Mortgage musing
Discussion
Thinking back to how several friends have approached mortgages in the past and I mean since 1990.
Were they right as they had 'interest only' and bought more expensive properties whereas I went conservative with an endowment?
Is this the way now to getting on the housing ladder? Assume interest only equates to a monthly rent but this time, you have the asset appreciating (hopefully ) in your name?
I have not done any financial modelling on this, assumptions are you are always in a job and wages will rise with experience or seniority.
If you really want a more expensive house, then interest only may help you get that in the short term.
Might save you a lot in stamp duty by not moving after a few years?
Do your own sums, your own way and own the consequences.
My first mortgage was an endowment. I sold the house and cashed in the endowment after a few years, the net result was within a few beers of having a repayment mortgage.
My second mortgage was a no-fees flexible offset base-rate tracker. Portable too! 1% over base rate for the whole term.
At some point you want to pay off the capital, and you can't guarantee you will always be as employable as you are today.
I think it can be like pensions, in hindsight one might wish to have started chipping away at the capital earlier?
OTOH, big picture, consider your whole finances: pension/mortgage/car debt/other assets/kids/work/inheritance.
Don't get an optimum mortgage and get too many other things wrong.
And don't shut down choices if you can avoid it.
Might save you a lot in stamp duty by not moving after a few years?
Do your own sums, your own way and own the consequences.
My first mortgage was an endowment. I sold the house and cashed in the endowment after a few years, the net result was within a few beers of having a repayment mortgage.
My second mortgage was a no-fees flexible offset base-rate tracker. Portable too! 1% over base rate for the whole term.
At some point you want to pay off the capital, and you can't guarantee you will always be as employable as you are today.
I think it can be like pensions, in hindsight one might wish to have started chipping away at the capital earlier?
OTOH, big picture, consider your whole finances: pension/mortgage/car debt/other assets/kids/work/inheritance.
Don't get an optimum mortgage and get too many other things wrong.
And don't shut down choices if you can avoid it.
Bluequay said:
Repayment vehicles come in a lot of forms though and can include remortgaging and selling the property, so it can provide people with more financial flexibility even if the lenders won't lend more and before 2008 the lenders couldn't care less about them!!
Exactly, in the olden days Sarnie, this was an option to have more money in your pocket to live, no spending on an endowment. I doubt it's possible now as times have changed and sensibly, greater restrictions exist. Stress testing rules!softtop said:
Exactly, in the olden days Sarnie, this was an option to have more money in your pocket to live, no spending on an endowment. I doubt it's possible now as times have changed and sensibly, greater restrictions exist. Stress testing rules!
I remember the olden days 
I was just saying that you couldn't buy a more expensive house just because the mortgage was on interest only.
FYI, Interest Only is certainly possible today without endowments or the like, in the right circumstances, we do a lot of them!
Whilst interest rates were at their historic low, an interest only mortgage could have been a good idea if interest rates on savings/investments was higher than the mortgage interest rate. As long as you were putting the equivalent of the capital part of the mortgage into an investment that returned a higher rate, and you left that money alone, you would eventually have enough to pay off the capital one day.
My mortgage is 0.23% above BoE base rate, so was for a while at 0.43%. Whilst I was overpaying my mortgage I was aware that those overpayents would have worked better for me had I put them into any such investment.
My mortgage is 0.23% above BoE base rate, so was for a while at 0.43%. Whilst I was overpaying my mortgage I was aware that those overpayents would have worked better for me had I put them into any such investment.
There was a good post on here the other day that spoke to people earning larger amounts of money (which typically is mostly performance linked and sporadic it’s nature by either annual bonuses or similar) using IO and chopping lumps off of mortgages when there’s money there vs other months when there isn’t. I think though a lot of the model said poster was talking about worked very well for people buying property in London from the period you mention up until perhaps 5 or so years ago. Not sure buying any old thing and riding the capital growth is quite as sure fire these days.
An interesting fact that a lot of people get confused is that repayment mortgages don’t “track” the BoE base rate.
They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
okgo said:
There was a good post on here the other day that spoke to people earning larger amounts of money (which typically is mostly performance linked and sporadic it’s nature by either annual bonuses or similar) using IO and chopping lumps off of mortgages when there’s money there vs other months when there isn’t. I think though a lot of the model said poster was talking about worked very well for people buying property in London from the period you mention up until perhaps 5 or so years ago. Not sure buying any old thing and riding the capital growth is quite as sure fire these days.
Most of our higher earner clients take interest only mortgages........income is usually lumpy and/or variable......so most don't want to commit to huge monthlies on a Repayment mortgage........Our “ big “ move was back in 2004 and we could only afford the mortgage repayments as such by going interest only.
Mortgage was split into two with the majority being fixed rate and the other part variable rate.
At the application stage I wrote saying I would reduce the mortgage annually with capital repayments post
receipt of bonus and detailed how much etc.
Whilst this was a gamble I was pretty confident of the quantum I would be getting.
We really wanted the house and knew we would regret it if we didn’t buy it and it all worked out well but whether I would advise doing it in the current climate I’m not so sure.
Mortgage was split into two with the majority being fixed rate and the other part variable rate.
At the application stage I wrote saying I would reduce the mortgage annually with capital repayments post
receipt of bonus and detailed how much etc.
Whilst this was a gamble I was pretty confident of the quantum I would be getting.
We really wanted the house and knew we would regret it if we didn’t buy it and it all worked out well but whether I would advise doing it in the current climate I’m not so sure.
My first house purchase was 2004, I was 25, worked in sales and couldn't afford the then £600 a month on a mortgage, I went IO and towards 2010 when the interest rates were falling I was paying £98 on a £115k mortgage, it paid off for me, I sold my house in 2011 and released circa £30k without ever paying any mortgage.
We stretched ourselves last move (2020) and seeing the rates now I'm genuinely thinking of going back IO next time lol
We stretched ourselves last move (2020) and seeing the rates now I'm genuinely thinking of going back IO next time lol
roadsmash said:
An interesting fact that a lot of people get confused is that repayment mortgages don’t “track” the BoE base rate.
They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
Yes, I think a lot of people MAY have gotten in to a new 5 yr fixed at a poor time and MAY be fixed too high for too long. At the moment trackers with no early exit fee are up to 1% lower so you could gamble on a tracker and see if worth fixing IF lenders margins begin to fall. Bank base at 1.25 and a 5 yr fix could be nearly 3 times the base rate today. Admittedly 5 yr fixed 6 months ago was 3 times base but still under 1% pay rate.They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
Pedant mode:
The repayment part has nothing to do with the tracking of Sonia vs boe. Mortgages use the SONIA regardless of being repayment.
Tracker mortgages, in terms of the product, do track the Bank of England base rate if that is what is written in to the offer (most trackers are now) but the money being loaned is bought and sold from the money market and very infrequently from
Bank of England as they remain the “lender of last resort”
The fixed rates being sold will not be directly linked to bank base which is what I think you meant?
FourGears said:
I dony envy those trying to get on the housing market today given the amount of deposit needed due to house price values.
Zero deposit mortgages could be used but no lender has any appetite for those
Help to buy with an own 5% deposit has been made pretty generous and well used. It is a shame that you can only buy overpriced and poorly built (on the whole) new builds now.Zero deposit mortgages could be used but no lender has any appetite for those
Caddyshack said:
roadsmash said:
An interesting fact that a lot of people get confused is that repayment mortgages don’t “track” the BoE base rate.
They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
Yes, I think a lot of people MAY have gotten in to a new 5 yr fixed at a poor time and MAY be fixed too high for too long. At the moment trackers with no early exit fee are up to 1% lower so you could gamble on a tracker and see if worth fixing IF lenders margins begin to fall. Bank base at 1.25 and a 5 yr fix could be nearly 3 times the base rate today. Admittedly 5 yr fixed 6 months ago was 3 times base but still under 1% pay rate.They track the SONIA rate, which is essentially the rate that banks borrow off one another.
All the people locking in on a 10 year fix @ 2-3% right now might be jumping the gun a bit.
Pedant mode:
The repayment part has nothing to do with the tracking of Sonia vs boe. Mortgages use the SONIA regardless of being repayment.
Tracker mortgages, in terms of the product, do track the Bank of England base rate if that is what is written in to the offer (most trackers are now) but the money being loaned is bought and sold from the money market and very infrequently from
Bank of England as they remain the “lender of last resort”
The fixed rates being sold will not be directly linked to bank base which is what I think you meant?
Gassing Station | Finance | Top of Page | What's New | My Stuff