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

marathonic

grizzly1911 wrote: »

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.

1.) I'd be as happy to leave any future children a house with a mortgage of £100,000 and an investment pot of £100,000 as I would to leave behind a mortgage free house.

2.) This is true. Depending on how well your plans worked out, you may have to de-risk towards retirement. If your investments covered less than 1.5 times your required income, this would probably be a necessity.

grizzly1911

marathonic wrote: »

1.) I'd be as happy to leave any future children a house with a mortgage of £100,000 and an investment pot of £100,000 as I would to leave behind a mortgage free house.

2.) This is true. Depending on how well your plans worked out, you may have to de-risk towards retirement. If your investments covered less than 1.5 times your required income, this would probably be a necessity.

1.) Hopefully you have some life insurance protecting the mortgage anyway.

It is nice to have some breathing space after a mortgage is repaid to have choice in your life rather than needing to find that interest t payment and not have the "worry" of about the success or otherwise of background investments to clear.

I was more thinking about an individual enjoying the fruits of their labours.

jamesd

grizzly1911 wrote: »

So at what point in the cycle do you achieve this 1x income, 75%LTV, 100%+ cover?

2010. I now have around 2.5 times the mortgage counting pension lump sum and money outside a pension.

grizzly1911 wrote: »

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.

Not everyone will do what I did but there are plenty of people who can borrow responsibility and manage repayment vehicles. After all, most of us are expected to invest within our pensions and live with the consequences of that for 25+ years after retiring.

grizzly1911 wrote: »

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.

I think it's fine as a mass market product, where mass market is perhaps 10-20% of borrowers with repayment strategies, not 80% most without one.

marathonic

jamesd wrote: »

I think it's fine as a mass market product, where mas market is perhaps 10-20% of borrowers with repayment strategies, not 80% most without one.

Exactly... When people are referring to 'niche' products, I think they're vastly underestimating the number of people in a position to borrow responsibly.

Thrugelmir

marathonic wrote: »

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.

That's a very optimistic outlook.

Thrugelmir

For the record past constituents of the FTSE 100.

http://en.wikipedia.org/wiki/FTSE_100_Index#Past_constituents

You forget how many household names come and go over time. As business doesn't stand still.

marathonic

Thrugelmir wrote: »

For the record past constituents of the FTSE 100.

http://en.wikipedia.org/wiki/FTSE_100_Index#Past_constituents

You forget how many household names come and go over time. As business doesn't stand still.

Whilst it's true that some past members of the FTSE 100 are now gone, most of the ones that fell off the index simply no longer represent one of the top 100 - they are still highly functioning, profitable, businesses.

Regarding the ones that do fail, the long-term returns of the FTSE All-Share (a return that, in my opinion, will continue to beat mortgage interest rates), takes into consideration these failures.

It's not as if I'm going to say, "Jessops and Blockbuster have failed, I better stick to cash-based investments for the next 35+ years".....

marathonic

Thrugelmir wrote: »

That's a very optimistic outlook.

It's not an outlook so much as a simplification of the figures to make it easier to understand.

I could have posted a very mathematical post based upon 6-7% increases in dividends but why bother - you were likely to come back and disagree with that anyway....

Four companies out of 50 failing and a 8.7% increase in the average dividend of the other 46 would see your income stable - and, please, don't make me go looking for examples of companies that consistently increase their dividends by this amount (of which there are many).

grizzly1911

marathonic wrote: »

It's not an outlook so much as a simplification of the figures to make it easier to understand.

I could have posted a very mathematical post based upon 6-7% increases in dividends but why bother - you were likely to come back and disagree with that anyway....

Four companies out of 50 failing and a 8.7% increase in the average dividend of the other 46 would see your income stable - and, please, don't make me go looking for examples of companies that consistently increase their dividends by this amount (of which there are many).

I am not disputing your facts or reasonong.

Might even have a look at that S&P thingy myself.

How long have you been investing for?

is your pension via SIPP or through another method?

LydiaJ

jamesd, I take your point about lenders being wary of letting unemployed borrowers increase their mortgages etc. However, I want to take issue with some of your other points:

jamesd wrote: »

You don't have to wait until retirement, just until you're 55.

This is a fat lot of use if you lose your job in your 30s or 40s.

jamesd wrote: »

Meanwhile the unemployed overpayer has no ability to remortgage or borrow back overpayments because lenders won't let them do that, so they are stuck living on means tested benefits and when they run out of their emergency fund they are forced to sell their home because they can no longer pay the mortgage.

In what way is this person worse off than somebody who has put an equivalent amount of money into increasing their pension rather than overpaying their mortgage? Surely the person who took the pension option has the same inability to borrow more, the same means tested benefits, and the likelihood that the emergency fund will run out faster because the mortgage payments are higher.

jamesd wrote: »

That can be beaten easily: have a mortgage and sufficient savings and investments to generate enough income to live on for life, instead of having all of your money tied up in a property so you can only get at it by selling your home.

Well, yes. To have investments that provide enough income to live off for life would be lovely, but way beyond the reach of most people on normal salaries. And I still don't see how this is relevant to the pension/mortgage question. The person who has put their money into their pension has no more to live off now than the person who's overpaid their mortgage, assuming both are under 55.

I think perhaps part of the reason why I don't see pension as being as important as you do is because I'm a basic rate taxpayer. So for me, putting money into a pension doesn't mean getting tax relief now at a higher rate than the money will be taxed at in retirement, as it does for you. My strategy is to put as much as I am allowed to into the defined benefit scheme that I'm eligible for (teachers') and put the rest of my money where I can get at it if I need it. As a single parent, I value the flexibility.

(I own my house outright, and although I have a mutually beneficial arrangement with my dad that he lent me the money to fund my house purchase at a higher rate of interest than he was getting on his savings, I have a near certainty of getting a lump sum in the next few years that will enable me to pay that off. If my circumstances were more conventional, though, I'd probably get an offset mortgage and shove as much money into the offset as possible.)