Many householders with interest-only mortgages could face losing their homes amid warnings that up to half will not have enough money to repay their loans.
The Financial Conduct Authority (FCA) has told banks to contact borrowers in an effort to prevent people defaulting. Around 600,000 home owners will have to repay their mortgage before 2020, but just under half will not have enough money to pay the loan back in full, according to FCA research.
The FCA said 100,000 of these borrowers will have a shortfall of more than £50,000. Most had a mortgage backed by an endowment policy, where regular savings are invested, but dismal returns on these mean they face a shortfall.
Over the next 30 years, around 2.6m interest-only mortgages will be due for repayment and one in 10 people on these deals have no repayment plan. An opinion piece in the Telegraph says that the warning is too little, too late for some.
A separate article in the FT looks at how difficult it is to obtain an interest only mortgage these days.
Source: The Guardian,
We say: So: putting this shock horror story into context, 5 out of 6 of all the people with interest-only mortgages to pay off in the next few years will have the resources to do so or will be less than £50,000 short.
Add the reasonable inference that the biggest shortfalls are likely to arise on the most valuable properties which can most easily be re-mortgaged or downsized and the problem seems less of a financial Armageddon than the Grauniad would have you believe. And even looking further ahead, up to 30 years down the line, 90% of people already have (as you expect) a repayment plan in place.
Of course, we don’t suggest that having to check the sofa for £50,000 of loose change is a desirable position to be in: but in most cases it’s not the end of the world. And if refinancing is likely to be the solution, call us.
All views expressed in the BKL Blog are those of individual contributors and may not reflect those of Berg Kaprow Lewis LLP
