It now seems that after turning their armoury on "Self-Certified" mortgages the FSA have their sights on "Interest Only" mortgages and have placed them as "high risk", to such extent that those seeking an "Interest Only" mortgage may need to satisfy that they can actually meet the financial requirements of a "Repayment" mortgage.
This seems like another "brick wall" is being placed in the home owners way and I hope the fallout for those in or contemplating an IVA will be taken into consideration. After all surely this will signal less available equity at the end of 5 years for creditors, because getting a remortgage in the 5th year is as we know already hard enough, but with possible new proposals, getting a "Repayment" mortgage will be like finding hens teeth!
I do accept that Interest Only mortgages are high risk, however, for some it is the only way to get on the housing ladder and if removed or should I say made even harder to get, I can envisage that it can only be negative for the housing market and accordingly for house prices in general. What a pallava.....especially for some of us that are already cash strapped.
Regulator’s plans
Impose tighter checks on affordability.
Lenders to be responsible for assessing a consumer’s ability to pay.
Ban self-certification mortgages and require all borrowers to verify income.
Ban on loans to borrowers that pose a “toxic combination” of risks.
Buy-to-let mortgages to be regulated by the Financial Services Authority.
Prohibit practice of adding application fees to a loan.
Freeze arrears charges when a borrower is making some repayments.
Last edited by Pennyless on Sat Oct 24, 2009 9:11 am, edited 1 time in total.
I came into this world with nothing and still have most of it left!
The ultimate repayment tool can always be the value of the property, and most lenders still seem to be happy to accept that argument - of course it is a risk for anyone taking out an interest only mortgage that they may have to sell the property to eventually repay the loan.
Interest only mortgages are not a high risk at all if managed correctly.
The only difference between an interest only mortgage and a capital repayment mortgage is the fact that with a repayment mortgage you will be paying off an element of the capital debt albeit very little in the early years and thus reducing the mortgage balance.
To back up my thoughts and findings, years ago I sat in an Insolvency Practitioners office and using the same rates of interest and monthly payments I showed him how it was more cost effective to have a facility to pay capital sums off the mortgage penalty free with an interest only mortgage.
We did this project for about 45 minutes right down to the last penny and the IP`s (now keep in mind these people love figures) comment at the end of the exercise was "f*** off" and get out of my office.
This was all done using the same monthly payments and the same projected rates of interest.
The interest only mortgage is fine for those who are comfortable and confident in managing their own money, but could be an issue for those who are not.
Certain bodies have to be seen to be doing something to justify their positions.Tony
F.P.C. 1,2,3 Qualified
Financial Planning Certificate
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Whole of Market Mortgage Broker
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Agreed Melanie but it seems that the regulators are closing the stall after the horse has bolted.
In my own situation I only have a "temp" 12 month period with NR on my "Interest only" mortgage and on the hope that my IVA proposal is succesful, it could be quite difficult after the 12 months expiry to get this carried over into the remaining few years. I know it's a case of crossing the bridge when you come to it but it does appear that the "hurdles" are getting higher and I can't see creditors being too sympethetic.
Ah well we live in hope.
Welshboy agreed. "Interest Only" mortgages are not the Devil incarnate, infact for some they can be highly profitable, particularly in the current climate, where interest rates on savings can in many cases be far better than that payed for the first 2/3 years of early interest deals.
Last edited by Pennyless on Sat Oct 24, 2009 9:50 am, edited 1 time in total.
I came into this world with nothing and still have most of it left!
We have an interest only mortgage - for us it was a case of needs must I'm afraid. It was the only way we could afford to move away from our awful neighbours to a better area so it's a risk we were willing to take.
If our financial situation improves over the next few years then hopefully we'll be able to start overpaying, but at the moment I'm just grateful to have a roof over my head in a decent area.
Skippy you raise a good point.....I think sometimes those in high places think that "housing" is all about "investment" potential....they forget that some may just be seeking a house to actually "live in"!
I came into this world with nothing and still have most of it left!
Renting works for some people, but I prefer to know that my bricks and mortar will eventually be mine!
So glad we are on a repayment mortgage though.
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
Zim zim - you could be asking for trouble there![:D][:D]
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
To be honest we did think about renting - we were so desperate to get out of our flat that we thought of selling it and putting the money in the bank. It was cheaper to get an interest only mortgage though, and hopefully we'll actually pay something off of it one day!
I have nothing against renting, it's each to their own, but it didn't suit us - mainly because I was getting at least one cat when we moved, and I wasn't having some miserable landlord stopping me!
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
We've been on interest only for years. Hope to get back to repayment after the IVA. It is cheaper than renting a property of the same size, even if interest rates went to 9%.
Who knows what will happen in years to come, I have enough to worry about right now, never mind my interest only mortgage, at least we have a roof over our heads!
7 year IVA completed in December 2016 - there is light at the end of that tunnel
