Wednesday, August 23, 2006

uk / the debt that never dies

so sieht wohl pure verzweiflung aus. auf die idee zu kommen das die preise einfach zu hoch sind und die dringend korrigieren müssen ist wohl nich keiner gekommen. anstelle dessen werden ähnlich wie in den usa (option arms, arms etc) immer neue kreditformen erfunden/kreiert um
höhere kreditsummen, niedrige raten und damit höhere kaufpreise zu zaubern.

dank geht an bert und ben

The home loan your children will inherit

Parents will be able to hand down their home loans onto their children under a radical shake-up of Britain's mortgage industry which starts today.

In a revolutionary move, homeowners would never need to repay a single penny of their mortgage before they die.

Instead, the debt will be passed to their offspring, allowing them to slash the amount of inheritance tax they would have to pay.

One expert yesterday nicknamed the new mortgages as 'the debt that never dies' as the loans can continue to be passed on through the generations.

With these radical new home loans, parents can take out a cheaper interest-only mortgage which passes to their children after their death.

They could also pass the mortgage onto a non-family member, such as a friend or even a colleague, if they wanted to.

The mortgages are hugely popular in a few other countries, such as Japan, but they are going on sale in this country for the first time this week. (sind sicher die nachwirkungen des immocrash in japan)

A big perk of the new mortgages is that they will help parents to leave their home to their children and cut the amount that goes to the tax-man.

The building society, Kent Reliance, said it had been thinking for some time of launching the mortgage, which it is calling an 'inter-generational mortgage.'

Rival lenders are likely to follow with their own copycat mortgages if the launch proves popular.
Chief executive Mike Lazenby said: 'We thought about calling it the Death Bed Mortgage but we thought that would be a bit morbid. It could be the loan that never gets repaid.'

It applies to interest-only mortgages, where the monthly payments only cover the interest but do not repay any of the original loan.

For example, a parent could have an interest-only mortgage of £100,000 on their home which is worth £150,000.

When they die, the mortgage and the house would pass to their children.
The children would only have to make a decision about whether or not to take on the mortgage when their parents died.

If they did not want the mortgage, it could be settled by selling the house or repaid by other means, such as an insurance policy or the sale of other assets.

If they did agree, they could continue to pay the monthly interest payments which their parents were paying before their death - and keep the house.

It would have an inheritance tax perk because only £50,000 - the value of the house excluding the mortgage - would be included in their parent's estate.

Inheritance tax

The inheritance tax threhold is currently £285,000 which is proving a huge headache for home-owners whose properties have rocketed in value.

James Cotton, mortgage specialist at advisers London & Country, said: 'One of the big trends in the housing market has been parents helping their children get onto the property ladder.

'This generation of first-time buyers is having a lot of problems getting onto the ladder. This is just the ultimate extension of the 'parents helping their children' principle.'

Interest-only mortgages have become much more popular because the monthly payments are more affordable.

For a typical mortgage of £115,000, the monthly payment would be £646.88, compared to £794.55 for a repayment mortgage. Both figures are based on paying an interest rate of 6.75 per cent. But there is a big catch to these radical new types of mortgage because an interest-only mortgage can prove extremely expensive.

Over 25 years, somebody with a £100,000 repayment mortgage with an interest rate of 5.5 per cent pays back nearly £185,000 - and owns their home too.

But somebody with a £100,000 interest-only mortgage, also at 5.5 per cent, pays back nearly £138,000 but does not own their own home.

Official figures show nearly 30 per cent of all mortgages taken out in June by home-owners are interest-only mortgages.

In June 2004, the figure was just 18 per cent, according to the Council of Mortgage Lenders (CML).

This is set to increase as rising house prices force people to stretch their finances to the limit to afford the biggest mortgage that they can.

With the average asking price now £215,000, interest-only mortgages are the only option for people on lower incomes, particularly if they want to buy in the South.

For many others, interest-only mortgages are attractive because the monthly payments are cheaper than rent, and there is a chance of the property going up in value.

A spokesman for the CML said: 'Inter-generational mortgages are another example of how the industry is offering even more choice to consumers.

'As with all loans, consumers who are considering taking out these new products should take independent financial advice.'

A home-owner with an interest-only mortgage is meant to take out a separate investment which will be used to repay the mortgage in the future.

In reality, many people do not bother to take one out, and simply pay the mortgage interest every month.




Blogger HARM said...

Just lovely --parents used to bequeath assets to their children, now they can leave them permanent debts too. Debtor's prison anyone?

RE "parents helping their children get onto the property ladder":

I'm sorry, but how is taking on a perpetual interest-only loan different from renting? Except of course, an I/O debtor has much higher downside risk with an illiquid asset s/he may not be able to get rid of down the road, while a renter can simply move when the need arises.

10:26 AM  
Blogger jmf said...

smells like the endgame.

the reference to japan should ring all alarm bells.

12:57 PM  
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11:09 PM  

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