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Couple with 1p a month mortgage
Sri Carmichael23 Mar 2009
A COUPLE'S monthly mortgage repayments have fallen £1,500 a month to just 1p after the Bank of England slashed interest rates.
Ben Cameron and his wife Nicola snapped up a two-year tracker at 1.01 per cent below the base rate from Cheltenham & Gloucester when they bought their home in December 2007 for just over £400,000.
They only pay interest on their mortgage so have owed nothing to the lender since February when the Bank of England cut the base rate to one per cent followed by a 0.5 per cent cut this month.
The building society today admitted that the couple should in fact be paying nothing on their mortgage but a computer glitch is forcing them to pay 1p a month.
Mr Cameron, 37, whose 28-year-old wife is due to give birth to their first child in June, said: "We feel incredibly lucky - we almost didn't go for it. It was only the third broker we approached who flagged up this deal. We look at our mortgage statements now and they look ridiculous, it's fantastic." A handful of lenders, including Halifax, offered two-year trackers at between 0.51 and 1.01 per cent below the base rate in the last half of 2007.
Ray Boulger, of independent mortgage broker John Charcol, said the estimated 10,000 people who took out interest-only mortgages at those rates are effectively enjoying free home loans.
"They're the last below base-rate trackers we'll see for a considerable time," he said. "Lenders have learned their lessons."
An estimated 30,000 more homeowners are believed to be on zero interest loans but are on repayment schemes so are still paying lenders hundreds of pounds a month in paying off the capital.
Computers at mortgage companies have been unable to process the zero interest. "That's why we're paying one pence," said Mr Cameron, an estate agent. "Cheltenham & Gloucester sent us a letter saying their admin system couldn't cope and they'd charge us a nominal rate of 0.001 per cent, then refund us. We pay them 24p and they pay us back 23p - it seems very silly."
The Camerons, who bought the two-bedroom Victorian cottage in Hampton in Richmond borough with a 20 per cent deposit, have not spent their saved cash.
"We're saving what we were paying when the interest rate was 5.5 per cent," Mr Cameron said. "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."
They will have to move to their lender's standard variable rate at the end of the year. Mr Cameron said: "It's a huge relief to know we can use the money we've saved to put equity back into our home so we can hopefully get a good fixed rate deal."
The most attractive tracker mortgage now on the market is a life-time rate of 2.39 per cent above the base rate from First Direct, available with a 25 per cent deposit.
Reader views (26)
I didnt think you were that smart at school Ben? I have changed my mind. All the best with the birth of your child. spears.
- Mark Spearing, Gladstone Australia, 25/03/2009 22:29
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What a lot of vitriol. They are living for free. Negative equity is only a problem when realising a debt. If they average their payments over the coming years and stay put they will do just fine. Good luck to them. Proof that buying is ALWAYS better than renting.
- Larry Harris, Amsterdam, NL, 24/03/2009 10:56
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"interest only mortgages are suicide money."
That's a view based solely on the short term drop in global financial markets. I have had and paid off an interest only mortgage, the term of which included severe, but short term, stock market drops.
- John, London, 24/03/2009 09:23
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This is absolutely insane. Ive been priced out for ten years, and im still paying £600pcm rent. My business is crippled and Im paying my rent out of my savings. I am a hardworking professional engineer. Who has not been able to afford a bedsit.
Yet, the government, are now stealing my money, [by printing money, Stealing my interest rates, raising my taxes] so that this couple, and 30,000 others, on trackers mortgages, can stay in a MASSIVELY overpriced 2 bed terraces for as little as one pence per month!!!
Where is the social justice?
There are 7 savers for every 1 debtor in this country. Living under Brown is like living in a medievel feudal society.
RAISE INTEREST RATES BACK UP NOW!!!!
- Daniel, London, 23/03/2009 21:56
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It looks like their 20% deposit has already disappeared, due to falling house prices, and they are now heading for negative equity. That alone will probably bar them from re-mortgaging with another provider. I also wonder whether Mr Camerons sole income is enough to obtain a £320k mortgage and presume the original mortgage was based on joint income, which itself was calculated when higher income multiples were possible.
I would further assume that an interest only mortgage was chosen because finances were already stretched. Very worrying indeed, but not uncommon. Interest only mortgages, without some evidence of investments to pay off the loan at the end of its term, should never have been allowed.
They will, therefore, be at the mercy of Cheltenham & Gloucesters standard variable rate unable to swap to a better deal. They need hope that interest rates do not climb too high...
- Chris, London, U.K., 23/03/2009 21:14
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Some regarded National Newspaper should have a countdown on its front page every day for a month. And on D-Day, every saver in the UK should line up outside his/her bank and withdraw all of their savings.
This would send a message stronger than any summer of rage. Enough is Enough.
This would show them who is Boss. Its the ONLY thing they will understand.
- David, London, 23/03/2009 21:04
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They should be very worried indeed when it comes to remortgaging this December.
They will have suffered at least 20% drop in value, only hope they have enough loan to value to secure a remortgage.
- Diggeruk, SE England, 23/03/2009 18:32
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£400K, for a 2 bed in Hampton. I hope they have a long term view, like 20years!
- Mike, london, 23/03/2009 17:31
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These people have contributed to the financial meltdown that we all now have to suffer.
I'm an engineer, not an economist, yet I NEW the bubble would burst, as did a lot of others.
They need their heads testing. 400k for an old, 2 bed house. Real value in a few years will be 60k, London or not.
High interest rates on the horizon and massive negative equity, and not even paying off the house. Madness.
I suspect this is the nightmare to bankruptcy.
- Np, Cornwall, UK, 23/03/2009 16:40
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As others have said, the 20% fall has already cancelled out their deposit so they currently have no equity. A further 10% fall this year would put them in about -£32k worth of negative equity, so even if they're saving £1500 per month, that's £18k for the year which isn't enough to get them out of it.
- Maria, London, 23/03/2009 16:37
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Oh, and I forgot to mention that by then she will be out of work (child) and he might not have a job, or his income might have tumbled down to around £25K...
I am starting to feel sorry for them.
Does not look like a very solid move now, £400K for a 2 bed...
- Bubble Court, Wimbledon, 23/03/2009 15:02
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My Friends, Just think. It is likely that his house is worth 30-40% less.
His simle is false as he knows his tracker will end,
1500 per month would suggest a house probably purchased at 350,000 pounds, now only worth 250,000.
So you have lost your deposit and are in negative equity, wake up sunshine. You have lost and have more to lose.
- Ian Powell, Horsham, 23/03/2009 14:57
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Would be interesting to go back to this in 6 months time.
When time for remortgage comes the valuation will come in at, say, -30%, so £280K. They will need to go to 90% at least LTV, so they will need to cough up at least another £68K to be able to get a repayment mortgage at, say, 4.5%, to get their repayments back at £1400 pcm.
That's after paying already £80K to 'snap up' the house.
They will able to save maybe 11K that they would pay 7 months x £1500, so till another £57K to find.
That makes it a £137K to find in 2 years for a house worth then £280K !!
But instead of owning about 53% (148/280) they will own only 37% (148/400)
Good luck to them... I hope they have the money!
- Bubble Court, Wimbledon, 23/03/2009 14:48
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This sort of thing illustrates perfectly the COMPLETE AND UTTER STUPIDITY of the people who have been running banks.
I read that bank deposits are dwindling. No wonder! How can banks pay attractive rates to savers when they have morons in charge that allow borrowers to borrow money for NOTHING. Idiots the lot of them.
What is going to happen when savers, slowly but surely, withdraw all their money from the banking system and there is no more money to lend out?
Phase 4 of the crisis no doubt. They will have to get the printing presses running even faster. 2 pounds to the Euro anyone?
- Mike Wilson, Winchester, UK, 23/03/2009 14:41
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i began a search to buy a house at the weekend, the asking prices hardly seem to have come down at all in the last 12 months so I've made an offer today and will expect a rejection so no payrise, no bonus, no holiday. high electricity, gas and fuel prices and still renting . well done gordon brown you have screwed this country over.
- Confused, london, 23/03/2009 14:19
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Well I am just a novice when it comes to finances; I have never used any kind of business expert for anything; least of all advice; I tend to stick to buying what I can afford; and live within my means etc.
I see no point in just paying interest only payments; and not paying for the actual goods bought etc; what happens if interest rates go up to 15% on the total goods?
Being a simple man; and uneducated; my mind tends to think in simple terms.
I see the government pumping billions into all kinds of financial black holes; and savers losing interest hand over fist; which leaves me wondering how long savers will stand for this etc.
As the majority of people are savers; if they all withdraw their savings; then the financial services will have to attract them back anyway they can; to get the money back etc; this will be done by increasing the interest rates; which could in a very short space of time reach the levels they have in the past etc.
They say the last laugh; is the best laugh; but as I have said; I am just a simple man without any education.
- Mickyinlondon, london, 23/03/2009 14:00
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People say that renting is dead money, but interest only mortgages are suicide money.
I hope you do a follow up article about these two when they try and remortgage
- Garth Timms, London, 23/03/2009 13:10
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No payments for now, but this type of loan could also double or triple their mortgage payment. If I was them I would still be making payments to the principal / loan amount and paying it down ASAP.
- Brandon Thomas, London UK, 23/03/2009 12:46
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£400K in dec 2007 means the property has lost 20% and is worth 320K. By next year the property will be worth 260K and their mortgage will cost 3K/month interest only. I'm surprised they've gone public about this. Interests rates will soon return to 5-6% and then they'll be trouble in store for the subprime lenders.
- Bruce, london, 23/03/2009 12:37
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Surely the lender should be paying them every month as they are essentially at negative interest rates, - 0.51% in fact?
- Bruce, London, 23/03/2009 11:59
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a 2 bedroom property...for 400 k. i would hardly like to be in their shoes when it actually approaches its true value of around , oh lets say 90 k?
- Patrick, Singapore, 23/03/2009 11:50
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Crazy, and no doubt the taxpayer will have to bail out the bank who made the loan.
- Patricia, London, 23/03/2009 11:39
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Good Luck to them - we advised clients back then to go for these trackers and many opted to wait for prices to crash - they can't even get a mortgage now! They may be in negative equity but they are not paying anything to live so in my view - they are very lucky, they can afford to make large overpayments on their loan now to reduce the mortgage.
- Mortgage Broker, London, England, 23/03/2009 11:38
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Ermmm, forgive me for sounding stupid, but they still owe the £400k don't they? I'm not privy to Mr Cameron's personal circumstances, but he still has to service a substantial level of debt. If you take into consideration the readjustment of property prices across the board, the figure borrowed can hardly be considered 'interest free' can it?
- Jim, London, 23/03/2009 11:37
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Very clever but how much negative equity do they have in their property?
- Paul, London, 23/03/2009 10:45
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And now let's have a story about how much an unlucky couple of pensioners have had their income go down in order to subsidise this couple's good fortune . . .
- Roz, Chamonix, France, 23/03/2009 10:35
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