Thousands of homes at risk

Thousands of Brits with interest-only mortgages are in danger of losing their homes this year as their loans mature.

There have been repeated warnings that anyone who does not have a way of repaying the outstanding capital stands a good chance of losing their home as their deals come to an end.

Billions

Figures from the Financial Conduct Authority (FCA) show an estimated 81,400 loans worth about £9.2 billion are due to mature in 2019 with another 82,100 worth £9.7 billion due to mature next year.

The loans became popular in the boom years of the 1990s because they allowed people to buy a home with a relatively small monthly outlay as they only had to repay the interest owed.

Repayment of the capital was delayed until the loan matured 20 plus years down the line.

Repayment

Borrowers were warned that they would need to set in place some kind of repayment vehicle which would generate enough money to cover the cost.

Many chose endowment insurance policies which they were told would generate enough profits to cover the costs.

But even when endowments began to underperform, leaving borrowers with a shortfall they would have to make up some other way, lenders continued to sell interest-only mortgages despite their customers not putting any repayment plan in place.

No repayment vehicle

It is understood there are currently around 3.3 million interest-only loans outstanding and research by Citizens Advice has revealed that approximately half (1.7 million) have no repayment vehicle in place and 500,000 haven’t even thought about how they will resolve the problem.

Lenders are starting to write out to their customers to warn of the seriousness of the problem with anyone not able to repay their debt facing the possibility of eviction from their family home.

Alternative ways to pay

Borrowers have a number of options available for repayment of the capital, most of which depend on their personal circumstances.

Options available include:

  • Extending the life of the mortgage with some lenders allowing extra time to raise funds or grow the value of their property if it is in negative equity.
  • Switching to a repayment mortgage if the borrower can meet the lending criteria, but such a move will considerably increase the monthly repayments.
  • Make overpayments because paying more than the interest alone will slowly whittle down the capital owed, but not all mortgage agreements allow it.
  • Negotiate a retirement interest-only deal which effectively extends the life of the mortgage until the homeowner dies or goes into care.
  • Downsize if you have sufficient equity in your home to both pay off your outstanding capital and allow you to move into a new home.

Advice

The over-riding advice from the experts is that if you think you might have a problem the best course of action is speaking to your lender as soon as possible to find a resolution for the issue.