ticking time-bomb?

wotsthat

http://www.cml.org.uk/cml/publications/newsandviews/110/411

Quite an interesting one here.

According to our analysis, there are around 3.9 million outstanding interest-only mortgages. Of these, two thirds are set to mature after 2020. In the meantime, the number of interest-only mortgages set to mature each year is between 131,000 and 158,000. This compares with around 7.3 million capital-and-interest mortgages currently held by UK consumers.

For loans maturing over the next three years, over half have an equity stake of over 70% of the property value, and a further third have a stake of more than 45% of the property value. At the other end of the scale there are very few mortgages with smaller equity stakes due to mature in the next three years. In total we estimate there are 6,000 interest-only mortgages - just 1% of all interest-only loans due to mature over that time – with less than 10% equity.

It is also likely – although our data cannot identify this – that a significant proportion of these loans have an accompanying repayment vehicle such as an endowment, pension or ISA. And some borrowers may have other sources
of funds to repay the debt, such as savings or inheritance.

Overall, we therefore think that the "ticking time bomb" is overstated as a description for the vast majority of interest-only mortgages due to mature in the next few years.

abaxas

The problem is that either are stuck with the deal they have and must repay at end of term.

It is assumed they can refinance at end of term, but that is not guaranteed.

SecondLegDownIsTheBigOne

tick tock .....

michaels

The 'they' in this instance being all of 6,000 borrowers who may well actually have an endowment or other arrangement in place - or is it a different 'they' you are talking about?

In other news 5m renters are due to retire in the next 10 years with no property equity at all :eek:

abaxas wrote: »

The problem is that either are stuck with the deal they have and must repay at end of term.

It is assumed they can refinance at end of term, but that is not guaranteed.

abaxas

michaels wrote: »

The 'they' in this instance being all of 6,000 borrowers who may well actually have an endowment or other arrangement in place - or is it a different 'they' you are talking about?

In other news 5m renters are due to retire in the next 10 years with no property equity at all :eek:

Huge difference between having nothing and owing money.

At the end of a IR mortgage you still owe the principle. I'm quite suprized you cant work out the difference.

grizzly1911

Providing the interest can be 1.)serviced and 2.)new mortgaes found or the original repaid - No.

Just a problem if 1.) or 2.) fall over as they are increasingly likely to do with the current economic climate.

Investment returns on repayment vehicles are often not guaranteed if not watched.

N1AK

abaxas wrote: »

Huge difference between having nothing and owing money.

At the end of a IR mortgage you still owe the principle. I'm quite suprized you cant work out the difference.

And you've had the period of the IR mortgage to build up funds to pay for it. I'm suprised you couldn't work that out.

People who didn't save enough while on an IR mortgage are in trouble. People who rented while not ensuring they can afford to house themselves at retirement are also in trouble. In either case, if someone was responsible there's no issue at all.

abaxas

N1AK wrote: »

And you've had the period of the IR mortgage to build up funds to pay for it. I'm suprised you couldn't work that out.

People who didn't save enough while on an IR mortgage are in trouble. People who rented while not ensuring they can afford to house themselves at retirement are also in trouble. In either case, if someone was responsible there's no issue at all.

The difference is that you can (currently) avail yourself on the state of renting. You cannot however get the government to pay off your mortgage.

You have no right to finance, but people seam to think you do.

de1amo

do these figures take in BTL mortgages?-most landlords including myself just go İR.

abaxas

de1amo wrote: »

do these figures take in BTL mortgages?-most landlords including myself just go İR.

One of the issues is that lots of the pre recession sub prime lenders dont exist anymore, hence are no longer part of the CML.

The loans are being serviced but the original lender has long gone.

ukcarper

abaxas wrote: »

The difference is that you can (currently) avail yourself on the state of renting. You cannot however get the government to pay off your mortgage.

You have no right to finance, but people seam to think you do.

I suppose it all depends on amount of equity and type of house if you are a couple you will only get the LHA for 1 bedroom so if you are currently living in a 3 bed house with a reasonable amount of equity you might be able to downsize.