Windfall fears for over 1m interest only mortgage holders

GhIFA

Total non-story: Report also states that 90% of IO borrowers have repayment strategies in place, 75% are confident that these plans are on track to repay the mortgage at the end of the term.

Trying to make the issue emotive by bringing in the issue of what you would say to someone who has had their house repossessed is a red herring - Quoting the author of the report:

"We have started to see some defaults from borrowers who had no repayment strategy but they are at very low levels.

Lenders are employing extensive post-maturity forebearance, such as extending the terms of a mortgage, and are using repossessions as a last resort"

So repossessions are at very low levels amongst a group that only make up 10% of the customer base. And to be brutally honest, in most cases, anyone reaching the end of the term in this position has to place most of the blame solely at their own front door.

The author has also said that the ""interest-only timebomb" would fail to materialise"

LydiaJ

HAMISH_MCTAVISH wrote: »

Yep.

The renter would have started out paying a similar amount, but rental inflation over two decades would have ensured they ended up paying a whole lot more.

The I/O buyer is massively better off than the renter over two decades in terms of monthly outgoings, PLUS they get a windfall at the end.

The big difference is that the renter knows they are a renter. They expect to have to continue paying rent.

The I/O "buyer" thinks of themselves as an owner. Their £90,000 "windfall" will not be enough for them to buy somewhere to live outright, and they may by then have to to the sort of age where it's hard to get a mortgage, so they will have to start actually renting, and suddenly putting up with insecurity of tenure, inability to alter the property and other disadvantages of renting. These things are much more painful to someone who has been free of them for the last few decades than for someone who has never known any different.

I wouldn't want an I/O mortgage myself, but I do know friends who have them. I know one family who have opted for I/O because they're ploughing all available money into their business, with the intention of selling it to pay off the mortgage when they retire. Another family are on I/O while their kids are small, with the intention of switching to repayment once the kids are at school and the wife can earn more without having to shell out shedloads for childcare. Their motivation comes from the typical problem of "kids reduce your income just at the point where you need a larger place to accommodate them" that's been mentioned on here so many times before.

the_flying_pig

I've said this before but it's really annoying to use the language of newspaper headlines as a header for one's own cod-analysis [rather than copying something that's actually been written in a paper by someone credible], especially in thread titles when some people might only have the time to read the thread title & not the thread - it's deliberately misleading, it might make readers believe that newspapers are writing this stuff.

Reported as spam.

greggymagic

black_taxi wrote: »

ok---but if he had to sell house in 25 years---how does that help him

Erm - what he's doing is effectively renting his house (from the bank)

He has an asset (albeit mortgaged) which should over a 25 year term increase in value.

Someone who is just renting without the asset will have nothing after a 25 year term of renting.

This guy will have a house which he can flog - pay off the mortgage and then bank the rest.

The BBC may just have well have been screaming "MILLIONS OF RENTERS WONT HAVE A HOUSE TO LIVE IN AFTER 25 YEARS OF RENTING" as if it's some big crisis.

black_taxi_2

ok--thx

im paranoid owing a large amount in pensionish years

Graham_Devon

IveSeenTheLight wrote: »

The fact I'd get an HPI refund over the term would be a nice bonus going into retirement

How?

You've had to forego your home.

Where you gonna live without using the "windfall"?

Graham_Devon

ILW wrote: »

You either buy or rent, cannot think of many other alternatives.

Yes.

If you rent, you know you are renting.

If you buy, you are INTENDING TO buy. NOT rent. Neither are you intending to sell up and somehow "bank" a "windfall" and live for nothing thereafter.

The calculations are pointless. To calculate you are going to have to assume families MAKE A CHOICE to rent, privately for 25 years.

The vast majority who rent for 25 years continuously will be on housing benefits or in council housing paying a vastly reduced sum. So the calculation falls over at it's very first stage.

For the buyer, they didn't want to rent. They wanted to buy. They will not be expecting to lose their house at the end of paying for it for 25 years. They may have to go bankrupt in some cases.

To describe this as a windfall is not just missing the point of what's actually happening to the homeowner, it's intentionally trying to make out a very upsetting and stressful situation for someone approaching retirement is actually a good thing and a windfall.

Absolute nonsense. Alright as some kind of joke...but as a serious discussion!?

Ask any single person facing this prosect and ask them if they view it as a windfall...

IveSeenTheLight

Graham_Devon wrote: »

How?

You've had to forego your home.

Where you gonna live without using the "windfall"?

I'd most likely have to go into a conventional rental home as opposed to renting from the bank.
This is because the lenders wouldn't have the security once in retirement.

So I'd end up in the same position as other renters BUT, with the HPI "windfall"

Surely you understand this now GD

ILW

You seem to be assuming that many on IO did not realise they had to repay the capital at some time. I find that hard to believe. If anyone is that stupid they should not be let lose with a house of their own anyway.

Mallotum_X

IveSeenTheLight wrote: »

I'd most likely have to go into a conventional rental home as opposed to renting from the bank.
This is because the lenders wouldn't have the security once in retirement.

So I'd end up in the same position as other renters BUT, with the HPI "windfall"

Surely you understand this now GD

Presumably you understand why those likely to be in this situation are concerned, which was what the report out this morning referred to. Losing your home and getting some money will not be seen as a good position to be in.