Person of Interest Only

Kennyboy66

You have to love the comments (and I'd hope that FT subscribers were above average intelligence).

" it is prudent to have as flexible a mortgage as possible"

It does make me think that it may have been better for the house market just left to crash, without all the prop ups and 'free money' of QE.

Rinoa

Not sure what this article is saying.

It claims over 50% of London mortgages are interest only, but are they claiming none of these have a suitable repayment vehicle?

The article suggests none of these borrowers have paid off capital since taking out the mortgage. Difficult to believe.

I think we need a little more information. Sounds to me as though they selected headline grabbing stats to deliberately give a false impression of reality.

Loughton_Monkey

Looks a dodgy piece of 'research' to me.

It found that 52.6 per cent of existing loans in London were to borrowers who were not making any repayments of principal [to the lender?]. In the southwest and southeast, the proportion of outstanding loans of this type were 51.2 per cent and 52.4 per cent respectively.

I have added what I suspect is missing. It is a function of IO mortgages that you don't pay principal to the lender.

It would be more informative to discover the number without any means to repay the principal when due. [Not simply 'no repayment vehicle in place]. Some, like myself, don't need any 'repayment vehicles' since we have the cash - invested in deposits earning far more interest than we are paying.

Since most mortgages are for 25 years-ish, this is a superb opportunity for banks. These people, once aged 65 or so, will find themselves in properties worth 5 or 6 times the outstanding mortgage. They will qualify for Lifetime Mortgages [borrowing 20%/25% at age 65] at a much higher rate than SVR.

Highly profitable. Totally secure.

..large gin & tonics all round....

Generali

Rinoa wrote: »

Not sure what this article is saying.

It claims over 50% of London mortgages are interest only, but are they claiming none of these have a suitable repayment vehicle?

The article suggests none of these borrowers have paid off capital since taking out the mortgage. Difficult to believe.

I think we need a little more information. Sounds to me as though they selected headline grabbing stats to deliberately give a false impression of reality.

The article is basically a re-hash of a Moody's press release that was done on the back of some analysis of various mortgaged back debt packages.

Given that this has come from Moody's, this is going to be trying to sell their some research so it is reasonable to surmise that there is a little hyperbole here. At the same time, this is Moody's not some 2 bob bit newspaper so they need some substance behind what they are saying otherwise they aren't going to get much repeat business!

The numbers are what they are. There will be mortgages written in the late 80s boom that have a few grand left to pay on them, there will be 100% mortgages written on toppy valuations in 2007 and many things in between.

The fact is that all of those people will most likely need to get a decent repayment vehicle in place. Some will find that easier than others.

Kennyboy66 wrote: »

You have to love the comments (and I'd hope that FT subscribers were above average intelligence).

" it is prudent to have as flexible a mortgage as possible"

It does make me think that it may have been better for the house market just left to crash, without all the prop ups and 'free money' of QE.

I've read a lot of comments among 'investors' of various sorts that basically says, "I can make a better return than my 3% mortgage rate so I'm better off investing the money than paying down the debt".

I have some sympathy with that viewpoint although I'd be happier investing the money in my own business than buying shares with it.

WestonDave

The other unknown in those stats are "hybrids" like First Directs offset mortgages. These are written as interest only so would come into the number on those, but on the other hand probably lots of people are effectively paying off capital either by literally paying it off (as there is no overpayment penalty even in fixed interest deals) or by building up parallel offset fund balances. Its not clear whether Moody's are sufficiently able to look at these mortgages in enough detail to identify the ones which are using them as repayment mortgages rather than as IO mortgages. I suspect the same might apply to other offset style mortgages with other providers although possibly in total they don't make up that much of the overall mortgage market.

I can only obviously speak for myself, but my use of an IO mortgage is about paying off the mortgage balance quicker because the interest charges are lower, rather than because it lowers monthly payments. Still I'm not planning to remortgage any time soon so hopefully this will be rather academic for me!

dryhat

Generali wrote: »

Given that this has come from Moody's, this is going to be trying to sell their some research so it is reasonable to surmise that there is a little hyperbole here. At the same time, this is Moody's not some 2 bob bit newspaper so they need some substance behind what they are saying otherwise they aren't going to get much repeat business!

You mean like when they were giving AAA ratings to toxic piles of sh*t and recomending them as investments.

F*cking crooks. Just like all other rating agencies.

Generali

WestonDave wrote: »

The other unknown in those stats are "hybrids" like First Directs offset mortgages. These are written as interest only so would come into the number on those, but on the other hand probably lots of people are effectively paying off capital either by literally paying it off (as there is no overpayment penalty even in fixed interest deals) or by building up parallel offset fund balances. Its not clear whether Moody's are sufficiently able to look at these mortgages in enough detail to identify the ones which are using them as repayment mortgages rather than as IO mortgages. I suspect the same might apply to other offset style mortgages with other providers although possibly in total they don't make up that much of the overall mortgage market.

I can only obviously speak for myself, but my use of an IO mortgage is about paying off the mortgage balance quicker because the interest charges are lower, rather than because it lowers monthly payments. Still I'm not planning to remortgage any time soon so hopefully this will be rather academic for me!

Moody's seem to have used outstanding 'packaged up and sold' mortgages of various sorts (MBS, CDO, CDO^n etc) and extrapolated.

If you have an offset mortgage then it probably isn't counted as IO but who knows. Unless you have a very large mortgage I doubt it is enough to make a difference vs half of all London/South East mortgages.

Turnbull2000

It seems likely to me that these measures will be postponed come 2014. Just like raising interest rates, it would be considered detrimental to consumer spending, indebted borrowers and the ‘hardworking families’ who were ‘forced’ to take out IO.

Political factors will take precedence IMO.

Generali

dryhat wrote: »

You mean like when they were giving AAA ratings to toxic piles of sh*t and recomending them as investments.

They were indeed doing that. The analysis sales side is the more transparent side of their business and one they might do well to bolster given the way the wind is blowing.

dryhat wrote: »

F*cking crooks. Just like all other rating agencies.

You're not the only person that thinks so. S&P are in a spot of bother in Aus right now:

http://afr.com/p/national/ratings_ruling_could_cost_billions_DkUcF9kn0EAf4gtKSR0nVN

a spot of bother that could spread to rather a large puddle of bother.

shortchanged_2

Turnbull2000 wrote: »

It seems likely to me that these measures will be postponed come 2014. Just like raising interest rates, it would be considered detrimental to consumer spending, indebted borrowers and the ‘hardworking families’ who were ‘forced’ to take out IO.

Political factors will take precedence IMO.

Were people actually tortured into submission to take out these mortgages then?

This is more serious than I first thought.