FCA: Interest-only mortgage crackdown "gone too far"

grizzly1911

jamesd wrote: »

Or they may be people who know that investing is likely to be better than using a repayment mortgage, borrowed at 75% LTV with an income multiple of about one and with enough money to clear the mortgage in savings and investments that they didn't want to move out of the tax wrapper.

So at what point in the cycle do you achieve this 1x income, 75%LTV, 100%+ cover? Few people remain in the original home and manage with out extending their exposure. A lot can happen in life before that point can be reached.

Fine if you are one of the minority that will have the nouse to achieve this utopia. As a mass market product it accident waiting to happen.

I don't think anyone would be concerned if they were available as niche product, by a few specialist providers, who want to play and price in that environment.

marathonic

Further to the above, pension rules can change - as can ISA rules.

You could end up 40% down on investments in any particular year.

However, regardless of the path taken, you could end up going bankrupt in years to come and losing all your assets - whilst keeping your pension. It's obvious who would fare better in this scenario.

The government could end up scrapping the 25% lump sum but, equally, the government could introduce some form of wealth tax and keep pensions outside it's scope.

We don't know what the rules are going to be so all we can do is base our plans on current rules and adjust accordingly.

For example, if my plan were to use the 25% lump sum to clear the mortgage and I build a significant pension pot to do so, a tax-free lump sum removal could see me ceasing pension contributions altogether and switching my efforts to repaying my mortgage.

If this were to happen, I should still have a better pension pot than someone who was on a repayment basis from the start but contributed less over the years up until that point to their pension plan.

marathonic

grizzly1911 wrote: »

Perhaps it is nice to have both, clear mortgage and an investment pot even if it isn't quite so large.

When you have been around longer you will appreciate that stuff happens in life. Things don't always go as planned and history has a knack of repeating itself.

I agree that it could be nice to have both. It all depends on a persons attitude towards risk. For example, noone would select to have both unless they thought there was a chance that one of the two options was going to be more beneficial.

If a person has enough conviction in their decision and an attitude towards risk that allows them to do so, why not concentrate on what they feel will have the better long-term outcome?

Whilst you are correct that history has a knack of repeating itself and markets can, and do, fall, ask yourself this - in history, has their ever been a drop in the markets that has resulted in them never again achieving new all-time highs?

grizzly1911

HAMISH_MCTAVISH wrote: »

I'll let Stephanie Flanders answer that one for me.....

It's an excellent morality tale, which chimes well with the British tendency towards self-flagellation.

There's just one problem. It's not really true.

http://www.bbc.co.uk/news/business-17398014

Interesting summary.

Some will say he's too cavalier about the distributional aspect of household debt (though he does raise this as a concern). To state the obvious, the households with the increased debt are not, in many cases, the households with the more valuable assets.
Thus, we might well worry about the social and economic consequences of rising interest rates, in an economy with high levels of household debt, even if we don't have to worry about Britain being 'bust'.
Likewise, had it not been for the Bank of England's record low interest rate policy, bank losses on UK housing over the past few years would have been considerably greater.
You could also read the speech and still worry about the high level of government borrowing. Certainly, George Osborne will read nothing here to make him change his mind. (For what it's worth, Broadbent supported Mr Osborne's broad strategy on the deficit before joining the MPC.)
Still, the next time you hear a politician - or a columnist - talk about the price "we all have to pay" for running up too much debt, you might ask them who, exactly is included in that "we".



It is all very laudable you wanting the proles to get a slice of cake and take on debt, to take on the haves, but condemning them to higher prices and associated debt that they cannot afford doesn't really help their lot.

CLAPTON

marathonic wrote: »

Sure, the cost of the underlying shares will fluctuate - but the income generated will remain relatively stable in comparison.

some good divi payers

B&B, Northern Rock, Lloyds, AVIVA, British Energy.....

massses of british companies for 20/23 years ago simply don't exist anymore

however I agree with the prinviple of a diversified portfolion of assets, own home, pension, S&S, cash, rental property, loving children

the_flying_pig

HAMISH_MCTAVISH wrote: »

From the Chancellor, George Osborne.....

"A lack of credit is damaging businesses and costing jobs."

From the Shadow Chancellor, Ed Balls.....

Housebuilding is crucial to economic recovery."

Seems quite hard in fact to find anyone mainstream who would disagree.....

of the three considerations i listed (1) was by a distance the most important.

your two quotes hardly go a long way to providing assurance on that front.

marathonic

I've told you my thoughts and that I would get an I/O mortgage if it was available at a good rate (hence, increasing the liklihood of investments outperforming it).

You've stated that having both might be a good alternative, to which I agree, depending on attitude to risk. I've also stated that my current, repayment, mortgage is a 63% LTV.

I suppose, given that interest only mortgages aren't available, I might as well tell you my plan:

Mortgage: Is on a 2-year deal ending December 2014. It's over a 30-year term and repayments represent less than 18% of net salary. If equity hasn't taken me there already, I'll pay whatever it takes to take me down to 60% LTV and get a best buy mortgage. If I/O was available at the same rate, I'd take it. Otherwise, I'd just extend the term out as far as allowable - could be 35 years as I'll only be 32 at that point.

ISA: Having recently purchased, my emergency savings are depleted. This year will see a Cash ISA balance of 7-8 months expenses (3-4 months net salary). Future years will see maximised S&S ISA contributions.

Pension: Contributed at varying amounts over my twenties (between 6% and 26% - contributions were raised as the markets dropped). Have now got 1.7 times annual salary in the pot at age 30. The contributions are reduced, due to house purchase, to 6%. They will be increased again in the near future.

Investment Property: May consider this - but only if a 40% deposit represented a withdrawal of 50% of my S&S ISA funds, i.e. I'll consider an mortgaged investment property if my S&S ISA funds represent about 80% of the total cost of the property.

grizzly1911

marathonic wrote: »

I agree that it could be nice to have both. It all depends on a persons attitude towards risk. For example, noone would select to have both unless they thought there was a chance that one of the two options was going to be more beneficial.

If a person has enough conviction in their decision and an attitude towards risk that allows them to do so, why not concentrate on what they feel will have the better long-term outcome?

Whilst you are correct that history has a knack of repeating itself and markets can, and do, fall, ask yourself this - in history, has their ever been a drop in the markets that has resulted in them never again achieving new all-time highs?

The two scenarios rely on you being around long enough to see either 1.) the benefits of your big pension pot 2.) Investments recovering in sufficient time achieve your goals.

A 40% drop could easily take at least 10 years to recover, without having to rely on any income derived form it. At that point in your life taking on a high risk strategy to recover any quicker may lead to further problems.

There are no right and wrong answers, a few would gain and benefit, but those are probably the ones that would do so under any conditions. They are also the ones that have a surplus cash flow through their life to enable them to make choices and rebalance their lives. Clearing amortgae in your 5early 50s still gives you opportunity to top up the plan, I accept the compound effect may not be as significant but your real contribution may be higher.

For many they don't have that luxury, to such a degree.

grizzly1911

CLAPTON wrote: »

loving children

Probably the best investment of the lot.

marathonic

CLAPTON wrote: »

some good divi payers

B&B, Northern Rock, Lloyds, AVIVA, British Energy.....

massses of british companies for 20/23 years ago simply don't exist anymore

however I agree with the prinviple of a diversified portfolion of assets, own home, pension, S&S, cash, rental property, loving children

Yeah, that's a very valid point.

Now, let's say you had 50 diversified companies that increase dividends by about 10% annually. If five of those companies went bankrupt which, although possible, I can't see happening again in our lifetimes, the 10% increase in dividend from the other 45 would see your following years income fairly stable.

Obviously, this is not an argument against your point as you are pretty much agreeing with this above.....