Homeowners with interest-only mortgages 'heading for disaster'
People with interest-only mortgages could be in trouble if house prices continue to slide.
Homeowners with interest-only mortgages could be heading for disaster, according to a new report.
Mortgage advice firm Mform.co.uk claimed they were "storing up problems for the future" by switching to the loans, which are cheaper because only the interest on the original advance is repaid.
People with interest-only mortgages could be in trouble if house prices continue to slide.
Homeowners with interest-only mortgages could be heading for disaster, according to a new report.
Mortgage advice firm Mform.co.uk claimed they were "storing up problems for the future" by switching to the loans, which are cheaper because only the interest on the original advance is repaid.
With a £155,000 mortgage at six per cent interest, you would pay £232,500 in total over the 25 years of an interest-only mortgage.
At that time, however, you would still owe the bank the full £155,000.
With a repayment mortgage, you would repay a total of £299,601 over 25 years but own your home outright when the deal ends.
Customers are supposed to invest money separately so that they can eventually pay off the debt - but many fail to do so.
The warning comes as Bank of England policy-maker Kate Barker predicted the credit crisis would make it harder for Britons to buy homes even if house prices fall this year.
Speaking at a housing and planning event, Ms Barker said: "We may see prices adjust downwards but there is no clear evidence that affordability will improve.
"Mortgages, particularly for first-time buyers, have become more difficult to get as a result of the credit crunch."
Mortgage approvals have already fallen to their lowest in more then 10 years and house price growth has cooled markedly as the credit crunch continues to bite.
Banks are no longer able to access cheap cash and affordability constraints price out first-time buyers.
Francis Ghiloni from Mform said yesterday: "It is tempting to switch from repayment to interest-only.
"But unless borrowers have plans in place to eventually repay their loan, they may be simply storing up problems for the future.
"Getting to the end of the mortgage term and still owning the initial debt would be disastrous."
It came as the Council of Mortgage Lenders (CML) revealed banks were struggling to meet the mortgage demand in the face of the credit crunch.
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NWN : The Bank of England had to bail out the Halifax/Bank of Scotland, yesterday. They have already bailed out the 'Northern Rock'. Other banks are taking advantage of the Bank of England too.
But will the Government help out the borrowers, you know, the public who have mortgages ?
Answers on a postcard to Gordon Brown, 10,Downing Street, London.
6 comments:
Much of the impact of all this, when it really hits, is due to the loss of our manufacturing base under Maggie Thatcher and since.
Britain has become too reliant on the financial markets which is wide open to international fluctuations.
In other words NWN, we no longer create wealth with industry.
Despite thickies believing the City creates wealth, and our politicians repeatedly telling us that, the City does no such thing.
All the City does is concentrate money (other people's money, that is)and skim a bit off the top before passing it on. That's not the same as creating wealth.
BTW, there is now a Wigan BNP website if you're interested. Oh, ok then, but here it is anyway:
http://wiganbnp.blogspot.com/
A Wigan BNP site ?
Well done !
Just going having a look.
Homeless will rocket without a real political party.
Griffin is for the bosses.
It was too much to hope that during the seemingly years of plenty that the men folk of Britain couldn't arise from the metaphorical warm bed on a cold winters day to save their country from the last fifty years mismanagement. Out of fear or apathy or a nagging wife they have failed to hear their country's call.
Now the sheep are going to be booted out of their warm bed and they (along with the rest of us) are going to get what they bloody well deserve: A crash course in reality.
NWN ASKES: “The Bank of England had to bail out the Halifax/Bank of Scotland, yesterday. They have already bailed out the 'Northern Rock'. Other banks are taking advantage of the Bank of England too.
But will the Government help out the borrowers, you know, the public who have mortgages?”
Let’s not forget the Bank of England is not a government institution but is privately owned. Nearly all the banks are also privately owned. These people are going to support each other ... it’s in their own interests.
But the home owners are something quite different. They are there to be milked. Some will fall by the wayside ... but their property can be foreclosed and sold off to others.
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