The newly-formed Financial Conduct Authority (FCA) has issued a report warning of the ticking timebomb of interest-only mortgages.
The interest-only products mean that borrowers pay the interest on the mortgage each month, with the actual loan amount being due for repayment at the end of the lending term. Many borrowers have relied upon an increase in house prices and a return on other investments to repay the capital when due, but the stagnant economic climate has meant interest rates on savings have plummeted and house prices have fallen, or increased at a slower rate than expected.
Whereas this downturn should have been a sharp warning to borrowers with interest-only mortgages, the FCA figures show nearly half are without a plan for repayment. The report predicts that this translates to more than a quarter of a million homeowners being unable to pay off their mortgage and the likely outcome being that they are forced to sell their home to make the repayment.
Even though lenders have agreed that they will contact borrowers who appear at rick, FCA Chief Executive Martin Wheatley is advising borrowers “to not bury your head in the sand – take action now. Understand the terms of your mortgage agreement and take control.”
Adrian Nicholas, IVA Department manager at McAlister & Co agrees: “As with all potential debt problems, debtors and borrowers need to be pro-active. Make an appointment with your mortgage lender and be honest with them; they would much rather help you to put a plan together now and keep you as a customer, then have you in financial difficulty in the future. And remember, you are their customer, you are paying them a lot of money over the term of your mortgage and you have every right to access their financial expertise.”
Yet again, there are whispers of a potential mis-selling scandal with a number of borrowers seemingly unaware that they were required to make the capital repayment at the end of the term.