Thousands of owners of interest-only mortgages are being warned that, as their deals come to an end, they could be in for financial trouble. An estimated 81,400 mortgages will run out of their interest-only period during 2019. According to the Financial Conduct Authority, this equates to around £9.2 Billion.
Interest-only home owners will be faced with repaying their loans in full, or having to look for another mortgage deal. This could result in much higher monthly payments and, as many of these interest-only mortgage holders are over the age of 60, borrowing options are very limited.
With an interest-only mortgage, you only pay the interest on the loan each month. The size of the debt stays the same over the entire mortgage term. At the end of the term, the lender has to pay back the debt in one lump sum. This means that anyone without a plan in place could be caught out. Before the credit crunch and housing crisis, house prices were rising at a steady pace and interest-only mortgages were a popular option for many people. Since then, regulators have worried that there are home owners who may have taken out these loans with no real way to pay them back and, perhaps, didn’t fully understand how the deals worked.
As a consequence, banks and lenders were told to contact interest-only mortgage holders and warn them their deals were coming to an end. However, the FCA discovered that not many home owners had responded to these correspondences and may be completely unaware that they are at risk of losing their homes.
What can borrowers do?
Homeowners with interest only mortgages should check when their policy is due to mature, and prepare well before this date, so they know what they will do once the mortgage expires. Lenders reserve the right to repossess the property if the loan goes unpaid, so forming a plan is crucial if owners wish to stay in their homes. What are some of the available options:
- Switching to repayment mortgage: Lenders may be willing to switch the mortgage to a repayment type, but this will increase monthly payments.
- Extending the mortgage: Depending on the lender, you may be able to extend the interest only deal, giving more time to raise funds or grow the value of the property.
- Switch to a retirement interest only deal: Some lenders offer retirement interest only deals which will keep repayments similar until the homeowner dies or goes into care.
- Downsize: Properties with equity could be sold, which would release some capitol to enable a move to a smaller, or cheaper home.
Was your mortgage mis-sold?
If you have a genuine concern that your mortgage may have been mis-sold to you, then there are steps you can take. Perhaps your mortgage broker did not explain everything to you properly, or did not disclose that you would only pay interest on your loan each month, or did not ask you how you would repay the debt at the end of the term.
Mis-sold mortgage examples
Your mortgage end date is after your retirement date
- You weren’t told about the commission the adviser would receive from the lender
You were advised to self-certify (borrow money without proving your income) or overstate your income in order to borrow more
- You were advised to switch lenders and weren’t told about the fees and penalties
You were given a fixed-rate mortgage and told to re-mortgage to a better deal later on, then incurred penalties for leaving the fixed rate early
Step 1 – Gather all the information you need
You don’t have to find concrete proof, but you do need to explain your problem.
Be clear, concise and stick to the facts.
- Gather all the relevant information and any written proof.
Step 2 – Complain to your provider or adviser
Ask for a copy of the firm’s internal complaints process – all firms should have one. It’ll tell you who to contact. Often you can find this on the firm’s website.
- The firm has eight weeks to respond. If they don’t get back to you, you can go straight to the ombudsman service.
If you are unhappy with the firm’s final response, you have six months to take your complaint to the Financial Ombudsman Service and, in the case of the Pensions Ombudsman, three years from the event complained about or within three years of becoming aware of the event.