Endowment mortgage time-bomb: What they’re saying

  The newly formed Financial Conduct Authority has warned that one in five holders of interest-only mortgages are uncertain that they will be able to pay off their loan at the end of its term.   More than a third believe that they will face a shortfall between the outstanding amount owed, and their currentRead More

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The newly formed Financial Conduct Authority has warned that one in five holders of interest-only mortgages are uncertain that they will be able to pay off their loan at the end of its term.

 

More than a third believe that they will face a shortfall between the outstanding amount owed, and their current strategies for repayment – including, but not limited to, endowment policies.

 

The average expected shortfall is £22,100, but in 15% of cases it could be over £50,000, while 33% of those who expect a shortfall believe it will be of less than £10,000.

 

Endowment mortgages in particular have been the subject of mis-selling investigations in the past as, during turbulent economic times, the value of the investments intended to repay the loan can fall.

 

So with them back in the headlines, what are those in the industry saying?

 

Saga believe a quarter of a million over-50s will have to sell their homes in order to cover shortfalls on interest-only mortgages.

 

In this age group, the average shortfall is £49,000, say Saga, and a million endowment policies are insufficient to cover the relevant loan.

 

The FCA, interestingly, found that more than a quarter of interest-only mortgagors actually intend to sell their property as their preferred repayment strategy – either to downsize, or to return to renting.

 

The Council of Mortgage Lenders says it is working with its members to improve the information given to borrowers.

 

Within the next year, this should see all interest-only mortgagors whose policies are due to mature by 2020 contacted by their lender about their repayment plans.

 

Those with longer-term loans should be contacted at some point too, but it might not be within the coming 12 months.

 

Product comparison site MoneySupermarket.com has actually spoken in support of interest-only mortgages, saying that they are appropriate for the debtor’s needs in many cases.

 

Mortgage spokesperson Clare Francis says: “As the FCA’s report highlights, 90% of people with interest-only mortgages do have a repayment plan in place, and they are not inherently a bad product.”

 

The coming months are likely to be of particular interest to those for whom interest-only mortgages are the only affordable option, as any crackdown on their use could see a broad range of buyers priced out of the property market once again.

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