Avoid the heartache of the interest-only crisis

Posted on May 09, 2018

There have been numerous warnings about interest-only mortgages in recent years. Just weeks ago, the main UK regulator the Financial Conduct Authority (FCA) said it was “very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes”.

With this type of mortgage, the borrower agrees to pay off the interest each month but makes no capital repayments. Borrowers are expected to make sure they have an investment plan in place – usually an endowment policy – to pay off the debt at the end of the term. Some people face a shortfall because their investment has underperformed, while others never set anything up.

In 2013 the FCA revealed that about 1.3 million homeowners faced an average shortfall of more than £71,000. However, the situation may have improved or worsened since then. This year alone, an estimated 85,000 interest-only mortgages are due to mature, and Lloyd said: “I am sure there are tens of thousands of other families potentially facing the same desperate situation [as the couple] in the coming years, which is unacceptable.”

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Source: https://www.theguardian.com/