A couple have seen their mortgage payments plunge £1,500 a month to just 1p thanks to the huge cuts in interest rates, it emerged today.
Ben and Nicola Cameron signed a two-year tracker deal at 1.01 per cent below the base rate when they bought their London home in 2007 for just over £400,000.
They only pay interest on the loan from Cheltenham & Gloucester so have been paying nothing since February when interest rates were slashed to one per cent.
The Bank of England has since cut them again, down to another historic low of 0.5 per cent.
It is only down to a computer glitch that the couple are paying anything at all, according to the London Evening Standard.
So the principle never gets paid? How does that work?
It doesn’t. They are one of the reasons we’re in this mess. They’ve bought a house they can’t afford to pay back the capital on and therefore will have that £400k debt around their neck.
Officially you are supposed to have an investment vehicle to pay off the capital some other way, for example a savings plan or Stock Investment (yeah, right!)
If they really have been paying nothing, then they’re idiots. Take advantage of this and keep paying what you would normally be paying per month against the principal.
Yeah, so its not free mortgage, its free rent!
So when they start to have to really pay for this mortgage. They’ll go from £0 to £4,000 a month. Won’t be able to afford it and then be foreclosed on. So is England going to be the next housing bubble burst?
Absolutely reckless and irresponsible. Instead of proudly smiling for the camera, they should be writing a check to pay down some of the principle to take advantage in this once in a life time opportunity.
That woman needs to get rid of the tight shirts.
Fashion trends are started by young people who can often make the most ridiculous things look OK. Then the general population wears them and it’s horrible.
I read the article and it looks like they’re actually doing the right thing. They’re not paying towards the principle because since they’re not being charged any interest it doesn’t make any sense. They’re investing the money they were paying when interest rates were 5.5%.
If someone was to offer me a half million dollar loan interest-free you bet I’d jump at that chance. Then invest the money somewhere with the best guaranteed return (even if it was some savings account at 0.25%) and not touch anything but interest.
The quote from them was: “It has been tempting to blow the extra money on a holiday, but it seemed irresponsible when we’re about to become parents and we may be in negative equity because our house has fallen in value.”
When you have a zero interest loan even inflation is working for you. They borrowed over half a million equivalent US$ in 2007 currency. Currently real estate is losing value but that can’t continue a whole lot longer. The old adage “they’re not making any more land” will eventually bear fruit once again and real estate values will come back up and it looks like they’re planning long term.
The extremely low payments that suddenly balloon out was a situation when people weren’t even paying the interest. In this case they can’t _NOT_ pay all the interest because there isn’t any interest to not pay. If interest rates skyrocket they’ll be able to either pay off a significant chunk of principal from their savings to bring the payments down to something reasonable (possibly after a re-finance.) The only possible problem they could run into is if interest rates skyrocket to the point they can no longer afford the mortgage. Then they’re still better off doing what they’re doing because they can apply both the principal they would have paid plus all the interest they made on their savings.
#6, exactly. Then at some point they might qualify for a proper mortgage…one they can afford.
IMO, the banks who sell these mortgages need to eat them when they fail. They know damn well that the buyers can’t afford them once any little thing goes wrong. But buyers get “house fever” and will agree to anything, and the seller gets his commission regardless how the loan ends up.
My mortgage is currently down to 1.75% – I’ve been doubling up my mortgage payments to take advantage of the situation.
These guys are idiots. In 2 years they’ll be out on their arses.
#10, chuck,
In 2 years they’ll be out on their arses.
In the meantime though, they will have had paid very little in the way of rent and have lived in a nice house.
#9, Mr. Baggins said it quite well. Blame the fool mortgage company that underwrote the mortgage. To the couple, it is like free money.
In 78, I could have bought that house for 40,000 GBP. About two years salary for one person, at that time.
Interest-only, negative amortization, no-documentation, and no-downpayment mortgages are the insanities that created the bubble.
You will see this couple again when they ask to be bailed out by the taxpayer when the interest goes to 18% as today’s bailout money causes massive inflation.
Um… the two-year tracker deal was signed in 2007. What year is this? The deal expires, the bank resets the rate, and they’re back paying more interest than they need to.
Note that in the UK you are expected to follow the agreed schedule for repayment of a mortgage. If you pay it off sooner than expected, you will be hit for “early redemption” charges, as per the contract. The bank always gets paid.
Anyone looking at that house and thinking ‘£400,00 for that tiny little crappy looking house ??’
The whole economy here in the UK is tied in to house prices, ever since Thatcher promoted house ownership in the 80’s.
Local councils used to provide affordable rented housing, but they were forced to sell them off a reduced prices and prevented from using that income to build new ones.
So now the UK has a severe house shortage which drove up prices to a ridiculous level which could not be sustained.
Estimates vary between a 30-50% drop in prices over the next couple of years.
A lot of my wife’s friends in their twenties bought houses in the last 2 years, and are now stuck with them as they are worth less that they paid. I’d been telling anyone that would listen(ie my wife) that house prices were due to crash soon, so we did not buy. Now we hope to buy in when the prices bottom out.
If anyone in the US wants a laugh, check out http://www.rightmove.co.uk to see the price of houses for sale in the UK !!!
I take huge offense to calling folks like this “homeowners”. We have this same problem in the U.S. Folks get an interest only mortgage for 5 years or whatever and don’t own ANY equity in a property. They are renters, plain and simple. And yet when they struggle their is talk about government bailouts, but no help for responsible renters like myself who know they can’t afford an adequate property.