whats going to happen in years to come with interest only mortgages?

OffGridLiving

abaxas wrote: »

If we assume houses will inflate at the same rate as inflation, yes.

Which is probably a good assumption as we hit a ceiling of what actually was possible to pay.

I added a bit to the post, you might not have seen it. You mention that the apartments had dropped 35% from peak, but surely peak wasn't 10 years ago and so they would have had some growth since they purchased the apartments? Your calculations seemed to subtract 35% from the purchase price, rather than from the peak price (if I understand it correctly)?

ukcarper

abaxas wrote: »

If we assume houses will inflate at the same rate as inflation, yes.

Which is probably a good assumption as we hit a ceiling of what actually was possible to pay.

10 years ago prices were less than now according to land reg they peaked in 2007 at £129.3k average price now is £98k about 19 years to run on 25 year mortgage £98k at 2% per year £142.5k.

K.Jones_2

scousedave wrote: »

The title says it all......with so many people only managing to pay their mortgages on interest only and no savings plan any thoughts when these mortgages come to the end of their period and have to be repaid?

The USA seem to be a little ahead of the UK, their interest rates are starting to creep up.

You used to be able to get a mortgage for 3.5% in the USA now its just under 5% at the lowest. Soon it will be back to normal 8%+.

OffGridLiving

ukcarper wrote: »

10 years ago prices were less than now according to land reg they peaked in 2007 at £129.3k average price now is £98k about 19 years to run on 25 year mortgage £98k at 2% per year £142.5k.

So if someone bought a house 10 years ago in 2003, they would have seen growth in the four years from 2003 to 2007, plus perhaps some growth in 2013?

They could possibly be in negative equity now, but even with just inflationary growth compounding for the next 15 years, I can't imagine they would still be in NE.

Apart from that, with IO mortgages being withdrawn by most mainstream banks, many of these people would be moved onto repayment mortgages and so would have at least 10 years of mortgage repayment to help them get out of NE.

Many will also have had repayment vehicles such as endowments and ISAs that would also help reduce their NE.

As I said, I can't see a scenario where anyone could be in negative equity at the end of their mortgage term, except if they have withdrawn equity.

ukcarper

OffGridLiving wrote: »

So if someone bought a house 10 years ago in 2003, they would have seen growth in the four years from 2003 to 2007, plus perhaps some growth in 2013?

They could possibly be in negative equity now, but even with just inflationary growth compounding for the next 15 years, I can't imagine they would still be in NE.

Apart from that, with IO mortgages being withdrawn by most mainstream banks, many of these people would be moved onto repayment mortgages and so would have at least 10 years of mortgage repayment to help them get out of NE.

Many will also have had repayment vehicles such as endowments and ISAs that would also help reduce their NE.

As I said, I can't see a scenario where anyone could be in negative equity at the end of their mortgage term, except if they have withdrawn equity.

House prices are slightly higher that 10 years ago but 15 years growth a 2% would increase present price by 30% so I agree.

Graham_Devon

All the talk of simply selling the house assumes they can buy something else which fits the requirements of the household.

I'm not suggesting this is doomsday stuff....but whichever way you look at it, it's certainly not going to end as planned. Especially if you find yourself having to sell your 3 bed house (for example) and downsize when you need the space.

Relocating may be an option, but that's a massive step for a lot of people, especially those still working. So it won't be quite as easy as "sell up", as they will have to buy somewhere else and that's a costly exercise in itself, let alone the hassle and in some cases trauma it could involve.

Neither will it be doomsday scenario, unless these people are trying to sell up en masse (I think the majority of terms end in 12 years) and the market is on a downturn. That would be very difficult on many. Best to get ahead of the game really IMO, face up to the fact that you may never be able to actually buy the house and buy something suitable which you can afford sooner than later.

The other issue is that the target audience sellers will want to sell these family homes to are the younger generation wanting family homes. I.e. they will be trying to sell a house they cannot afford to buy to a target group who, in the main, too, can't afford to buy. Hence why I think it's better to get ahead of all those who will wait until the last minute.

Graham_Devon

ukcarper wrote: »

House prices are slightly higher that 10 years ago but 15 years growth a 2% would increase present price by 30% so I agree.

And these are probably the same sums people were doing when taking the mortgages.

Trouble is, it didn't go to plan, things went wrong. You cannot assume growth will sort you out. I'm not being pessimistic, I'm being realist. It happened. One of the reasons this is being talked about is because the calculations didn't work out....so doing more calculations doesn't necessarily mean it will work *this time*

grizzly1911

Graham_Devon wrote: »

All the talk of simply selling the house assumes they can buy something else which fits the requirements of the household.

I'm not suggesting this is doomsday stuff....but whichever way you look at it, it's certainly not going to end as planned. Especially if you find yourself having to sell your 3 bed house (for example) and downsize when you need the space.

Relocating may be an option, but that's a massive step for a lot of people, especially those still working. So it won't be quite as easy as "sell up", as they will have to buy somewhere else and that's a costly exercise in itself, let alone the hassle and in some cases trauma it could involve.

Neither will it be doomsday scenario, unless these people are trying to sell up en masse (I think the majority of terms end in 12 years) and the market is on a downturn. That would be very difficult on many. Best to get ahead of the game really IMO, face up to the fact that you may never be able to actually buy the house and buy something suitable which you can afford sooner than later.

The other issue is that the target audience sellers will want to sell these family homes to are the younger generation wanting family homes. I.e. they will be trying to sell a house they cannot afford to buy to a target group who, in the main, too, can't afford to buy. Hence why I think it's better to get ahead of all those who will wait until the last minute.

For those that don't have a repayment vehicle surely that is life. You just have to pick up the cards as they fall.

Graham_Devon

grizzly1911 wrote: »

For those that don't have a repayment vehicle surely that is life. You just have to pick up the cards as they fall.

Yes, certainly. My issue really is this assumption that everything will be fine because people will just sell, take a massive profit and that will be that.

It's never quite as easy as that. One of the reasons my parents are no longer in their much loved home and have had to re-evaluate life is, put simply, life isn't like that and sacrifices had to be made, even though they did make a colossal profit on their IO property. That colossal profit comes at the price of every other house being a darn sight more expensive too.

Just the costs of having to move as they faced up to this were around 9k with stamp duty included on having to buy the next place.

I'm not saying it was devastating, but it certainly wasn't celebrated and the "profit" was neither here nor there. In reality it meant nothing, it was just seen as the pool of money you had to buy the next place. That place was never going to be as good as the original home either. So celebration over the HPI wasn't even on the cards.

While it's nto going to devastate the majority, it certainly isn't going to be as easy as some have suggested here. Somewhere in the middle would be a good place to start.

Certainly if you still require a mortgage things could be tricky if you are used to paying only interest only and now face paying repayment sums each month. Again, that could, in some cases, reduce buying power further. Depends how good or bad the IO situation was. Certainly for those who are 10 years in, the difference between a monthly payment on their IO and a repayment could be significant, and they are not going to have much to put down if they don't have other sources of wealth (which I'm assuming they don't hence taking the action of having to sell).

In essence, how you fair when it comes to having to sell IO really depends on when you bought the place.

ukcarper

Graham_Devon wrote: »

And these are probably the same sums people were doing when taking the mortgages.

Trouble is, it didn't go to plan, things went wrong. You cannot assume growth will sort you out. I'm not being pessimistic, I'm being realist. It happened. One of the reasons this is being talked about is because the calculations didn't work out....so doing more calculations doesn't necessarily mean it will work *this time*

I'm just providing figure to show it is unlikely someone would be in negative equity certainly don't think they are a good idea.

I'm not sure it will be as big a problem as some think because a large percentage of people will be able to re mortgage or will make arrangements before term ends.