letissier14 wrote:AndyPandy wrote:I due to the recession and my business taking a nose dive, had to switch to an interest only mortgage, it's due to end in 2018 with no possibility of paying the capital outstanding.
The lender has been in touch and I've informed them of my plans which are to down size and move to a cheaper area, they are happy with this.My house is now up for sale.
It's not difficult, you take out a mortgage and if your circumstances change and you for whatever reason can't pay off the capital, you deal with it as best you can, you don't stop paying the mortgage and expect to keep the property and I just don't get the mentality of someone that thinks they can!
My brother did the same thing. Had £110k interest only mortgage, which finished two years ago. He sold it and with the equity bought a new house outright.
The problems we're finding at work is where people borrowed on interest-only, maybe had a pension or an ISA they intended to use to pay off their mortgage but for whatever reason didn't maintain the investment.
The selling standards in place before 2004 - and definitely before the FCA Mortgage Market Review in 2014 - were very different. And around 2005-2007 when lenders (including my employers) were offering self-cert mortgages, people borrowed far more than they should have done, interest-only, with no thought of how they'd pay it back other than anticipating that their house would be worth three times as much as they owed once the mortgage reached the end of its term. The idea that prices would fall and then only recover slightly never occurred to them - despite the fact that they'd all lived through the property boom/crash of the late 80s/early 90s.
Anyway, relying on the property going up in value is all very well if the loan-to-value ratio is relatively small, but if there's no much equity, people are in trouble.
We have a lot of borrowers coming to the end of their interest-only mortgages that we're now having to manage. We have the 25 or 30 year terms where the endowment is long-gone or has drastically under-performed (in which case the endowment provider will have issued warnings years ago about the need to do something about it). If it's still the original amount borrowed (i.e no further advances), these borrowers should have enough equity to buy somewhere outright.
But we also have the mortgages taken out ten years ago when lending standards were much more relaxed, where the borrower simply lied about having a repayment vehicle. These were generally middle-aged, self-employed borrowers who might have had past credit problems, or were borrowing to consolidate other debts. Usually a high loan-to-value ratio.
While we don't want thousands of (mostly) elderly people losing their homes, at the same time we're not social landlords and so we can't extend the mortgage term for more than a year or so - and we'll only agree to it if the borrowers show they're taking steps to sell the property or raise a mortgage somewhere else.
But yeah, if Tom hadn't swallowed the woo pill, he'd have been able to sell and kept about £100K equity to buy somewhere else, or if he'd wanted to stay in the property, taken out a lifetime equity release mortgage (where no payments are due, interest is rolled up and the loan + interest are paid off when the last of the borrowers dies or goes into nursing care.)
