Reply to: Reform to put millions in interest-only trap

[MPwannadecentincome]

Look, if you move every 5 years than 3% stamp duty is 0.6% per year, not a big issue when interest rates were 5%+ _AND_ property prices were going up and up and up.

nope I don't get it.

Property prices go up and up. So you need more income to move as the cost of moving is non-trivial. Stamp duty at 5% is not insignificant.

[AtW]

WTF then 3% stamp duty becomes 5% stamp duty and where does the money to pay the stamp duty come from? Either income or increasing the mortgage, so if you keep moving and having to increase the mortgage each time then interest only is a fool's game.

Look, if you move every 5 years than 3% stamp duty is 0.6% per year, not a big issue when interest rates were 5%+ _AND_ property prices were going up and up and up.

[MPwannadecentincome]

Old people were less mobile.



Why not if house prices always go up by 10-20% a year?

WTF then 3% stamp duty becomes 5% stamp duty and where does the money to pay the stamp duty come from? Either income or increasing the mortgage, so if you keep moving and having to increase the mortgage each time then interest only is a fool's game.

[AtW]

I agree with you (I was just pointing out the statistics) except for the point quoted (and with a caveat) - the only reason house prices haven't crashed round our way is lack of supply

Lack of supply is because people don't get evicted by banks taking over houses as they can't afford repayment - this was fixed due to low interest rates (and banks being forced to match them in tracker mortgages).

I look at what you can buy in Florida for $300k and what you can buy in Brum for £200k and it's big ******* difference!

[AtW]

Every 3 to 5 years is the average? God knows what has happened to all the people over 60 on my street who have been here 30+ years and there are families all over the houses as soon as they 'move on'!

Old people were less mobile.

Besides, maybe its 3 to 5 years average in a certain price bracket, I cannot imagine paying stamp duty at 3% + every 3 to 5 years.

Why not if house prices always go up by 10-20% a year?

[NoddY]

The real irony is interest only mortgages could be quite flexible - many of them allowed penalty free capital 'overpayments' during the term; most useful for people with feast and famine incomes.

[Moscow Mule]

The only reason house prices did not crash is because rates were dropped to the floor -

I agree with you (I was just pointing out the statistics) except for the point quoted (and with a caveat) - the only reason house prices haven't crashed round our way is lack of supply

[MPwannadecentincome]

How often people on average in this country move on to sell houses? I think something like every 3-5 years? So this strategy assumes you'll never sell it - even if you lose job and can't find new one without moving.

Interest only strategy only made sense in a world of constantly raising house prices.

Every 3 to 5 years is the average? God knows what has happened to all the people over 60 on my street who have been here 30+ years and there are families all over the houses as soon as they 'move on'!

Besides, maybe its 3 to 5 years average in a certain price bracket, I cannot imagine paying stamp duty at 3% + every 3 to 5 years.

[OwlHoot]

... In the early 90s nobody wanted to talk to you about a repayment mortgage ...

Exactly - They were so desperate and persistent in trying to flog me endowment mortgages for my properties in the 80s and 90s I got into the habit of telling them not to bother the moment I met a mortgage "advisor", and saying I was only interested in a repayment mortgage.

They always would eventually, if you stood your ground, even if they insisted on going through their sales shpiel and proving you'd be 1p a month better off or something.

[SantaClaus]

I cant see anything wrong with an interest-only mortgage. It's no worse than renting a property and lining a landlord's pockets.

The FSA are going to pop the housing market bubble singlehandedly. This should be interesting!

[AtW]

On average, house prices go up 2% a year (since 1950 something). I don't see any reason for that to change.

That's like to say on average stock exchange goes up.

Or that on average diver breathes normally, but what's good in it if you dive too deep and you can't breath? What if you HAVE to sell house or shares during downturn when pricing is more depressed?

Your statement is only true if you can hold out through downturn - enough people can't, especially overextended people. The only reason house prices did not crash is because rates were dropped to the floor - this will only prolong pain without solving any fundamental issues of overpricing.

[Moscow Mule]

How often people on average in this country move on to sell houses? I think something like every 3-5 years? So this strategy assumes you'll never sell it - even if you lose job and can't find new one without moving.

Interest only strategy only made sense in a world of constantly raising house prices.

On average, house prices go up 2% a year (since 1950 something). I don't see any reason for that to change.

Even with limited inflation you're going to get more than your initial loan back when you sell (unless you bought in 2007 and are selling now)

[AtW]

1 - sure its a risk but you don't wait 'til retirement date before putting the house on the market

How often people on average in this country move on to sell houses? I think something like every 3-5 years? So this strategy assumes you'll never sell it - even if you lose job and can't find new one without moving.

Interest only strategy only made sense in a world of constantly raising house prices.

[Doggy Styles]

hmm what age is 'retirement age' going to be in 20 to 30 years time?

1 - sure its a risk but you don't wait 'til retirement date before putting the house on the market

2 - only no equity if no house price rises in the meantime. And if you rented instead of buying in the meantime you still have no equity

3 - might or might not - who knows - I have 50% equity right now - I'm not worried.

By forced sale, I mean being forced to leave your long-term home when you get to retirement age. Not many people look forward to that.

[MPwannadecentincome]

According the the Guardian:

What the watchdog is banning – and thinking of banning

Amber light (possible ban)

• Mortgages that run past retirement age

hmm what age is 'retirement age' going to be in 20 to 30 years time?

What about these:

1. That would be a forced sale, and is unpleasant for people who are around retirement age
2. Not only would you have no home, but little or no equity with which to buy/rent a new one
3. The house might not even be worth what you owe on it

That there is another timebomb...

1 - sure its a risk but you don't wait 'til retirement date before putting the house on the market

2 - only no equity if no house price rises in the meantime. And if you rented instead of buying in the meantime you still have no equity

3 - might or might not - who knows - I have 50% equity right now - I'm not worried.