Person of Interest Only

Generali

chewmylegoff wrote: »

He is pointing out that not all interest only mortgages are taken out by rich people who could afford a repayment mortgage but choose IO as a way of managing their wealth. I.e. many of them will have taken out IO with no repayment vehicle as a gamble that prices would rise (and cos it's the only way they could afford to buy).

Many will have taken out IO mortgages because they run their own businesses and can use the money better in the business. Many, and I have friends and former colleagues that have done this, took out IO mortgages so they could buy a nicer house in a nicer area.

The fact is that according to the research there is a 50% higher delinquency rate on IO mortgages which suggest they are riskier for lenders. That is why, IMHO, we will be discussing on here before too long how banks are being forced to push all IO borrowers without a transparent and credible repayment vehicle onto repayment mortgages.

shortchanged_2

Eellogofusciouhipoppokunu wrote: »

Despite all the rhetoric on here that it was impossible, I took out an IO mortgage just under three years ago at 5x salary. I contacted my mortgage lender (Santander) recently to see how I stood because of all the continued rhetoric on here and in the press, and was told that there is no problem at all for existing customers and that the restrictions were for new borrowers.

Santander have a 2 year fixed rate at 2.39%, which is lower than my current 2.54% deal and allows me to remain on IO. Seems like it's 'business as usual' for most people.

I thought you had taken out a 6x salary mortgage.

Generali

C_Mababejive wrote: »

I hadn't realised the scale of the interest only/no repayment vehicle market. I thought it was much smaller.I wonder what a suitable vehicle might be? A lump sum from a pension? A funds isa? A portfolio of shares? Surely you could have the vehicle at point of application then just liquidate all or most of it?

Any of those would be suitable but you'd need a big pension for the tax free lump sum to pay off the mortgage!

That's the problem with the IO mortgages: customers have made promises that can't or won't keep and banks have willfully turned a blind eye to it.

It's the same thing that caused the GFC in the first place: nobody wanted to delve too deeply into what was going on because the credit market was meant to prop up the economy after the dot com crash (anyone remember that?).

There is still a lot of money owed by people that should neve have been able to borrow the amount that they did. That will need to be unwound before we can go back to having normally functioning credit markets.

Graham_Devon

Generali wrote: »

Many will have taken out IO mortgages because they run their own businesses and can use the money better in the business. Many, and I have friends and former colleagues that have done this, took out IO mortgages so they could buy a nicer house in a nicer area.

The fact is that according to the research there is a 50% higher delinquency rate on IO mortgages which suggest they are riskier for lenders. That is why, IMHO, we will be discussing on here before too long how banks are being forced to push all IO borrowers without a transparent and credible repayment vehicle onto repayment mortgages.

At the moment, however, it appears the opposite is happening, with lenders switching people from repayment to interest only as part of forbearance measures.

The BOE estimates forbearance is being played out to up to 12% of mortgages in the UK (as at Apr 2011). How many of these have been switched to interest only as part of that we don't know.

But if lenders are going to clamp down on IO mortgage owners, can they continue to switch struggling repayment owners to interest only, especially considering the obvious issue that there won't be a repayment plan here.

CLAPTON

Generali wrote: »

Many will have taken out IO mortgages because they run their own businesses and can use the money better in the business. Many, and I have friends and former colleagues that have done this, took out IO mortgages so they could buy a nicer house in a nicer area.

The fact is that according to the research there is a 50% higher delinquency rate on IO mortgages which suggest they are riskier for lenders. That is why, IMHO, we will be discussing on here before too long how banks are being forced to push all IO borrowers without a transparent and credible repayment vehicle onto repayment mortgages.

the delinquency rate on mortgages is low; 50% more of a low number is still low.

however, if it worries the FSA and hence banks, what logic would we use to force the issue and create the very delinquency we would wish to avoid?

grizzly1911

Graham_Devon wrote: »

The BOE estimates forbearance is being played out to up to 12% of mortgages in the UK (as at Apr 2011). How many of these have been switched to interest only as part of that we don't know.

And that doesn't include the ones in the queue:cool:

vivatifosi

CLAPTON wrote: »

however, if it worries the FSA and hence banks, what logic would we use to force the issue and create the very delinquency we would wish to avoid?

For me you can't look at interest only without looking at equity. If the SHTF, people with a ton of equity can sell up and move somewhere else. A lot of these people will have massive amounts of equity (for arguments sake 70%+) and I don't see why the same rules need to apply there as someone with an 80%+ mortgage and no repayment plan.

grizzly1911

IveSeenTheLight wrote: »

It'll be interesting.
I used to have repayment BTL's, but with the low interest rates, I switched to IO to capitalise on the money working better elsewhere.

When rates rise (may be some time yet), I'll likely switch back to repayment.

It's a lot to do with risk and how risk averse you may be.

BTLs aren't mortgages they are business gambles.

You are obviously on top of the game there are a load of schmucks out there that aren't.

C_Mababejive

Generali wrote: »

Any of those would be suitable but you'd need a big pension for the tax free lump sum to pay off the mortgage!

That's the problem with the IO mortgages: customers have made promises that can't or won't keep and banks have willfully turned a blind eye to it.

It's the same thing that caused the GFC in the first place: nobody wanted to delve too deeply into what was going on because the credit market was meant to prop up the economy after the dot com crash (anyone remember that?).

There is still a lot of money owed by people that should neve have been able to borrow the amount that they did. That will need to be unwound before we can go back to having normally functioning credit markets.

"unwound..." Yes, i guess thats an apt description. But therein lies the problem .People have been indoctrinated to expect that they will sell their home at a profit. It that cant happen,a large proportion of them simply wont sell...and so the house price inflation remains forever locked in.

michaels

Surely all sorts of different types of loan have different delinquency rates...which is priced in to the interest rate payable. Unsecured loans have high delinquency rates and high interest rates and banks can still make a profit on them. Why if a loan s asset backed it is suddenly impossible to have a risk rated interest rate and the only option is only to have low risk lending?

If the ltv is low, how is renting from the bank any more or less risky to either the bank or the individual than renting from a landlord. It seems from the conversation that renting from the bank is somehow morally wrong whereas renting from a landlord is entirely acceptable.

Edit:cross post with Viva