MSE News: Interest-only mortgage timebomb warning: act now

ViolaLass

elseychelsea wrote: »

I have an interest only mortgage, and they won't let me change my mortgage, so what do i do apart from sell-up? I changed about 4 years ago when I split with my partner as she was no longer helping with the payments. Eventually after my new partner moved into the house with me and we agreed to buy out my ex and have the name changed on mortgage, but I am in very bad debt with the same company I have the mortgage(natwest) with and am on a DMP, so they refused to discuss the situation to rearrange mortgage until i sort my debts out which is about 25k, so that's not going to happen anytime soon. Mortgage has about 20 years left and still owe 83k obviously i can't save to repay it as I have too much debt to pay off 1st. My Ex has been quiet now for about 18 months and i just continue to live in the house with my new partner and we dont really have any solution to solve it. Someday she will come calling for a solution and try to claim some equity from the house even though she hasn't paid a penny for 4 years (i haven't either really only paid the interest). So I imagine the only way out is to sell up and start again but i won't be able to get another mortgage in my situation which makes me sad as want to offer my children security.

So how would changing your mortgage to repayment (meaning that your monthly payments would increase) help you if you don't have the money?

You have a house you can't afford, simple as that.

elseychelsea

ViolaLass wrote: »

So how would changing your mortgage to repayment (meaning that your monthly payments would increase) help you if you don't have the money?

You have a house you can't afford, simple as that.

Yes I do have a house i cant afford, but what shall i do? go and rent somewhere which will cost more than the mortgage or just live in a cardboard box with 2 kids?

jamesd

If the ex is still on the deeds or mortgage you should look to change that now, while you are still relatively poor and unable to provide money.

For the mortgage, you stick with the DMP and deal with the mortgage later. Inflation is your friend and if income rises roughly in line with it the amount of available money you have each month will gradually increase and make the mortgage more affordable.

ViolaLass

elseychelsea wrote: »

Yes I do have a house i cant afford, but what shall i do? go and rent somewhere which will cost more than the mortgage or just live in a cardboard box with 2 kids?

I'm not suggesting any of those options but you need to start planning on the basis that you currently can't afford the property. If you want to keep the property, you need to bring your other debts down sharply to increase available income and think about what you can do to increase your overall income.

On the other hand, you may need to make long term plans to leave and rent/buy somewhere smaller.

What you shouldn't be doing is worrying about not being allowed to change your mortgage deal. That's the least of your problems right now. It wouldn't matter if the bank did let you change it to a repayment mortgage, you couldn't pay it anyway.

leveller2911

Just an opinion but mortgages should be a straight forward repayment mortgage for everyone.No interest only etc , this is just tinkering with the housing market.

If people can't save a decent deposit then home ownership is not for them, its very simple and all this tinkering with mortgages is all bullsh1t to encourage/allow people to buy houses they can't afford and keep mortgages advisors in a job.All we seem to be seeing is schemes to keep house prices/values high and help people with peanuts of a deposit to buy one.Then when the sh1te hits the fan the good old taxpayer is expected to bale them out by acting as a guarantor...........You couldn't make it up, its laughable...

I don't speak as a homeowner I speak as someone who has saved for 16 years and has a deposit of £34k but buying a house locally (all my work is local) is still out of my reach so I'm happy to stay renting and if that means I'm never in a position to buy then so be it. People need to wake up and have a dose of reality.

jamesd

And what about people like me who buy their first place place on an income multiple of a bit over one, at 75% LTV, with enough money in ISAs to pay it off immediately, but where I'll lose out on the tax advantages if I do that? And where it's more efficient for me to clear the mortgage later using pension tax relief instead of using money on repayments without any tax advantage or investment growth at all?

A few years later and I've about twice the mortgage balance in savings and investments even outside the pension. But I'm not about to pay off the mortgage any time soon. I won't be doing that until I've had years of investment returns and nice pension gains. Then I'll clear it at no net cost to me at all using the pension tax free lump sum.

You've a nice stereotype of interest only borrowers but that is not the picture of people who are most suitable to use them.

leveller2911

jamesd wrote: »

And what about people like me who buy their first
place place on an income multiple of a bit over one, at 75% LTV, with enough
money in ISAs to pay it off immediately, but where I'll lose out on the tax
advantages if I do that? And where it's more efficient for me to clear the
mortgage later using pension tax relief instead of using money on repayments
without any tax advantage or investment growth at all?











You've a nice stereotype of interest only borrowers but that is not the
picture of people who are most suitable to use them.

Point is it can be a simple,single system for everyone who can afford to buy.You harp on about tax advantages when in all honesty its shouldn't come into the equation its only because HMRC tax rules encourage you to "use" the system for the tax advantages.

It should be a simple system where there shouldn't be any "tax advantages" if your buying a home why do you need tax advantages? . We should look at buying a house as "buying a home" and not part of an "investement portfolio"..

jamesd

I didn't buy mainly as an investment. Well, except that it's much cheaper than paying rent in my area, so it would reduce my outgoing costs.

But I do want to pay for it as efficiently as possible and for me that means using a pension lump sum as part of the mixture, along with investing. Investment growth and tax efficiency are just facts of life. We can't really dodge them, just choose whether to use them or not.

For me, part of it is pretty simple. On some of my income I'd pay 40% income tax but I'm in a salary sacrifice pension scheme. So every £100 I put into a pension pot gross I get £106.90 into it due to employer NI saving partly added. The net cost to me is £100 less 40% income tax less 2% employee NI, so £58 cost to get £106.50 into the pension. Then later I can take out a 25% lump sum of £26.725 and leave £80.175 in the pension pot to provide income.

Costs me more money each month into the pension. Instead of £26.725 for mortgage repayment I have to pay £58 after tax equivalent into the pension. But then I get the mortgage cleared and still have that £80.175 around, for a cost that after the lump sum is just £31.275. Or roughly 2.56 times my overall net cost.

I do still have to pay mortgage interest along the way. That's taken care of by the investment growth that I'm not including here.

Basic rate tax payers in salary sacrifice schemes can also do really well, though not quite as well as that. At the moment quite a bit of my pension pot was contributed via basic rate salary sacrifice, not higher rate.

It's a really good way to benefit by looking at an integrated financial picture that considers pension and mortgage and deals with both in the most efficient way possible. Which is part of why I dislike the appearance that sometimes the FCA looks at things as individual product type silos, not the integrated financial planning that individuals should be doing for their whole of life needs.

Pension isn't the only way I'll be able to pay it off, I'll be able to do it with ISA money as well. That's another bit of integrated planning: how I get a level income from retirement until state pension age, given the GAD limit on how much income I can take from my pension pot. That means I need some money outside the pension pot to top up the pension income by drawing capital faster than the pension rules will let me. Which sadly means I have to not get the pension tax relief on that money.

But the core here isn't the tax and investment things. It's buying a low end property that I can easily afford and putting away a large percentage of my income to let me accumulate this money. And all of that ends up making me and similar people good candidates for interest only mortgages who should have the most appropriate mortgage type available to use.

Phuddles

I took out an interest only mortgage in the early 1990s. I had the 'warning of a shortfall' letters but instead of paying more into the insurance company, started paying extra every month off the capital - only £25 - £50 to start with - paid off a lump sum when I had it - took out a part repayment for a fixed sum. My endowment matured earlier this year and I had enough to pay off the mortgage and put a chunk of money into my savings. I must say that between them the endowment company and the building society were less than helpful, and what should have been the pleasurable experience of paying off my mortgage became a very stressful one!

squeeks

elseychelsea wrote: »

Yes I do have a house i cant afford, but what shall i do? go and rent somewhere which will cost more than the mortgage or just live in a cardboard box with 2 kids?

Before moving in to a cardboard box, it sounds like you seriously need to work through your finances and then you might see more options available to you. The problem is essentially that you are living beyond your means. Readjusting your standard of living downwards is always hard and the "essentials" you have become use to may have to be looked at in a harsher light.