Basic Advice needed for Interest Only mortgages

dougk_2

lipidicman wrote:

Not necessarily, mortgage companies should do the calculation on disposable income not salary. One person can be 'rolling in it', on 30k a year where another would be struggling

I agree . One person may have no outgoings (no debts, doesn't go out every week etc) and another may have (£40k on credit cards , 2 loans and spends £100 a week on clubbing and drinking).

Lenders should only look at affordability and the amount of income they have "free" every month. For example I earn the same as my friend, but each month I have £500 left unspent - he has nothing because he spends everything he has after bills etc on nights out, gadgets and new cars. Everyone is an individual and should be treated as such.

dougk_2

A mortgage in principle is worth nothing really. You can even get one from some lenders websites.

mango1966

Re: Interest only mortgages.
Is it part of the agreement with IO mortgages that an investment vehicle be in place before they will lend you the money, or is it essentially down to the buyer to sort out independently of the agreement?

herbiesjp

It is now normally down to the buyer to make sure that an appropriate investment vehicle is in place to repay the mortgage

meanmachine_2

dougk wrote:

I agree . One person may have no outgoings (no debts, doesn't go out every week etc) and another may have (£40k on credit cards , 2 loans and spends £100 a week on clubbing and drinking).

Lenders should only look at affordability and the amount of income they have "free" every month. For example I earn the same as my friend, but each month I have £500 left unspent - he has nothing because he spends everything he has after bills etc on nights out, gadgets and new cars. Everyone is an individual and should be treated as such.

Fundamentally DISAGREE with that. And it's the reason why the housing market is in such a phenomenal bubble.

Affordability is a very fragile thing on which to base a mortgage decision.

The fact is your mate CAN cut their outgoings if they wish to. But if IR rates double, what then for either of you?

I spend very little each month (despite being an apparently profligate FTBer with ridiculous aspirations, as some would paint me on here), but am not prepared to take out a huge mortgage despite being able to "afford" it today. I know that tomorrow - when.if IR rates return their historical average - I won't be able to afford it.

dougk_2

My view is affordability should be different for the different types of mortgage products available based on their risk. i.e long fixed rate mortgages (10 years +) are less risk as the mortgage rate is known for this period of time so will not double. If its affordable to the person in year 1 it should be affordable in year 9 or 10 (so long as they don't have a major change of circumstances).

Variable rates or discount rates are more of a "risk" and so building in a buffer to the
affordability is sensible.

For instance from my own point position I believe I would be happy with paying up to 40% of my salary towards a mortgage - this leaves me still with a buffer of 25% + to cover any increase in rate rises etc (so roughly speaking an SVR of 9 to 10%), because I only physcially need to spend about 30% of my salary for the rest of my outgoings.

mango1966

meanmachine wrote:

Affordability is a very fragile thing on which to base a mortgage decision.
The fact is your mate CAN cut their outgoings if they wish to. But if IR rates double, what then for either of you?

Isn't that why you would opt for a mortgage that was fixed or capped? (that question isn't meant to be sarcastic btw, it's genuine from a mortgage layman)

nadnad

meanmachine wrote:

Fundamentally DISAGREE with that. And it's the reason why the housing market is in such a phenomenal bubble.

Affordability is a very fragile thing on which to base a mortgage decision.

The fact is your mate CAN cut their outgoings if they wish to. But if IR rates double, what then for either of you?

I spend very little each month (despite being an apparently profligate FTBer with ridiculous aspirations, as some would paint me on here), but am not prepared to take out a huge mortgage despite being able to "afford" it today. I know that tomorrow - when.if IR rates return their historical average - I won't be able to afford it.

Can I just say if interest rates double we're all in trouble!! - not very many people would wait until they could afford a mortgage at twice today's interest rates before they would venture into buying a house - its simply not feasible. I do agree that yes you should ensure that you can comfortably pay your mortgage and comfortably pay if the interest rate rises as it has been but who would hold off buying a house because of the "possibility" of interest rates doubling? - if you thought like this surely you'd never do/buy anything "just in case"!

mango1966

meanmachine wrote:

Affordability is a very fragile thing on which to base a mortgage decision.

How on earth anyone is meant to understand when the right time to buy is anymore, i just don't know. A year ago, people were offering me the same advice as what some are saying in this very forum. 'Don't buy now', 'house prices are dropping' etc so i am beginning to base my decision around affordability. What goes on in the housing market is beyond my control. As long as i make sure i can afford the payments (fixed rate?), be sure that i won't outgrow the property over the next 5 years or so then l am well equipped for whatever the next few years may throw at us.