Friday, 21 July 2017

Interest Only mortgages - a scam from the city?

Real non-story in the FT today.

Under their usual remoaning headline of course.

With PPI coming to an end there is an industry of ambulance chasers looking for some more victims.

Here the 'victims' are people with interest-only mortgages.

Given that property prices in the UK have followed a pattern, see graph above, why would anyone ever care about not repaying the principal?
You will always over time have a capital gain bigger than your mortgage, normally over 20 years by at least 100%.

You have to be historically unlucky, taking out a large mortgage right at a market top, to not manage to make a capital gain over 10 years, let alone 20 years.

This is just a non-issue. In fact I would consider it back to front - surely the scam is making people re-pay mortgages and forfeit their wealth for no reason when they are earning more in their property anyway? That must be the real scam, how much money the banks make on excessive interest rate charges on secured lending. All pushed even harder by the FCA since 2009!


dearieme said...

"about not repaying the principle." Or even the principal?

dearieme said...

"taking out a large market right at a market top": or a large mortgage, even.

You gotta kill the predictive text.

andrew said...

Of course it isnt the borrowers fault.
Even if you disagree, think of the lawyer's children - private school fees are unfeasable nowadays.

Anonymous said...

Interest only mortgages are a good idea until you get old. I had one, but also put a lot of cash into shares over the years, which paid it off in chunks.

On the other hand a relative may have his house repossessed unless he gets a quick sale. IMHO £450,000 is too much IO unless you get hefty bonuses. Went for too nioe a house in too nice a location, then got the landscapers in etc.

Ed said...

I won the lottery and lived with the rich and famous for the past 25 years. Just because all my money has run out, why should I have to stop now?

Anonymous said...

One of the best days in my life was when I finally paid off the mortgage and owed nothing to anyone.

Don Cox

CityUnslicker said...

thanks Dearime - I was fitting that post into much too short a space of time earlier!

Electro-Kevin said...

I notice that Tony Blair is holding his London properties ... and buying into London commercial properties too now. Telling from a Remainer who talks of cliff edges.

Interest only and overpay. If you have the discipline and ability to do so.

I know people who have been in serious trouble with work, just sit tight and bimble along on interest only for years. Pick a peak in the market, sell and walk away with a tidy lump sump to a cheaper part of the country mortgage free.

All of this is because property keeps on booming.

Housing. The gift that keeps on giving... so long as you are lucky enough to buy, interest remains low, lenders lax and the government convinced that cramming the country full of people counts as successful economic growth.

Of course - we're in serious shit. If you have a heart and no buy-to-let you are going to have to remorgage your house in old age to help your kids out. So fat lot of use if you're a dutiful parent.

This is not a housing boom we are witness to. It is young people getting poor. When oldies have no-one left who is rich enough to sell to they are going to have to take a haircut.

Steven_L said...

I keep saying it and I'll say it again. Even without adjusting for inflation, UK house prices are flat or down over the past decade in every major currency with the exception of pounds sterling.

andrew said...



London prices may hurt, but, compare that with what has happened to Swiss prices in GBP over the last 20y or so...

E-K said...


That housing is down and our kids can't afford them illustrates my point. We boomers aren't getting richer it's just people getting poorer.

dearieme said...

"just people getting poorer": as you'd expect when hundreds of millions of capable people join the world economy from which they were previously excluded by socialism. To add to the pressure, some of our local flood of immigrants constitute cheap competitive labour, and others constitute a burden on the welfare state, which the workers must pay for through taxation.

On this latter topic every government since Attlee's first has been bloody stupid.

dearieme said...

That's "since" in the sense of "since and including".

Lord Blagger said...

NHS deaths and maiming are the next big business.

Politically very difficult to say f-off, you're a victim, but the NHS isn't paying. See what's happening with Charlie Gard. GOSH has a huge PR and charity funding disaster on its hands.

Get one, force an investigation into similar, get lots of clients.