I suspect that a fair few BTL properties on interest-only loans will be sold at fire-sale prices, & will start a drop in housing prices in a few years time.

I bet it won’t.

As, you are assuming that the rental market won’t change. Which as more and more people are priced out is unlikely. Politicians care about voters, when renters become a sizeable electorate then their interests will be considered. That rental property might become a albatross round the owners neck.

I have two mortgages on my house, one is endowment (the original mortgage, first time buyer on low wage and it was the cheapest option). It should be paying out £45k but is actually going to pay out more like £25k, bit of a kick in the nads but I didn’t try and claim compensation as I knew there was a risk when I took it out (although I didn’t realise the shortfall had any realistic chance of being quite that big!). Fortunately though I bought right at the bottom of the late 90’s market so still have equity in the house and I’ll probably also just re-mortgage to a single repayment mortgage and keep the endowment going as a bonus. It does irk me a little that fund managers on six figure salaries could have got a better return on my money just sticking it in a bank.

I’d take their survey with a huge shovelful of salt. Twenty three years ago we sat in Bradford and Bingley trying to borrow thirty grand to buy our first house. Choice of repayment or endowment. Were promised all the capital plus twenty grand minimum bonus on top with a fancy Legal and General with profits endowment. Of course we took it. Now it looks like it’ll struggle to make 22K rather than the 30k needed or the 50k promised.

Now every year they (Aviva, successor company to the successor company to the successor company of Legal and General) send me a survey saying we desperately need to know what you’re going to do when our shit product fails to come even within sight of a reasonable performance. Do we fill it in or stick it straight in the shredder having long since made our own arrangements? What do you think? I’d guess lots of other people are just telling these guys any old guff, or what they think they’d like to hear, or what seems funniest at the time.

have an endowment part and an interest only part. The endowment matures in 2014 after 25 yrs and will have a shortfall of over 50K. Still will have 8 yrs to go on the interest only bit, so a bit of investment and some future iheritances will more than cover.

Very sceptical of most non hard cash savings poilicies, pensions included.

Joined a company in 1983 selling ‘financial products’ to innocent people. Left after 2 weeks because they were tools to a man. They sold endowment mortgages to everybody, saying that property would always go up and interest rates wouldn’t drop below 10%. Conveniently walked away with all the commission. Only interested in their BMW M5s. Yes, people nee dto know what they’re getting into, but most people didn’t understand the details back then, especially older folk.

Not an idiot I would say, more of a big problem for society. It’s partly because of greedy landlords and leaches that house prices have bubbled, making them unaffordable for families with young children simply trying to put a secure roof over their head.

someone doesn’t understand capitalism.[/quote]

Someone who does understand (what you seem to be calling…) “capitalism”. And someone who also understands more than “capitalism”… BTW, what you described is really a form of socialised-financial parasitism.

We have friends who are paying Interest Only as they get more house for their money compared to renting. Sure, they own nothing but for them, even several years down the line, it’s the option they’ve taken with eyes firmly open.

I’m just glad I took out an endowment.

From experience although the paperwork warned of the risks of endowment policies mortgage advisers were doing the hard sell on them right up to the middle of 2008 (nothing in writing of course). Didn’t go for it myself (mostly because Radio 4 was doing an equally good job of warning of the dangers back then) but can see how plenty of people did

I have an interest only but have a very low LTV figure so it works for me.

I’m able to pay of lumps as I get them without any penalty, interest rate on my lifetime tracker is very nice indeed and I am not at all worried about the future capital repayment. I think there are, like all things, shades of grey that the OP didn’t consider.

Why bother repaying the capital piedo? How about letting the debt evenutally erode itself through inflation whilst you make your capital, which in your supremely intelligent plan you are blissfully ploughing into your house, work harder elsewhere.

This.

Plus its quite tax inefficient to be paying down capital out of after tax income.

Plus its quite tax inefficient to be paying down capital out of after tax income.

How so, assuming owner occupation.

I was lucky enough to take out an interest only tracker mortgage in 95 for .16 above base, so now it makes more sense to pay all my spare money into a savings account offering a paltry 2-3% than it does to pay off any capital which is only costing me 0.66 interest rate. Therefore I have the capital there to pay it, but its in my account not theirs!

Sometimes if you were prepared to take the risk an interest only mortgage could work,depending as ever on location.

I had an interest only mortgage on a 4 bedroomed home in Harpenden that that I was never likely to own outright.That house gained £50k in two years despite the onset of the recession.If I still had it I`d currently be £100k up in 4 years.

No Id never have been able to pay it off but Id been able to simply move somewhere cheaper and buy a house outright in a more modest area with the equity I`d have made, when I retired.( That was the plan before divorce came along!)

In fact the equity in that house would have bought the house I currently live in which is just 5 miles up the road.

And it was still cheaper than renting.

But………. I`m bloody relieved not to have the financial risk associated with such a strategy anymore!

So how is interest only mortgage anymore foolhardy than renting for your entire life. It’s not like you’d need to rent a house at current rates whilst on your meagre pension anyway is it?

I suspect that a fair few BTL properties on interest-only loans will be sold at fire-sale prices, & will start a drop in housing prices in a few years time.

I bet it won’t.

Totally agree, it won’t happen.

Any government is afraid of negative equity on a big scale, it would be political suicide for any party, partly killed off the Tories in the early 90s

neg-equity SHOULD have happened however, to allow the next generation onto the housing LADDER with their lower salaries and uncertain career prospects, but the government are actively propping house prices by loaning first time buying a percentage of their property value,

I blame the baby boomers

Per the A couple of the posts above we’re on .49% over base rate for life – so with isas returning 2% over base rate and other investments returning 6-8% over base rate there’s no ever point paying the capital element.

So how is interest only mortgage anymore foolhardy than renting for your entire life. It’s not like you’d need to rent a house at current rates whilst on your meagre pension anyway is it?

Renting = paying another mans mortgage.

Any government is afraid of negative equity on a big scale, it would be political suicide for any party, partly killed off the Tories in the early 90s

never say never,

when renters become a voting block then watch the politicians playing for their votes. At the moment the baby boomers are in charge, they are the votes that are targeted.

Our housing market is unbelievably messed up!

Youngsters have no chance.

What will happen when those who own all the property begin to pop off?

By some rough calculations, property in real terms is around double what it should be according to what normal people earn. That’d be a really serious bit of negative equity if the market readjusts..

Nevermind, keep the immigration rates up and all those people renting will perpetuate the status quo.

And so buy to let will soak up the fall out from people dying off, plus the hairbrained government scheme to enable people to borrow too much, all indemnified by you and me. It could become like a whole new subprime crisis all over again! 😉

We are nowhere as free as we once were. I blame reckless lending and governments clamouring for all the tax revenue to fund their ideals (electoral bribes).

By some rough calculations, property in real terms is around double what it should be according to what normal people earn. That’d be a really serious bit of negative equity if the market readjusts..

Is that including dingy one bed flats?
First time buyers do seem to want to go as near to the top of the ladder as possible, rather than climb it from the bottom.
Some do seem to want the whole lot without making any sacrifices, nice home, good car and all the trimmings.
I guess folk aren’t prepared to sit on a deck chair until they can ‘afford’ better these days 😀 I was an oldgit even when I was young.

I think that’s a very valid point oldgit.

There are (quite a lot of) houses in our town that are on the market for £30k-£40k. They need a bit of work but I reckon you could move in now. They are of course small and not in great areas but they’re the first rung on the housing ladder. It appears people are far less likely nowadays to make that step, they want a 4 bed detached with a 50 inch TV and a beemer on the drive. Living in a little grotty terrace for five years isn’t on their radar.

I blame Cowell

phil.w – Member
In some respects, even with no plan to pay off the capitol it’s not stupid, it’s almost no different to renting. Unless the value of the house goes up, then it’s like renting with a bonus payout when you sell.

And also, who takes out a mortgage and expects to be on the same terms for it’s life? An interest only can be an effective tool to make getting on the housing ladder affordable.

This. We bought our first property, a one bedroom flat, in 2005 on an interest only mortgage. Renting a similar flat was costing us £1250 a month, yet the interest only mortgage was £610. We were able to renovate the property ourselves, sell it once we started a family, and with the increased equity, buy a small house instead on a sensible repayment mortgage.

The plan was only ever to be on interest-only in the very short term to get on the ladder and put the money saved each month into the property. Clearly we knew that we would need to go onto a repayment mortgage soon, but as Phil-W says, you could just treat it as cheap rent with the option to do what you want to the property and maybe make a little on it at the same time. After 25 years, you have no property, as with renting, but you may have a nice chunk of cash.

Politicians care about voters, when renters become a sizeable electorate then their interests will be considered.

What practical form do you think that consideration will take?

oldgit – Member
By some rough calculations, property in real terms is around double what it should be according to what normal people earn. That’d be a really serious bit of negative equity if the market readjusts..
Is that including dingy one bed flats?
First time buyers do seem to want to go as near to the top of the ladder as possible, rather than climb it from the bottom.
Some do seem to want the whole lot without making any sacrifices, nice home, good car and all the trimmings.
I guess folk aren’t prepared to sit on a deck chair until they can ‘afford’ better these days I was an oldgit even when I was young.

I think the cheaper prices regionally mean this generally a Northern trait. In London, we were very happy to buy a one bed ex-council flat overlooking the railway line, which hadn’t been decorated since 1961.

The 3 Bed terrace house we have now is the stuff of dreams!

“First time buyers do seem to want to go as near to the top of the ladder as possible, rather than climb it from the bottom.
Some do seem to want the whole lot without making any sacrifices, nice home, good car and all the trimmings.”

equally on that front – sometimes it makes sense not to buy a flat.

a flat in town here costs >130k

A nice flat in town costs > 160k

to many of my friends have ended up being unwilling land lords due to the fact that flats in abundance in town.

But then i have crap cars while they have nice new lotus and nissan sports cars. – one thing is for certain , a car on the road being used will always lose money. Theres a small chance a house might appreciate or at least lose minimal ammounts over time.

Renting = paying another mans mortgage.

Correct, and buying me lots of nice things every month. Thank you renters of the world 🙂

Correct, and buying me lots of nice things every month. Thank you renters of the world

Man, you’re so f**king awesome!

But then i have crap cars while they have nice new lotus and nissan sports cars. – one thing is for certain , a car on the road being used will always lose money. Theres a small chance a house might appreciate or at least lose minimal ammounts over time

This is how I work.

Man, you’re so f**king awesome!

Awww thanks, one tries ones best.

Then you have a situation where interest only is less than the rent, you can’t be evicted assuming you make the payments, unlike a tenant. 25years is a long time…

This is what my missus does (only her names on the mortgage). Works for us as we intend to have moved out well before 25 years is up.

The advantage of renting over either mortgage option is flexibility, a friend just moved from one 2 bed house to another and they reckoned it cost them £10k by the time they’d paid the banks, solicitors, agents, taxes etc, and they’d only lived there for 3 years!

TBH I don’t get the whole “must buy a house” philosophy this country has, why? So you can spend 25 years paying for it, followed by 20 years of being smug to people still paying for them, followed by having to sell it to fund 10 years of paying someone else to wipe your arse for you?

Having said that our next house will probably have to be a repayment mortgage.

Renting = paying another mans mortgage.

Paying a mortgage = paying the bankers coke and Porsche habit.

Very interesting thread reminds me of http://www.housepricecrash.co.uk

Some people who bought interest only morgages realise that if enough people say that they didn’t understand the product when they bought it it may involve a payout or adjustment in their favour somewhere further down the line.

I get the feeling that some people are trying to get the denials in early to bag the compo payment!!

Of course interest rates did reach almost 15% in my time…..that would never happen again 🙄