angos Posted September 23, 2013 Share Posted September 23, 2013 The idea if an 'interest only' mortgage is frightening. Imagine people taking this type of mortgage out in their mid 30s, then in their 60s, discover after paying all the interest, they can't find the re-payments for the property. If the bank repossesses, would they even get anything back? I suppose not if they've only been paying the interest for 25 years, unlike if they took out a 'Repayment mortgage'. They would have been no better of renting for 25 years. Over the past 25 years property prices have trebled, so an house costing £30K on an interest only mortgage will now be worth £90K. If the bank repossessed they would sell the property to pay off the debt, any profit would go to the buyer.You have to remember that wages go up year on year so the mortgage gets easier to pay. Link to comment Share on other sites More sharing options...
Cyclone Posted September 24, 2013 Share Posted September 24, 2013 The idea if an 'interest only' mortgage is frightening. Imagine people taking this type of mortgage out in their mid 30s, then in their 60s, discover after paying all the interest, they can't find the re-payments for the property. That's not how it works. You don't wait 25 years and then scrabble around at the back of the sofa hoping to find several hundred grand. There should be a repayment vehicle in place from day one (or assets) that will mature along with the mortgage to pay it off. If the bank repossesses, would they even get anything back? I suppose not if they've only been paying the interest for 25 years, unlike if they took out a 'Repayment mortgage'. They would have been no better of renting for 25 years. Yes, of course they would get something back, unless house prices stay flat for 25 years, which would be a major change to how they normally behave. ---------- Post added 24-09-2013 at 07:34 ---------- Most rental agencies only permit six-month tenancies.Moreover some BTL landlords are insolvent and houses are repossessed.Have you ever been a tenant ? Yes, I rented whilst at uni, like most people do. Housing agencies can go and jump, landlords own the properties and they are the ones who decide things like how long a contract can be. Having a landlord become insolvent would be a problem, but that would be the exception, not the norm. ---------- Post added 24-09-2013 at 07:37 ---------- I'd also point out that you are trapped into working until death to pay off your mortgage, something which banks of the UK, will gladly deprive you of should you fail to cough up per month. How are you trapped into working until death? To use an anecdote, my parents paid off their mortgage just before I went to uni... They've recently retired. So they don't appear to have been a) trapped, or b) worked until death. Renting on the other hand would require that they were still paying for a house, even now, whilst retired. ---------- Post added 24-09-2013 at 07:39 ---------- Surely in practice the single biggest factor affecting the rent of a property is the cost of the landlord's mortgage, so therefore whenever interests rate go up, rents will follow suit? Every buy-to-let landlord sets the rent at their mortgage payment plus a bit extra to cover maintenance, so won't renting always be more expensive? A look at the historical figures would be interesting. I don't think it's as couples as you think though. Not all landlords are mortgaged, or at least not with a recent mortgage. And the price they can let at is determined by supply and demand as much as by what they'd like to charge. Link to comment Share on other sites More sharing options...
GLASGOWOODS Posted September 24, 2013 Share Posted September 24, 2013 By not drinking, smoking or generally wasting money whilst you are young. Yeah. Have a boring youth. Just so you can have your own property. Link to comment Share on other sites More sharing options...
Mister M Posted September 24, 2013 Share Posted September 24, 2013 Yeah. Have a boring youth. Just so you can have your own property. I think MrSmith angos always makes sure that his or his offspring's life experience conveniently matches his world view. That's part of his modus operandi. Link to comment Share on other sites More sharing options...
Cyclone Posted September 24, 2013 Share Posted September 24, 2013 I don't know how the you youngsters of today will ever be able to get a mortgage. Consider the percentage of your monthly salary that pays your mortgage today, compared with the seventies - and that's two people's salary! Knowing the banks I bet they will compel your children and grandchildren to sign a contract to to complete paying the mortgage in the future. You do know that interest rates in the 70's hit some ridiculous high number and a lot of people lost their homes or really struggled to make payments (mortgages were typically variable rate then). http://monevator.com/house-price-to-earnings-ratio-2012/ Some interesting figures here. The graph I can't find though, is the average mortgage payment as a percentage of monthly income. Low interest rates at the moment though mean that this is lower than you would otherwise expect when you look at the house price vs income graph. Effectively low interest rates (and government stimulus) are propping up house prices still, if interest rates were not through the floor then house prices would have fallen more or still be falling. ---------- Post added 24-09-2013 at 09:23 ---------- Yeah. Have a boring youth. Just so you can have your own property. Nobody ever said life was easy. Do you think it should be possible to spend all your money and save a deposit? Make your choices, choose your compromises and get on with life. Link to comment Share on other sites More sharing options...
alchresearch Posted September 24, 2013 Share Posted September 24, 2013 That's not how it works. You don't wait 25 years and then scrabble around at the back of the sofa hoping to find several hundred grand. There should be a repayment vehicle in place from day one (or assets) that will mature along with the mortgage to pay it off. That's right, your mortgage adviser will keep you abreast of the interest rate and forecast every couple of years, of not more frequently (mine was every 3). Link to comment Share on other sites More sharing options...
poppet2 Posted September 24, 2013 Author Share Posted September 24, 2013 Over the past 25 years property prices have trebled. You have to remember that wages go up year on year so the mortgage gets easier to pay. But there is no guarantee that interest rates won't rise to 16% in the future either. Who has a crystal ball, also, remember no boom and bust? Link to comment Share on other sites More sharing options...
Cyclone Posted September 24, 2013 Share Posted September 24, 2013 But there is no guarantee that interest rates won't rise to 16% in the future either. Who has a crystal ball, also, remember no boom and bust? I'm not sure what your point is, the variability of interest rates isn't an argument against interest only mortgages, sometimes they are appropriate, sometimes not. Link to comment Share on other sites More sharing options...
angos Posted September 24, 2013 Share Posted September 24, 2013 Yeah. Have a boring youth. Just so you can have your own property. My youth was far from boring and I didn't need alcohol and fags to find exciting things to do that cost very little. Link to comment Share on other sites More sharing options...
truman Posted September 24, 2013 Share Posted September 24, 2013 But there is no guarantee that interest rates won't rise to 16% in the future either. Who has a crystal ball, also, remember no boom and bust? There's no guarantee that rents won't rise by 150% to cover the landlord's mortgage rate rise either.. Link to comment Share on other sites More sharing options...
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