Shortfall fears for over 1m interest only mortgage holders

Cornucopia

Yes and no - having spare savings after the endowment shortfall has been dealt with is not exactly the end of the World.

Graham_Devon

Blackbeard_of_Perranporth wrote: »

Good. Cheap house coming soon to those that need them.

Blunt I know, but why should those of us who can do mental arithmetic bail those who cannot read out?

I doubt it.

The government won't let that happen...not currently anyway. There would be a scheme designed to shovel taxpayer money at these fmailies. Maybe an extension of the existing scheme, SMI.

Going4TheDream

onlyroz wrote: »

The problem with endowments is that even if you know that there is going to be a shortfall it's hard to prepare because you don't know exactly how big the shortfall is going to be. We have part of our mortgage as interest only notionally covered by an endowment policy. We are currently working on the assumption that the shortfall will be around £15k, but it could be anything from £5k to £25k. Not an easy thing to plan for.

If you know this then surely isnt it possible to change it to a repayment? Then you are covered, or am I being too simplistic?

onlyroz

Going4TheDream wrote: »

If you know this then surely isnt it possible to change it to a repayment? Then you are covered, or am I being too simplistic?

We've got a flexible offset mortgage with an interest rate of base + 0.5%, and so it's not in our interests to overpay or renegotiate the mortgage at the moment. I'm ploughing all the spare savings into other investments and so should be able to cover the shortfall, but as I said above, it's hard to know exactly how much to set aside and how much can be safely spent (we're doing a massive home improvement project at the moment, and so we need to balance between aquiring enough funds to do the improvements and setting aside enough to cover the endowment shortfall).

JimmyTheWig

egoode wrote: »

I never quite understood why you would get an interest only mortgage for your own home.

If you think you can get a better return on that money than you would pay in interest then it makes sense.
It's no different to someone remortgaging every few years on a repayment mortgage, borrowing the same amount of money each time and investing the difference between their mortgage balance and the amount they borrow.
It's not interest-only that's the problem. The problem is when people don't understand interest-only.

robmatic

I work for a life office and when doing some analysis on endowment policies recently what struck me was how modest late 1980s mortgage amounts are in today's monetary terms.

£20k or £30k should not be too hard to find if you've been paying a relatively small monthly mortgage payment for 25 years. At worst you own a property that you can secure a small mortgage against very cheaply.

dunstonh

onlyroz wrote: »

The problem with endowments is that even if you know that there is going to be a shortfall it's hard to prepare because you don't know exactly how big the shortfall is going to be. We have part of our mortgage as interest only notionally covered by an endowment policy. We are currently working on the assumption that the shortfall will be around £15k, but it could be anything from £5k to £25k. Not an easy thing to plan for.

Its a doddle.

You take the shortfall amount using the lowest growth rate figure and convert that to repayment basis. Then each year, you review it when the statement arrives and decide if any changes need to be made. As you get closer, the differences in the projections get smaller and therefore any difference you may need to find will be tiny.

Thrugelmir

JimmyTheWig wrote: »

It's not interest-only that's the problem. The problem is when people don't understand interest-only.

People did. The boom in interest only mortages was when Northern Rock etc were giving away credit. House prices were rising double digit every year. So people thought that the property would pay for itself. By leveraging up on the maximum amount of the debt they could borrow.

A Warren Buffet famously said about the Stock Market. When the tide goes out you can see who is swimming without any trunks on.

grizzly1911

How many pure with profits endowment mortgages are there left?

How many unit linked low cost endowments are there left, which is where the real rot set in?

It is forgiveable if the returns on on planned investment, where age, health, historic/future performance are considered, such as an endowment, don't work out. It is another if you don't have a real paln or a a haphazard one.

I am not so sure that the investment returns of some of these endowments didn't work out more the costs of running them got out of control.

shortchanged_2

robmatic wrote: »

I work for a life office and when doing some analysis on endowment policies recently what struck me was how modest late 1980s mortgage amounts are in today's monetary terms.

£20k or £30k should not be too hard to find if you've been paying a relatively small monthly mortgage payment for 25 years. At worst you own a property that you can secure a small mortgage against very cheaply.

Mewing is the potential problem here.