MSE News: Interest-only mortgages on critical list as Co-op pulls plug

Former_MSE_Helen

This is the discussion thread for the following MSE News Story:

"The squeeze on interest-only mortgages continued as a major lender announced plans to withdraw its range ..."

Read the full story:
Interest-only mortgages on critical list as Co-op pulls plug

shortchanged_2

It really does look like the kiss of death for IO mortgages now at least in the mainstream.

Well at least that means that people won't be using them as a way to get a house they would not have been able to afford with a repayment mortgage.

IO mortgages should never have been as easily accessible as they were in the previous decade.

Thrugelmir

Why doesn't MSE put a better spin on the news such as this? After all this site is dedicated to helping people manage their money better.
So seems strange to be so "supportive" of an era that has created many of the financial problems that the UK faces today.

The_J

I agree with Thrugelmir, interest only mortgages are not suitable for idiots (most of the UK public) and it's about time they were stopped from getting them or forced to go to repayment.

It's a shame because, for the cognoscenti, interest only works quite well.

horsewidow

This is topical for us! We have massive equity in our home, over £40,000 of savings, but I got made redundant and am requalifying as a primary headteacher. I currently have 4 part time jobs (life is very exciting), but -you probably saw this coming- we had switched to interest only and our deal has run out. Here comes the crunch, we cannot apply for a new interest only deal until I get a full time permanent job. My mum, who has a massive house worth over a million, has offered to guarantee any mortgage we get, would this help us find an interest only deal befoe I get a permanent job?

The_J

horsewidow wrote: »

This is topical for us! We have massive equity in our home, over £40,000 of savings, but I got made redundant and am requalifying as a primary headteacher. I currently have 4 part time jobs (life is very exciting), but -you probably saw this coming- we had switched to interest only and our deal has run out. Here comes the crunch, we cannot apply for a new interest only deal until I get a full time permanent job. My mum, who has a massive house worth over a million, has offered to guarantee any mortgage we get, would this help us find an interest only deal befoe I get a permanent job?

Speak to a broker, if you have enough equity this should be absolutely fine.

Alternatively, tell me how much equity you have, the household income and the mortgage required and I'll give you a rough idea.

dougz_2

Of course, it is prudent to pay off your mortgage...

Repayment is not, of course, prudent, and the unmentioned bottom line to this news is, the rich can now get richer from a product, that is no longer available to lesser mortals even if they have the savvy to know how it could have benefited them too.

e.g those wealthy enough can still get an interest only mortgage, put the savings towards a fatter pension instead, enjoy watching the inflation busting returns of a balanced portfolio, and then withdraw it as the pension lump sum, which effectively includes a 40%+ contribution from other taxpayers, to pay their mortgage off.

jamesd

Yes, it's prudent to pay off your mortgage... just after you die. Do it any sooner and you're reducing your income, if you are a person for whom investing is appropriate. This is because the expected income from investments is greater than the expected interest cost of a mortgage.

Then there's the tax relief of repayment vehicles, which makes it better to use those for capital, effectively giving you tax relief on your mortgage equity purchase.

As dougz wrote, reduced availability of interest only is making it harder for those of more common means to do what helps those who have ample means, increasing the divide between those who have and those who don't.

None of this post should be taken as advocating interest only without a viable and appropriate for the individual repayment vehicle in place and well funded. Those two things are mandatory and should be.

RenovationMan

Its a shame that we now live in a 'nanny' society where financial products are geared towards the lowest demoninator, the foolish and the uneducated.

shortchanged_2

RenovationMan wrote: »

Its a shame that we now live in a 'nanny' society where financial products are geared towards the lowest demoninator, the foolish and the uneducated.

The problem is Renoman when you have enough of the foolish and uneducated it does become a problem. Funnily enough sort of like the situation we are in now.

RenovationMan

shortchanged wrote: »

The problem is Renoman when you have enough of the foolish and uneducated it does become a problem. Funnily enough sort of like the situation we are in now.

You must move in different circles than me shortchanged because everyone I know is capable and responsible with their finances. I guess birds of a feather really do flock together.