Nearly half of those with interest-only mortgages set to mature before 2020 face a shortfall at the end of their mortgage deal. Have you saved up enough to repay your interest-only mortgage?
It’s been a week of grim news for mortgage holders. First, thousands of Bank of Ireland customers suffered an interest rate hike on their ‘lifetime’ tracker mortgages.
Then, on the same day, new research from the Financial Conduct Authority (FCA) shows thousands of people with interest-only mortgages set to mature before 2020 haven’t put enough money aside to repay their mortgage debt.
Falling short on mortgage debts
If you’ve still got years before you have to repay your mortgage, it’s not the end of the world – you’ve still got time to make provisions. We also think it’s good news that the FCA is taking action before this becomes an even bigger problem.
However, the news is worse for anyone approaching the end of their mortgage deal in the next few years. According to the FCA, nearly a third of those with shortfalls on mortgages due to mature in 2020 are expected to owe more than £50,000.
Some people will have other savings and investments tucked away that can be used to plug the gap, but many aren’t so lucky. With nearly half of people worried about mortgage rates and a third expecting their finances to get worse in the next year, the outlook looks bleak for some.
We’re calling on lenders to take action to help borrowers. Lenders should communicate clearly with their customers and explain all the options available to help them. It’s essential that customers trapped on their current mortgages are treated fairly, and lenders must show leniency to people who are struggling financially.
Time to think about the future
But borrowers have responsibilities too. I took out an interest-only mortgage in 2000 and, I admit, I didn’t put as much aside in a repayment fund as I should have. Luckily, I benefited from rising house prices and was able to repay my debt when I sold the property. Had I bought a few years later, the picture would have been very different, as I might’ve found myself in negative equity.
To alleviate the problem, we believe the FCA should require banks to request evidence from customers on a regular basis that a suitable repayment plan is in place.
If you’re facing a shortfall, make sure you speak to your lender as soon as possible. If you’re struggling financially, it might also be worth seeking free debt advice or an independent mortgage adviser to see if you could switch to a better deal. This problem isn’t going away on its own.