It depends entirely on the circumstances of the individual and their rationale for wanting/needing one.
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To get on the chocolate housing ladder. Can't afford a conventional mortgage but could do interest only.
(not for me, for skint friends)
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Useful if you reckon that the property value will increase over the next ten years. Otherwise not very wise and you never build up equity, so you might as well rent.
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Really does depend on the circumstances. And if there's no investment vehicle building up the capital ready to pay off the loan at the end of the term, they really need to have their eyes open to the potential problems.
If they do go for it though, i can recommend the first direct offset mortgage. Your savings and bank balance reduce the loan and therefore the interest. I'm a satisfied customer. Virgin do one as well.
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If they can find a flexible interest only mortgage they should save as and when they can and pay this off their outstanding balance (my repayment mortgage allows capital repayments of any amount at any time). Even if they only save half of what they would have to pay on repayment mortgage they are chipping away at the outstanding capital.
If funds are tight they need to be aware of potential rate rises, even if on a fixed rate, as they will get caught out when the fixed period ends. If they can't afford to save anything towards paying off capital they should be asking if they can afford the mortgage. They should look at the figures and see if they could afford the repayment if mortgage rates went up.
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I think I would tend towards the 'if you cant afford it dont buy it'.
Seriously, if they can only afford the interest, what happens when rates go up? Are they looking at the cheap starter deals with a view to remortgaging in 2 or 3 years? What happens if they cant get another interest only ?
Is it going to be a large loan/value ratio ? Are they expecting to get an increased income ?
Buying involves you in a host of large costs and as I understood it the banks are getting more restrictive about interest only deals - they like to see a way for the loan to pay off.
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"as I understood it the banks are getting more restrictive about interest only deals"
From my recent experience one thing banks aren't doing is making it harder to borrow money.
Mortgage companies are moving towards a personal credit system rather than a valuation versus income system. If you say you can afford it they will lend you the cash.
I saw an offer yesterday for a buy to let mortgage. 90% of value loaned (up from the norm of 85%, which used to be 75%) at 2% below base rate for two years interest only and no set up fees.
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Daveyjp
You could be right. But I thought the point about this was that it is about your personal status. The usual situation where they will loan you whatever you want as long as you can show that you dont need to borrow it ;)
All the good deals seem to be subject to status and the they do look at individual status.
I'm glad mine is paid off.
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Thanks for the replies. I'm getting the feeling that this is not a good idea.
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This has been posted this am on another bb I use - not credited so I dont know where it is from:
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Mortgage lenders axe cheap deals leaving homebuyers 'crippled'
By BECKY BARROW
Homebuyers face being crippled by their mortgage repayments as Britain's biggest lenders are axeing their cheapest deals, experts warned.
Over the last few days, home loan giants such as Halifax and Alliance & Leicester have scrapped their best fixed rate mortgages.
Fixed rates mortgages are popular because they provide certainty by guaranteeing a fixed interest rate for a certain period of time.
But the good deals are disappearing because the Bank of England is tipped to raise interest rates next month and possibly again early in the New Year.
The move is a major blow for first-time buyers who have been dealt the 'double whammy' of soaring house prices and rising interest rates.
Homeowners who are about to remortgage or take out a bigger mortgage to buy a larger home will also be hit by the move.
Yesterday experts urged people on the verge of taking out a mortgage to rush to secure the dwindling number of good deals which are still on offer. (AtW: fking experts my arse - they should have told people not to buy house as clearly the bubble is on its last blow, ffs)
David Hollingworth, mortgage specialist from advisers London & Country Mortgages, said: "For anyone who wants the stability of a fixed rate deal, there is no point hanging around becauase it looks like rates are going up."
Deals which have been scrapped are mortgages fixed for two-years at competitive prices, such as Alliance & Leicester's deal at 4.64 per cent.
Halifax, Britain's biggest mortgage lender, has closed its 4.39 per cent deal and Cheltenham & Gloucester has scrapped its 4.65 per cent deal.
Northern Rock has warned that it has put all its fixed rate deals are on 'withdraw watch' which means they could be scrapped at any time.
Some deals are still available, such as Nationwide's deal at 4.47pc but the fee charged to take out the deal is an eyewatering £1,499.
Nick Gardner, a director of Chase de Vere Mortgage Management, said: "A rise in interest rates is a kick in the teeth for first-time buyers. (AtW's comment: yes Nick, maybe you should have advised people to NOT buy houses and stop ALL deals for a month just to show the force of buyers, ffs)
"They've got the double whammy of rising house prices and rising interest rates."
More expensive fixed rate mortgages are the last thing that Britain's hard-pressed homebuyers need.
They are already struggling with average house prices at a record high of about £180,000 which are forecast to keep on rising.
More than a decade after prices starting going up, the estate agents Knight Frank predicts prices will go up an inflation-busting six per cent next year.
People are being forced to borrow record amounts of money to buy a home. The average mortgage is an all-time record of £130,000, according to the Council of Mortgage Lenders.
The combination of soaring mortgages and rising interest rates is a terrible one for homeowners whose finances are stretched to breaking point.
In 2003, the average mortgage was just £80,000 and it was possible to get a fixed deal at 3.25 per cent. This would mean monthly repayments of £390.
Today, the avearge mortgage is £130,000 and fixed rates are set to rise to 5.3 per cent by the spring. This would mean monthly repayment of nearly £800.
One expert said the market had been 'spooked' by the strong hint by the Bank of England that rates are on their way up.
The Bank's monetary policy committee voted to keep rates on hold this month (oct) at 4.75 per cent, but the decision was close. Two of the nine members wanted rates to go up to five per cent.
According to the minutes released after the meeting, it warned: "But for most members, the decision was finely balanced."
If rates do go up to 5.25 per cent by the spring, as expected, they would be at their highest level for more than five years.
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"People are being forced to borrow record amounts of money to buy a home"
And mortgage companies have been relaxing the rules to such an extent that borrowing record amounts of money is now all to easy.
'Stop adding fuel and the fire will die down.'
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I've told them to wait for now and review in the New Year. Part of my job involves collecting and analysing economic data. Some of it is beginning to look a bit sour now.
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What about part repayment part interest only? I've had to do that with my current mortgage. Interest only portion is covered by a future inheritance.
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I am so naive, so simple in my view of life. Do people really borrow money for a house and rely on some other poor soul popping their clogs to pay it off. I've heard of live now and pay later, but hey.....
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