Basic Advice needed for Interest Only mortgages

dougk_2

Yes 7% is fine!

Nicks_3

you are all talking about lending money in sterling There are so many options available to you, you could mix your mortage in various like Swiss Franc, Euro, dollar Sterling ect as these days we have so much flexibility.

For example, A few houses I own, have borrowed it on japanese Yen, which is currently at 0% interest. Natwest sells it to me at 1.75%. Buy a hedge and it pushes it up from 1.75 to 2%. Still beats uk standard mortgage even though it is through Natwest.

So many options available today and you can arrange it yourself without using specialist companies and paying for their services.

slater14

It may be for you doug and its for me as well (I didnt buy anything during this boom).

But as we have stunningly high reposessions, personal bankruptcies and company bankruptcies (with allegedly, low unemployment and a stable, growing economy) obviously not everyone (certainly those bought within 24 months on any of the fancy mortages mentioned) are happy at 4.75% never mind putting 2.25% on top -

This is where I'm getting my thoughts from, I dont want to use them as "ammo" against you or anyone else. Please show me where I misread the info -

http://www.creditaction.org.uk/debtstats.htm

http://www.dca.gov.uk/statistics/mpstats/2005/nat-q1.pdf

http://www.dca.gov.uk/statistics/cwubps/2005/cwubps-q1.pdf

Nicks_3

Some people have over extended themselves, but once again more by re-mortgaging than just buying a house.

dougk_2

Many of these people have got into this position by the over use of credit cards and loans. This is the area of debt that needs to be stopped. Personally I don't see the need for anyone to have a personal credit card with a limit above say £3k. If you don't have the cash you don't buy the item - simple!. If people need to use cards for business expenses then a company card should be supplied.

slater14

Agreed doug - I think Credit Cards are the devils toys! my g/f now has a £500 limit (imposed by me!) due to her iresponsible spending in years past.

It still doesnt get away from those people that are being repossed. Surely that has something to do with either failing economy, rising unemployment, rising interest rates,? It cant be as simple as "unsecured" loans dragging them into reposession can it?

Nicks,

I apreciate you "think" thats whats happening, but until you can find me definitive proof (not unlike my links) I would rather we stuck to what we can see not what we wish we could see.

Until we know what "some" equates to as % of debtors "some" is neither helpful or accurate, I think you would agree.

slater14

QUOTE 1 -

This year, as households have continued to pile up debt, HSBC estimates interest rates need only rise to 7-7.5% for the debt servicing burden to spiral out of control. "More worryingly, only 5.5% rates, slightly above neutral [forecasts], would take the debt burden back to the highest since 1991" it warns. And that was the era in which thousands upon thousands of homeowners were tumbling into arrears and when repossessions were soaring to a record.

QUOTE 2 -

This is a 30% increase on the 12 months to 31 March 2004. Steve Treharne, Head of Personal Insolvency at KPMG said: “These figures come on top of the huge increase of nearly 30% we saw last year and do prompt the question of where this is all going to end. “It is interesting that these statistics are released just over a week after official government figures reveal there has been a 35 % increase in mortgage possession actions on the same period last year. The two trends are not unrelated. There is a big black cloud of debt hanging over the UK.

Source - Credit Action.org.uk (see link above)

dippy

We definitely live in a culture of debt these days. Otherwise, how else can people on a moneysaving website, out of all places, recommend borrowing 100K+ to buy houses, on interest-only mortgages, without any regard to where house prices are going. It doesn't matter, they say. House prices always rise over the long term. Go ahead and borrow 100K+ blindfolded. Now, tommorrow, in 1 year, in 5 years, in 10 years, it doesn't matter. Go ahead and borrow. 100K+ debts, are just .... peanuts

nadnad

hi there - I've been reading with interest all these views on interest only mortgages. I myself am about to switch to an interst only after being tied in to a repayment mortgage for 2 years. Although I think myself in special circumstances - I'm in the process of building a house and so for the next year will be paying two mortgages - both of which will be interest only. We intend to sell our present house and will make enough to pay off our balance next year. We felt more comfortable with the interest only in the short term as a good measure to enable us to build our dream house. I think that Mango has to really think about it - we were dead against interest only mortgages but for us in the very-short term it suits very well. We know that we will be able to pay a repayment mortgage when our house is finished and decorated etc - because our self-build mortgage will little more than we are paying now.

A lot of people I know are falling into the trap of taking out an interest only mortgage for 2 years wilth the interntion of changing to repayment when "things are looking up" but how much is really going to change in a couple of years - wages are not likely to increase that much and by that stage you will have gotten used to the low repayments making the jump to a repayment mortgage very unattractive - like you said the thought of starting a family - you do not want to increase your payments at the same time as having to think of child care costs.

As a word of caution one of my friends took out an interest -only mortgage two years ago as an investment opportunity with his friend. They did this with the intention of making a cool £50,000 when they came to sell the property - unfortunately a house beside his was sold for only £2000 more than he paid for his 2 years ago. House prices are truly stagnating.

Not to dash your dreams but think carefully - is there no other option such as moving to another area. As opposed to what some people have said I don't see a problem with say a 30 year repayment mortgage - at least the house is yours and you are paying off some capital, you will have one foot on the ladder and you can always review your situation. I think it is a good compromise. You should really find a good financial advisor and sit down and air everything - its very hard to get a full picture as everyone on this site has their own definite views - its much easier to talk to someone face to face and never be afraid to ask even what you think are the most basic of questions - this is one of the biggest decisions you will ever make.

Good Luck!

slater14

nadnad,

Theres much logic in your reply.

The one bit it started going a bit iffy for me was 30 year mortage. My thoughts are always to "pay down" not "drag out" debt....and if you cant afford it - dont buy it.

Housing is very very expensive at the moment for no obvious reason. Will it continue to be so?

Unfortunatley a financial adviser has only one interest - selling you something - for which he will be paid a commision. So they are not truly "independent" they are "independent to sell products from more than one company" so they can sell you lots of products from lots of companies!.

I think this is wholly misleading. I see a body such as the Citizens Advice Bereau as truly "independent" in the truest meaning of the word as I define it.