MSE News: Interest-only mortgage market dries up as Coventry pulls plug

regbrown

Percy1983 wrote: »

To counter this we are on a repayment mortgage and bought well within our means to which we can afford children and stay on a repayment mortgage quite easily (if we have children that is).

Well that's great I prefer the flexibility, as do many who are responsible.

GMS

Interest only can work but has been totally ruined.

For instance a couple with 4 children buy a 5 bed house with an I/O mortgage. Kids leave home, parents sell house and buy a small house/flat to live in. Plausible use of interest only. Kids grow up with own rooms and parents downsize.

Compare to a 1 bed flat on interest only. No chance of downsizing so not plausible, assuming sale of property as repayment vehicle.

To do away with Interest Only is overkill. Proper underwriting of it would have been the way forward but rather than do that the 'sledgehammer to crack a nut' approach is taken as it is easier.

Plenty of responsible people took and managed their I/O mortgages. Pity we live in a society where most people accept no responsibility for their actions.

Thrugelmir

regbrown wrote: »

Well that's great I prefer the flexibility, as do many who are responsible.

Extend the mortgage term, whilst maintaining a repayment mortgage. Is another option.

The issue for lenders is that its impossible to determine who is responsible. Nor which of their borrowers are going to suffer the loss their job, suffer loss of a partner, lose income through health issues or even divorce/separate. All of which have an impact on personal finances.

So far easier for lenders to take a conservative approach. Rather than incur the cost of administering whether a borrower is going to repay the debt at the end of the term. Interest only mortgages with no repayment vehicle is a fairly recent development which has failed.

jamesd

Meanwhile, Santander have relaxed their interest only criteria, from only 50% LTV introduced early in 2012 up to 75% LTV now when taken out via a broker using Abbey for Intermediaries. Only 50% can be interest only, the additional 25% must be repayment.

kingstreet wrote: »

When lenders find themselves having to give advice, for which they will be accountable, they don't want issues like interest-only in the way to trip up their advisers.

They were happy to do it when brokers were advising or the borrower was buying "execution-only" without advice and no responsibility accepted by the lender.

The MMR doesn't mandate that all sales have to be advised.

Thrugelmir wrote: »

The issue for lenders is that its impossible to determine who is responsible.

People with repayment strategies already in place and being well funded might well be considered to be responsible.

kingstreet

jamesd wrote: »

The MMR doesn't mandate that all sales have to be advised

Mortgage profs and HNWs are excluded, true, but for most of us it will apply.

kriss_boy

Is this for new applications- or is it likely existing interest only customers could be forced to repay in the future?

We are interest only because we only pay 1.7%.... so we save instead at get around 2.8% on our savings.

Its a no brainer.

Thrugelmir

jamesd wrote: »

People with repayment strategies already in place and being well funded might well be considered to be responsible.

How can this be verified on a regular basis in an economic fashion?

Life is a roller coaster. Few will see a 25 year strategy through to fulfilment.

Thrugelmir

jamesd wrote: »

Meanwhile, Santander have relaxed their interest only criteria, from only 50% LTV introduced early in 2012 up to 75% LTV now when taken out via a broker using Abbey for Intermediaries. Only 50% can be interest only, the additional 25% must be repayment.

So not really a relaxation of interest only. Given balance is repayment.

Percy1983

regbrown wrote: »

Well that's great I prefer the flexibility, as do many who are responsible.

But you could argue I was more responsible in planning for these things when buying the house so therefore don't need said flexibility.

The problem is interest only has been used by many to get houses they can't actually afford, as with all things the reckless few ruin it for the rest.

You just have to adapt and continue.

regbrown

Percy1983 wrote: »

But you could argue I was more responsible in planning for these things when buying the house so therefore don't need said flexibility.

The problem is interest only has been used by many to get houses they can't actually afford, as with all things the reckless few ruin it for the rest.

You just have to adapt and continue.

You could argue if you felt the need, which you clearly do. You do not seem able to handle the idea that all our situations are all unique, your circumstances do not map onto others so a direct comparison is pointless. You might work on that if your thinking of having children

I am aware of the problems of interest only, none of this negates the points that for a responsible borrowers they are fine.