Shortfall fears for over 1m interest only mortgage holders

HAMISH_MCTAVISH

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.

Hit the nail on the head there.

Likewise, 150K mortgages will feel very similar in 25 years time.

olly300

grizzly1911 wrote: »

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.

Some pensioners or those near retirement are on those mortgages and don't have the money to pay the 20-30k. Not everyone with a mortgage is on average wage now as house prices were much cheaper then.

However if they talk to their lender they can get the term extended until they are 75, change to a repayment mortgage and put other people like their children on the mortgage, or a combination of any of those three.

The only difficulty is caused by those that won't talk to their lender before their mortgage ends.

I have met someone who didn't understand what an interest only mortgage is. So I sent them the mortgage PDF from this site and checked they read it.

Cornucopia

I wonder if it would be possible to get a cheap insurance product that would cover you for the potential shortfall between an IO mortgage and your pension or savings pot at the end of its 25 year term?

If real-cost figures like the ones above are typical, then it makes much more sense to back-load capital repayments somehow.

grizzly1911

Cornucopia wrote: »

I wonder if it would be possible to get a cheap insurance product that would cover you for the potential shortfall between an IO mortgage and your pension or savings pot at the end of its 25 year term?

If real-cost figures like the ones above are typical, then it makes much more sense to back-load capital repayments somehow.

It was called an endowment mortgage and cost more than a repayment mortgage.

Perhaps your new product should be called Prairie insurance- needed to fill wide open spaces. There is no chance you could find a competitive insurance product that would fill an unknown void.

Cornucopia

Hmmm....

I'm not sure it is unknown - it's fundamentally based on tracking inflation vs. mortgage debt.

And weren't Endowments meant to be cheaper than Repayments - wasn't that the point?

I just think that ordinary housebuyers ought to be able to benefit from different approaches to financing in the same way that many BTL owners do.

If anything, the focus on Repayment mortgages is all about safety and predictability from the Banks' POV, whilst allowing for virtually no creative accountancy at all on the part of buyers.

OffGridLiving

Given that most interest only mortgages have been withdrawn I don't see how this will be a problem as most people will be moved onto repayment basis and their monthly figures adjusted to cover the missing years.

I had a 25 year interest only mortgage with an endowment as the repayment vehicle. After receiving several letters warning about a shortfall, I just sold on the endowment and paid down some of the mortgage, placing the rest onto repayment.

Some people will do the same as myself, some will just get a repayment to cover the RPV shortfall, some will downsize and repay the money, some will extend their term and go onto repayment basis, some will use savings, pension TFA or get a small bank loan to repay the shortfall (as someone said earlier, today's £150k mortgages will seem small in 25 years time, just as £20k mortgages seem now. A very few people who have used their equity to fund their lifestyles will be in trouble, but then people who mismanage their finances are always in trouble.

I don't understand all the who-ha to be honest. Is it a slow news day?

JencParker

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

£20 or £30K mortgages in the late 80's??? My mortgage taken out in 1988 was for £117K. Still a fairly substantial mortgage 25 years later.

Graham_Devon

OffGridLiving wrote: »

I don't understand all the who-ha to be honest. Is it a slow news day?

You need to recognise the problem before you can understand the "who-ha".

You may have done all you did. BUT you did that in an inflationary environment (asset and wages), an environment with ever loosening regulation, with access to easy credit.

Try doing it in todays environment. You can't just switch to another mortgage without increasing your payments 2 fold. Wage inflation isn't cutting the debt. Price inflation is eating up disposable income. People are still, even 6 years later in negative equity making remortgaging to a repayment mortgage impossible.

Therein lies the problem.

What you saw is unlikely to happen going forward....certainly not at such a scale where wages outgrow debts on a large scale and credit just becomes easier and easier to the point of insanity.

Thrugelmir

olly300 wrote: »

However if they talk to their lender they can get the term extended until they are 75, change to a repayment mortgage

So you expect couples to carry on working until they are 75 in order to meet the repayments ?

GhIFA

Graham_Devon wrote: »

You need to recognise the problem before you can understand the "who-ha".

You may have done all you did.

And 90% of IO mortgage holders are doing the same, with 75% confident that their plans are on track.

Doesn't matter how many times this gets mentioned, you seem desperate to recognise a problem that the report shows isn't there.