Lazy repost - Interest only, the ticking timebomb say Daily Mail

ukcarper

Emy1501 wrote: »

Article only seems suggests no time bomb over next few years.

It seems unclear after that. I suspect that if everyone is willing to and can downsize then there should be no real problem. I suspect though that there will be a fair few who took out their mortgages with little understanding that at the end of the term they would have to pay off the balance or downsize. I suspect also that there will be a fair few who wont want to downsize either.

I suspect unless things change then the IO problem will become an issue from 2020 onwards will also compound the problems of people not really saving for retirement.

I would have thought very few didn’t realise they would have to pay of loan eventually. Also its one thing not wanting to downsize and another having to I don’t particular want to downsize but if circumstances dictated I had to I would.

Graham_Devon

ukcarper wrote: »

I would have thought very few didn’t realise they would have to pay of loan eventually. Also its one thing not wanting to downsize and another having to I don’t particular want to downsize but if circumstances dictated I had to I would.

I would assume so too. I can only go on my experience however, and state that, as I recall, at no point did my mortgage advisor go out of his way to suggest I would only be paying the interest. I assume he assumed that I should realise this.

Every single calculation going forward was based on remortgaging. Even the mortgage I did get in the end (repayment) was based upon remortgaging 3 years down the line (I never did).

It wasn't to do with paying down the loan or getting the right loan, everything surrounded using equity to get a better product at a later date. Of course, none of that actually worked out.

RenovationMan

Emy1501 wrote: »

I suspect that if everyone is willing to and can downsize then there should be no real problem. I suspect though that there will be a fair few who took out their mortgages with little understanding that at the end of the term they would have to pay off the balance or downsize. I suspect also that there will be a fair few who wont want to downsize either.

I can't imagine some people not knowing that if they take out a loan and pay nothing but interest that they still owe the debt. I mean, how do these people manage to fill out the forms to get the loans if they are so dense? Indeed, one wonders how they manage to tie their own shoes.

As far as the 'problem' of people still owing money at the end of the loan period is concerned, this is a problem between the lender and the borrower, I don't see why it should concern anyone else, and certainly not to the extent where it is of such concern that it needs to be discussed ad nauseum on an internet forum.

However, the 'problem' is easily solved by the bank insisting the borrower pays back the mortgage loan by either taking a personal loan, borrowing money from friends, setting a new mortgage term with a repayment mortgage or selling the house.

A good solution would be for lenders to contact their borrowers 5 years before the end of the mortgage term and ask for proof of how they intend to repay their mortgages. If the customer comes back with 'I dunno', the lender can then look at the outstanding mortgage balance and come up with a plan.

RenovationMan

Graham_Devon wrote: »

I would assume so too. I can only go on my experience however, and state that, as I recall, at no point did my mortgage advisor go out of his way to suggest I would only be paying the interest. I assume he assumed that I should realise this.

Oh no Graham, this must surely have come as a complete shock to you when we started to discuss it on here! You should speak to Martin Lewis and see if he has a standard form for you to make a missold mortgage claim.

I didn't realise you had an IO mortgage though. Did you get it because you couldn't afford your home on a repayment mortgage?

ukcarper

Graham_Devon wrote: »

I would assume so too. I can only go on my experience however, and state that, as I recall, at no point did my mortgage advisor go out of his way to suggest I would only be paying the interest. I assume he assumed that I should realise this.

Every single calculation going forward was based on remortgaging. Even the mortgage I did get in the end (repayment) was based upon remortgaging 3 years down the line (I never did).

It wasn't to do with paying down the loan or getting the right loan, everything surrounded using equity to get a better product at a later date. Of course, none of that actually worked out.

Perhaps your mortgage advisor didn’t explain to you but then I would have though the answer was in the name (interest only). People might have made a bad gamble on taking interest only but I’m sure that most new they would have to pay of loan.

Graham_Devon

RenovationMan wrote: »

I didn't realise you had an IO mortgage though. Did you get it because you couldn't afford your home on a repayment mortgage?

Please try to read the whole post before getting over excited.

Graham_Devon

ukcarper wrote: »

Perhaps your mortgage advisor didn’t explain to you but then I would have though the answer was in the name (interest only). People might have made a bad gamble on taking interest only but I’m sure that most new they would have to pay of loan.

I think assuming and hoping are two different things. Most are not into financial vehicles as much as our little bizzare group. Most just see a monthly figure. Hell, look at all those complaining about PPI, who took it without even checking it would cover them.

Just look at how many took on endowments not really have a clue what they were doing, hence the problems in the end.

Assumption is the mother of all...

nearlynew

This is how it used to work up until about 5 years ago ...

Mortgage Applicant (MA): I've seen a house I want to buy and need a mortgage
Mortgage Broker (MB): No problem. How much is the house?
MA: £100k
MB: How much do you want to borrow?
MA: How much can I borrow?
MB: How much do you earn?
MA: 20k
MB: No problem. Right (after doing some calculations), if you choose a repayment mortgage 100k will cost £600 per month. However an IO mortgage will only cost £500 per month.
MA: I can afford that
MB: If you can afford £600 a month, what you should do is take out an IO mortgage for 120k and buy a more expensive house.
MA: Good idea. Go for it.


This is how "financially savvy" people end up in the 5h1t.

And before you know it, the 100k house (unchanged in any way) now costs 200k and everyone is in more debt.
And the idiots who bid up these prices using imaginary money are the ones getting rescued from the carnage brought about by their own greed and stupidity.


You couldn't make it up.

ukcarper

Graham_Devon wrote: »

I think assuming and hoping are two different things. Most are not into financial vehicles as much as our little bizzare group. Most just see a monthly figure. Hell, look at all those complaining about PPI, who took it without even checking it would cover them.

Just look at how many took on endowments not really have a clue what they were doing, hence the problems in the end.

Assumption is the mother of all...

You have a very low opinion of people, people might look at the figure and be attracted to it and been fooled by HPI but most would have known what interest only meant.

The endowment problem was different.

Thrugelmir

ukcarper wrote: »

and been fooled by HPI

Therein lies the problem. They believed house prices would only ever rise along with their wages

No plan B or C or D or E or F................

So many are going to be severely burnt.