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

Eellogofusciouhipoppokunu

shortchanged wrote: »

Basically the tide is turning. The days of people 'buying' houses they can't really afford are over.

People need to look at the flip side of the coin. When they say they could only afford to buy these properties with an IO mortgage have they ever considered that by taking out these said products they actually helped to push up house prices further thus further exacerbating the problem.

Along with liar loans, high income multiple mortgages and 100% plus mortgages, abuse of IO mortgages is what helped shaft the UK housing market.

Basically the tide is turning. The days of people being allowed to manage their own finances are over.

People need to look at the flip side of the coin. When they realised that they could get better financial returns by using a repayment vehicle other than direct payments off the mortgage, did they expect to have a nanny state decide that it knows better and pull the rug from under them?

Along with ISAs, SIPPS, NSANDI, IO mortgages are what helped millions of people to quietly manage their own finances without the state holding their hands.

What next? The government forcing people to have personal pensions? Oh....

Thrugelmir

none_such wrote: »

a. What's the difference between taking an interest only mortgage and paying rent?

When you rent you are not responsible for the maintenance of the property. So they are not identical.

The mortgage should be 15% to 20% lower.

shortchanged_2

Eellogofusciouhipoppokunu wrote: »

People need to look at the flip side of the coin. When they realised that they could get better financial returns by using a repayment vehicle other than direct payments off the mortgage, did they expect to have a nanny state decide that it knows better and pull the rug from under them?

Would that be the such wonderful things as endowment mortgages? Cracking things they turned out to be.

I have no objection to IO mortgages if people can genuinely afford them without the reliance on HPI to pay off the mortgage debt at the end.

Unfortunately there needed to be some nanny state intervention because the banks had lost the plot and were just throwing IO mortgages at people for all the wrong reasons.

What are your plans now renoman? Still going for the 10 year fix?

Eellogofusciouhipoppokunu

shortchanged wrote: »

Would that be the such wonderful things as endowment mortgages? Cracking things they turned out to be.

I have no objection to IO mortgages if people can genuinely afford them without the reliance on HPI to pay off the mortgage debt at the end.

Unfortunately there needed to be some nanny state intervention because the banks had lost the plot and were just throwing IO mortgages at people for all the wrong reasons.

What are your plans now renoman? Still going for the 10 year fix?

Endowment mortgages were a great product during times of high interest rates. Lots of people who got them in the 70s and 80s made a bundle. What went wrong was that we had a sustained period of low interest rates and a different product was required. As with most investments, timing is key.

Another problem was that people didn't monitor their performance to see if they needed more money to top them up - similar to what happens with many people's pensions right now.

Do we scrap IO mortgages because some people aren't financially savvy enough to monitor their repayment vehicle? Do we do the same with pensions for the same reason? As Thrugelmir pointed out, it's very unlikely that one investment stretegy will work for the whole 25 year mortgage term.

I don't see why you object to people using HPI as a repayment technique. Who are you to dictate other people's strategies? Or do you really believe that over a 25 (more like 30) year mortgage term that a house will be worth less at the end than at the begining? Are you really saying that?

It's a sound strategy to buy a family home on IO with the view to downsize when the kids leave. Do pensioners really need a 4 bed home? As long as the downsizer monitors how much equity they have in the family home and how much they need to have to buy the downsize home outright (and tops up the equity if there is a shortfall).

Surely it's better to funnel money into a pension or ISA savings to protect them from the tax man, than to funnel money into a house that you'll sell when you downsize and release more equity than you need to buy the smaller place - leaving you with an excess of money that you have to drip feed into tax shelters. Surely it's better to invest your spare cash in an ISA/Pension/Etc. and look for returns in share gains and dividends than to channel it all into a single asset and hope for HPI?

As to my own circumstances, I'm looking to remain on IO and perhaps get a low rate 10 year fix while I channel my money into renovating our house (i.e. making it more energy efficient to cut down our bills) and channel money into pension and ISA investments.

I currently have a house worth around £450k with equity of around £207. I intend downsizing to a house worth around £250k (all figures in today's market). We therefore have a shortfall of £43K which I need to find in the next 20 years. Some of that will come from HPI and some from ISA returns. I could cover it all now with the 25% tax free lump sum in my pension but I have other plans for that.

kidmugsy

What's "HPI"?
What's "MMR"?
What's "HNW"?

jamesd

house price inflation.

Mortgage Market Review by the FSA.

High net worth. People significantly richer than usual. Affluent is middle between above average and high net worth, which might start at say £5 million or more, depending on definition. HNW being something high enough to exclude most property owners in SE England, who might qualify as affluent instead.

jondunn

GMS wrote: »

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.

I'm glad to see a mortgage advisor understands that I/O mortgages have their place and the responsible majority are once again being forced to live by rules imposed to protect the irresponsible minority from themselves. As someone else said dismissively "I/O = rent" - well yes it does and as long as people realise that I don't see the problem.

I have an I/O mortgage on less than 50% of my home's £380k value, without it I wouldn't be able to afford to live in a relatively large expensive (for the area) house, but I have 2 growing children and decided it would be better to pile all my equity into it and "rent the rest" until they've grown up and fled the nest; I'll then downsize and buy for cash with the £200k equity (which is plenty to buy a 3-bed house round here). So with the I/O mortgage's help we get a bigger house, better area, better schools, we need these NOW not after 20 years of sweating out a repayment.

Surely lenders should look at individual circumstances rather than just axing ALL I/O mortgages.

ps: Maybe if lenders didn't charge over NINE TIMES the base rate as their standard mortgage rate (Santander SVR 4.7%, base rate 0.5%) it might encourage borrowers repay rather than trying to get on I/O.

kingstreet

jon - you weren't Pensions Manager of the Manchester branch of a well-known life office back in the 80s were you?

jondunn

No Kingstreet in the 80s I was finishing school then being employed as a computer nerd. I did work in Manchester though...!?

kingstreet

Just kidding.

Jon Dunn would be in his 60s now and not likely to have young children, although...

He was my boss when I worked in Group/Exec Pensions Admin at Sun Alliance in Manchester.