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

Emy1501

RenovationMan wrote: »

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.

Back in the day the advisor filled out the form and people just signed what they were told. IO etc went over their head. I suspect it was explained to them but I suspect theynever understood that in 25 years you pay up the debt or your out.

Some would have been told not to worry about it as they could change to a repayment mortgage when they were older, use pension lump sums or simply downsize. There are at least 2 examples of people know people who did not understand and I know a couple of people too. I also know a few people with IO mortgages who have Mew'd with no plan to pay off the mortgage.

Conard have already given the example of the old dear who came to term but does not see why she should pay off any capital or move and there will be more of them. I know someone with a BTL given 4 weeks notice of term and then pay it off. No prior warning etc. I wonder how may people with IO mortgages know when their term is and if they get the same 4 weeks notice then they are going to do little more than default on the mortgage which won't do them any favours.

Maybe its not a ticking time bomb but the fact that most lenders are only allowing IO mortgages of 50% equity of more suggests that there have been problems come term for some and they suspect problems in the future which will have an effect on the market as a whole.

I also see a fair few more of Conard's Policewoman in due course. It will be interesting to see what happens if a case of miss selling ever gets to court.

ukcarper

Thrugelmir wrote: »

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.

We will have to see, the main people who are affected will be those who bought after 2000 and who knows what's going to happen over the next 20 years and they do have time to sort things out.

RenovationMan

Emy1501 wrote: »

Back in the day the advisor filled out the form and people just signed what they were told. IO etc went over their head. I suspect it was explained to them but I suspect theynever understood that in 25 years you pay up the debt or your out.

Back in which day? And for the record, could we have your age so we can see if you're speaking from experience?

Emy1501

RenovationMan wrote: »

Back in which day? And for the record, could we have your age so we can see if you're speaking from experience?

I'm in my 30's and I'm talking about 2004. We didn't fill in the form we were given it to read. When we took out our mortgage it was how much do you want rather than how much can you afford did you want IO or repayment and the figures were shown Not suprised a fair few went IO in view of the fact it was nuch cheaper. We wanted to borrow 3.5x joint which main lenders didn't do then so adviser did a self cert. We were asked a few questions about potential overtime etc and the rent from another property one of us owned (no deduction for the mortgage cost) and all of a sudden the max we could borrow went from 150k to 275k. Adviser then just asked us read and sign on the dotted line.

While I suspect a fair few may have had an idea what IO meant I suspect most did not understand when and how they would have to pay off the capital. Things were a bit different from when I took out my first mortgage in 1996 where everything was explained and you were advised to take out a repayment vehicle even if the advice was not that great.

RenovationMan

Emy1501 wrote: »

I'm in my 30's and I'm talking about 2004. We didn't fill in the form we were given it to read. When we took out our mortgage it was how much do you want rather than how much can you afford did you want IO or repayment and the figures were shown Not suprised a fair few went IO in view of the fact it was nuch cheaper. We wanted to borrow 3.5x joint which main lenders didn't do then so adviser did a self cert. We were asked a few questions about potential overtime etc and the rent from another property one of us owned (no deduction for the mortgage cost) and all of a sudden the max we could borrow went from 150k to 275k. Adviser then just asked us read and sign on the dotted line.

Did you sign on the dotted line?

Thrugelmir

ukcarper wrote: »

We will have to see, the main people who are affected will be those who bought after 2000 and who knows what's going to happen over the next 20 years and they do have time to sort things out.

The endowment fiasco is still to play out. How many people have funded the shortfall?

Equity withdrawl was around £250 billion during the boom years. So many have used increased values to fund overseas property etc.

ukcarper

Thrugelmir wrote: »

The endowment fiasco is still to play out. How many people have funded the shortfall?

Equity withdrawl was around £250 billion during the boom years. So many have used increased values to fund overseas property etc.

I don't think the endowment problem will have much of an effect having suffered from it myself.

Emy1501

RenovationMan wrote: »

Did you sign on the dotted line?

No I borrowed the 175K I needed. If I had borrowed the lot I would be in trouble now. The point is that I know a fair few who did go for the max. Some did well but some didn't and the problem is that 10% doing badly is enough to cause a problem. Some are keeping their head above cause of low rates but they are unlikely to change to a repayment in the near future and they stuck in a propety which is too small for their family.

There are pros and cons to IO and what happened in the mortgage market between 2004-2007. I remember watching a programme on the BBC regarding foxtons in which the broker would work out the max a buyer could get then tell EA selling the house so the EA new exactly how much they could push the potential buyer to.

Thrugelmir

ukcarper wrote: »

I don't think the endowment problem will have much of an effect having suffered from it myself.

On the way.

Mortgage endowment shortfalls to peak in 2013


http://www.ftadviser.com/2012/03/20/mortgages/mortgage-products/mortgage-endowment-shortfalls-to-peak-in-gzyHXzCwLP4Oiqe5IKSifN/article.html

A real kick to the housing market at a time when its under real pressure.

ukcarper

Thrugelmir wrote: »

On the way.

Mortgage endowment shortfalls to peak in 2013


http://www.ftadviser.com/2012/03/20/mortgages/mortgage-products/mortgage-endowment-shortfalls-to-peak-in-gzyHXzCwLP4Oiqe5IKSifN/article.html

A real kick to the housing market at a time when its under real pressure.

Most people with endowments have had them for over 20 years and will have time to make arrangements for shortfall. All the people I know with endowments have made arrangements or the amount of shortfall is small enough to pay out of funds they already have. They are an annoyance for the policy holders but if you are expecting them to have an effect on property values I think you are mistaken.