At 54 I am having to rebuild my job and financial life also. I have no advice to offer, only an exhortation. Let us pray for one another and for the millions in similar circumstances.

First off, the common practice was to pair an interest-only mortgage with an “endowment” — an investment plan designed to grow what would have been principal payments so as to pay off the mortgage at the end. This is very different from taking the savings from an interest-only mortgage and spending it all on shoes.

Until 1984, there were two big advantages to this strategy of pairing an interest-only mortgage with an endowment. First, you got a tax break on the endowment payments because it was a form of insurance. Second, your money would go to work for you immediately in an endowment, whereas in a principal-repayment mortgage, it might not make a difference until the end of the year.

It sounds like the author got her first mortgage around 1983, so presumably she (along with hundreds of thousands of other UK homeowners) was counting on these advantages.

More about endowment mortgages can be found here: http://en.wikipedia.org/wiki/Endowment_mortgage

Again (and I think previous commenters have made this point), interest-only mortgages are only a problem when they’re not sensibly combined with another investment strategy.

My advice to the author would be: 1) sell the flat — it sounds like the only way to get further equity out — and get a cheaper place (possibly a rental); 2) pursue a court case against the insurers or brokers who sold you the endowments for misrepresentation; 3) never, ever, ever believe a salesman again.

Ignore them.

You did the best you could with what you had. Now, it seems, there is another topic for you at hand – How to Survive a Financial Crash in your Life . Maybe dissect what you did and why it failed, and it will help others who fell into that trap.
Perhaps you can explore the finacial world and add to the self-help books on finance (and how do deal with it when you know nothing about it) that so many people need. However the basics do appply, if one can get one’s act together (I don’t, yet).

Take heart – there are tons of budget blogs and websites which deal with how to start from zero. I’m sure that by the time you get thru with them you’ll have a whole new book ready to publish!

This probably isn’t the time for one of those “things always work out for the best” speechs, but WTH? there’s no turing back, so why not?

Use this disaster to start over for real, clean break with the staid life you planned for yourself with all the mechanations designed for your comfort.

Starting over stinks, but it can open new doors, lead you to try things you otherwise wouldn’t. Get you living in the thick of things again. Know that when you look back at this when you are 80, maybe, just maybe, it will be a great moment, a turning point.

Good luck to you.

The problem here is the property is security for a loan. In a principal and interest loan this usually isn’t a problem as you have been reducing the outstanding loan balance by principal repayments and hence its less likely that any decrease in valuation will drop the security value below the liability. In an interest only loan though, suddenly the bank has an unsecured liability to the extent of the shortfall between loan balance and property value. This in itself may trigger action on the bank. The same principle applies to margin lending versus normal loans for investment.

We paid off our house, then we bought the house next door for my elderly in-laws to live in. Paid that off too. We ate a lot of rice and beans. The last holiday we had was our first, a delayed honeymoon in 1986. My car is old enough to vote – even to drink alcohol.

I put aside as much as I could in my superannuation (401k equivt). Some money in blue-chip stocks – banks, insurance companies, large stores. What I could afford to lose in risky ones. When my son was born, a quarter of my salary into his education fund. All this despite very patchy employment circumstances, years when I’d get 80k, then years when I’d get 2k, if I got paid for the work I did at all.

We’ve had about $50,000 of medical expenses out of the blue, all excluded by our health insurance. We’ve dropped that now. The one time we needed it, the claims were refused, and we have no money to fight that.

My super is worth a bit less than half what it used to be, and not quite as much as I’d paid into it over the last 30 years. I was conservative you see, taking minimal interest in return for minimal risk. About half the risky stocks are waste paper, the other half did well, so I almost break even there. The blue-chips have halved in value – and again, I’d been conservative, always re-investing, never withdrawing dividends. They’re worth less than I paid for them.

The one good thing – my partner is in the Public Service, and the pension there keeps on increasing, regardless of what the real world does. My partner will retire and withdraw everything as a lump sum before that particular Ponzi scheme collapses.

No, I am not a financial genius, I just have a basic understanding of economics, which my fellow citizens fail to share.

All the signs were there for those who cared to see them, just as all the signs of cultural degeneration are there for all to see them. And yet, the herd will be soooo surprised when it all goes upside down…