No you'd cover missed payments with interst rates, simplisticly base rate+5% interest rate, 1 in 20 don't pay-up in any given month, you break even, less than 1in20 and your in profit.

Then if the missed payment turns into default and a reposession, then the deposit is to account for the drop in value over that time.

I'll be renting for a while yet, the interest only mortgages are about the same as our rent on similar places.

The fact that the banks now want big deposits is a sure sign that the banks think that there's a high risk that prices are going to come down

Well yes but it's a lot to do with the likelyhood of loan defaults – job losses and the like.

Yes, but if people default on their loans and the bank is forced to issue a reposession order then it is still at no risk – provided property prices remain static or keep rising.

So the risk in the banks eyes must be that the property market is going to fall (possibly considerably). By putting up a big deposit then it is the homeowner who takes the risk and not the bank.

This is also partly why banks heavily load the interest onto the front of a mortgage. You only seriously start paying off the equity on a house towards the end of the mortgage term.

Yes, but if people default on their loans and the bank is forced to issue a reposession order then it is still at no risk – provided property prices remain static or keep rising.

Except that when you sell a repossessed house at auction, you typically sell at 80% or less of original market value, possibly way less if whoever lost it left it in a bad state which I understand is not uncommon when people are chucked out of houses (things like radiators/plumbing damaged or removed, or wiring messed up etc). You've also missed out on months of interest payments, spent money on legal fees etc).

This is also partly why banks heavily load the interest onto the front of a mortgage. You only seriously start paying off the equity on a house towards the end of the mortgage term.

No the only reason for paying off mostly interest at the start is economics!

We're buying a house we'll be happy to live in for the next 10 years, our jobs are reasonably secure, and even if we were both flipping burgers in maccy d's we could just about afford the repayments.

Sounds like you're living within your means, what a novel concept! I think far too many people have stretched things to such a limit, that if any crisis happens, they've simply got no buffer zone at all, no contingency plan. You've probably had a right result really. Nottingham? Could be worse.

What an odd thing to say! Haven't prices in most places recovered most of their losses now?

Well, I'm very sceptical about that. This bloke paid a hugely overinflated price for his place, with the view to doing it up, making a profit and moving up the ladder. He's added another room, at great cost (shortsighted plans didn't reveal the extra work that needed doing), but the value of his property has fallen so much that all his investment has been wiped out. He's recently found out his garden has serious issues which could affect neighbouring properties, needing very expensive remedial works doing. His plan was to sell up, make a profit, get a bigger place. He'd be lucky to find something the same size in a less desirable area now, so he's sort of stuck. Big dreams, but sadly not enough grounding in reality.

By contrast, I know a woman who bought a place nearby years ago, had a boyfriend who did it right up at minimal cost, kicked him out, sold it at the top of the market for about 3.5 times the initial cost and even after the building/interest etc still made enough to buy a really nice place in Cumbria with a fair bit left over!

As a landlord, I say you're better off renting.

My landlord wouldn't agree with you! Poor sod overstretched himself (see a pattern emerging here?), got the cheapest mortgage he could afford, which has now turned into the most expensive one he could have (fixed rate). I've seen one of his statements; he makes about £70 a month profit. Factor in the insurance, costs of a new washing machine, botched leak repairs, new electrics to replace the shoddy originals (never employ cowboys), and a whole host of other problems, and he's made a loss while I've lived here. And he can't even increase the rent to compensate for this. But he was looking too much to make a profit without considering all the pitfalls. Did everything on the cheap, does lots of overtime to get extra cash, but he'll not see any reward. It's his greed that has led to this, hence why I have little sympathy. It works well for me though. Unless he decides to sell, there's no way he'll dare to kick me out.

Too many people simply don't understand that the property market, like any market, has it's risks. And when the stakes are this high, it does well to be aware of the consequences.

It was the 'arrogant' bit I thought odd!

Except that when you sell a repossessed house at auction, you typically sell at 80% or less of original market value

Yes but if that happens the mortgage borrower will still owe the remaining 20% not covered by the sale of the house.

No the only reason for paying off mostly interest at the start is economics!

Not sure what you mean – you'll have to be a bit more descriptive than that 😕

To start with you owe, say £100k with a rate of say 4%. So in the 1st month you pay interest on £100k and a little capital. The next month you owe slightly less than £100k so you pay interest on that and a little more capital. In the final month you owe a few hundred quid so you pay a little interest on that only.

Ah – got me on that one 😳

It was the 'arrogant' bit I thought odd!

Well, I suppose entering a situation that you have very little knowledge/experience of, and assume you will succeed in spite of warnings could be considered arrogant, yes. Caveat Emptor and all that. He's not the only one.