MSE News: Nationwide axes interest-only mortgages

leitmotif

plane_boy2000 wrote: »

IO as a product has its place in the market.

We used an IO mortgage to enable us to get into a bigger house while we had babies - now the kids are at school our income has increased so we are able to afford higher payments

It could be argued that you had to do so because prices were too high, and prices were too high because of such products as IO being available to all and sundry.

C.breezy

Shutting the stable door after the horse has bolted. Current IO deals are strict enough to avoid most misuse.

dave333

leveller2911 wrote: »

How can the banks determin exactly who is sensible with money?.

Just because someone manages to save up a few thousand pounds as a deposit(or gifted deposit) doesn't mean they wouldn't dip into their mortgage capital repayment vehicle if they needed to, for instance unemployment,paying their childrens uni fees etc.

You mention FTB, why is it particularly good other than the fact that they can't afford to buy a house on a repayment morgage?. Maybe,just maybe in general they rely on HPI for any equity hoping this will pay off their mortgage debt. Maybe house prices are far to high and need to come down to be affordable.

Well I suppose they can't determine who is sensible with their money, credit ratings are the closest we have to that and they obviously aren't to be relied on.

The point I am making is that there are people out there who are sensible with their money and interest only mortgages can be a useful option for them. The reason for mentioning FTB is that they are generally younger and their salaries are likely to rise over the term of the mortgage meaning they can repay more than they could at the beginning.

Banks need to get better at assessing their customers and the risk that they default on the mortgage. Perhaps raising the deposit requirements or perhaps assessing the repayment vehicle every 5 years but to get rid of interest only mortgages completely seems a bit drastic.

Even if you spend all of your repayment vehicle, over the 25-40 year life of a mortgage, the house value is going to be at least the value of the mortgage - not an unrealistic expectation?! It shouldn't be the banks job to molly coddle people into managing their money properly and this is what banning interest only mortgages seems to be.

Thrugelmir

dave333 wrote: »

The reason for mentioning FTB is that they are generally younger and their salaries are likely to rise over the term of the mortgage meaning they can repay more than they could at the beginning.

Lenders work on fact not speculation or assumption.

If peoples salaries increase they can pay down there mortgage quicker and build equity for the next move.

For too long we've had a culture of "want it now" in the UK. That the banks cultivated for a number of years. Many of the problems faced today stem from poor personal financial management.

Housing is one currently. The iceberg on the horizon being pensions.

Time for a serious readjustment in the way we collectively manage money.

leveller2911

dave333 wrote: »

The reason for mentioning FTB is that they are generally younger and their salaries are likely to rise over the term of the mortgage meaning they can repay more than they could at the beginning.

One problem is the average age of the FTB is currently around 35yrs of age and rising .Mortgages use to be very simple, you could roughly borrow 3-3.5 x income and this in a way put a ceiling on house prices, you pay interest and capital each month its very simple and it worked for decades.Then the silly season began where the banks would lend 125% mortgages and now the average house will cost 6x average income which for most is unaffordable.So what did the banks do? they bought in IO mortgages which was just fueling the fire of HPI and kicked the can down the road.

There isn't a month goes by without news flashes promoting the latest "scheme" to supposedly help kickstart the housing market and every one barr none is a fudge and not a solution.We should have the return of 3-3.5x earnings as a maximum loan for a mortgage which is affordable for most.