Some financial experts have long believed that there is an interest only mortgage ‘timebomb’ in the UK just waiting to explode when millions of borrowers come to the end of their loan boundary and find they have not paid off their mortgage however have no provision for paying the outstanding amount they owe. Most high street banks and structure societies no longer offerthis type of lending and now the new City regulator, the Financial Conduct Authority (FCA), has stepped in to tackle the syndrome of existing interest only mortgages.
Following years of inaction, lenders have present been ordered by the FCAto contact their customers who might opheffen at risk of defaulting on their home loans. It is estimated that approximately half of interest only borrowers will struggle to pay back their mortgages in full when due in the years up to 2020; that amounts to around 300,000 home owners affected by this problem.
Before the attribution crunch many thousands of borrowers had part mere loans confirmed and were happy to take them out because they offeredlower monthly repayments than a regular repayment (capital and interest) mortgage, also they also gave high value mortgage borrowers a measure of flexibility in deciding how they could repay their debt. For high net assets people their debt repayment would usually have been planned through the sale of different assets, with anticipated bonuses or way an inheritance.
However, many ordinary borrowers were relying on grange prices to keep rising at the same rate equal they had done historicallyand expected momentous equity gains on their home to enable them to close out their home in the future and use the profit to pay off the home mortgage and bargain a smaller property with the remaining proceeds.
Clearly for most home owners during the economic downturnhouse priceshave stagnated, at best, or, at worst, have actually fallen. This means that many thousands of home owners aretrapped in a spot where they simply don’t have the means to repay their mortgages although they fall due.
Banks et cetera castle societies are now angel obliged to contact their interest nothing but borrowers and offer information to help them uncover a method to repay the debt. The problem is greatest for those who will soon come to the end of their mortgage termbecause,with only a few years left, the prerogative of switching to a repayment mortgage would mean excessively apex monthly repayments that many borrowers simply could not afford.
If you still have a good number of years left on your mortgage it is neither too late to make alternative plans to sort out the problem. If you can grant to switch to a repayment pledge then do consequently as soon like possible also start gradually paying down the capitalbut expect to see a huge lurch in your monthly redress amount.
Experts have welcomed this initiative to try and solvethe issue but vessel more be done to help? Islay Robinson, CEO of the London mortgage broker Enness Private Clients believes that lenders should exist providing advice on the options that are available in pragmatic that borrowers vessel make an informed decision. Warning customers is a first rung but anyone who is worried about how they are going to repay their large mortgage should seek professional advice sooner choice than later.