View more on these topics

Citizens Advice reignites interest-only ‘ticking timebomb’ warning

Citizens Advice warns almost one million homeowners face repossession as they have no way of paying off their interest-only mortgage when their loan terms ends.

Research carried out by YouGov for Citizens Advice suggests that out of the 3.3 million borrowers who have interest-only mortgages, 1.7 million have no linked repayment vehicle such as an endowment or Isa.

Citizens Advice estimates that 934,000 borrowers have no repayment plan, while 432,727 have not thought about how they will repay the capital.

The FCA clamped down on interest-only mortgages as part of the Mortgage Market Review, and lenders have adopted forbearance strategies for those in arrears such as extending the mortgage term and giving homeowners reasonable time to sell.

But Citizens Advice warns interest-only borrowers at the end of their term are not being offered the same protection.

Chief executive Gillian Guy says: “People buy a home for stability – but interest-only mortgages have forced many into a financial black hole.

“It is good rules around these mortgages have changed, but there are many people who previously took out these products and face losing their home.

 

“Lenders have to exhaust all other options when borrowers get into arrears – it’s time to level the playing field so that interest-only customers get the same protections when their mortgages mature.”

Following an FCA thematic review, lenders pledged to contact 800,000 interest-only borrowers due to reach the end of their mortgage term by 2020. Last June, it emerged that just 30 per cent of those borrowers, or 240,000, responded to the contact exercise.

Recommended

Money

Kensington’s new lender attracts Whittaker

The Kensington Group is to launch a new lending brand to market and myhomemove corporate sales director Adrian Whittaker has been brought on board, Mortgage Strategy understands. There are no details about the new lender at this time except its name: New Street Mortgages. Former Barclays intermediary chief David Finlay, who is thought to be […]

Tug-Of-War-700x450.jpg

Poll reveals brokers’ faith in future market share

Brokers are confident they can maintain their dominance in the mortgage market over the next year, according to a new Mortgage Strategy poll. Last month, we reported that brokers had a market share of 69 per cent in the second quarter – 30 basis points off the previous high in Q1 2008.  Brokers have steadily […]

Letters: Still more to be done in the battle against fraud

Star letter: Still more to be done in the battle against fraud  There are few constants within the mortgage market but attempts at fraud are certainly one of them. Despite all the deterrents and the measures put in place by stakeholders, you can guarantee there will always be those willing to chance it. A quick look […]

Life begins at…

By Fiona Holmes, proposition communications manager Having reached a certain age (it’s the new 40 by the way), I’m having to come to terms with the fact that my peers and I aren’t as immune from illness or death as we’d like to think. That’s the problem with 30 being the new 20 and 40 […]

Newsletter

News and expert analysis straight to your inbox

Sign up
Comments
  • Post a comment
  • Good Mortgage Man 8th September 2015 at 4:35 pm

    Our main problem is that we have a nation of people weaned on Eastenders and Big Brother. They don’t understand what they got themselves into when they took an interest only mortgage. I have lost count of the times over the years when I have seen customers who thought they had a repayment mortgage, but when I saw their mortgage statement, it was interest only. When I questioned them about why they didn’t notice the mortgage balance had not reduced each year, they just said “we wondered about that”!??
    It may well be that it wasn’t explained fully to them in the “good old days”, but to not even question what type of mortgage they have had for ten years or more, is a sad indictment of the average intelligence of the great unwashed…

  • opus appleby 8th September 2015 at 2:52 pm

    Much prefer interest only if the only alternative is paying rent to the BTL vultures

  • Carl McGovern 5th September 2015 at 9:54 am

    I have some across a few people over the last couple of years, who are faced with this exact situation. There are bigger issues linked to this in my opinion. Just to qualify that, I am currently in the early stages of offering advice for some clients whose term ends with Nat West in January 2016. The clients have already retired and the older of the two clients is 70 when the terms ends. They are already in receipt of a reasonable amount of pension income.

    Although in my view this Mortgage should have never been arranged on Interest only, the fact that Nat West have a cut off age of 70 is compounding the problem. The clients level of pension income will validate the Mortgage on a repayment basis over a 16 year term.

    As yet, Nat West have not responded to my request to extend the term, but I am expecting a Negative response. I have however, as back up, probably got the Mortgage agreed on a repayment basis over 16 years with the Marsden Building Society. They have a product range, specifically for lending to the retired. Although there are some restrictions and it won’t solve the problem for everyone in this position, there are options that may help. If a small Building Society like the Marsden can accommodate this client, why can’t their existing lender?

  • trevor mackey 4th September 2015 at 11:39 am

    Totally agree with David, I have been dealing with clients terrified because it is the collections departments chasing them for full repayment. These are council house right to buy clients who never expected to repay the debt but were sold term mortgages.The lenders are not very sympathetic at all especially if it is their collections department dealing with it. The FCA and MMR have created a whole lot of stress and no real solutions. How are older people supposed to suddenly find the cash or just sell up. Where do they go, the local park?

  • Craig Adamson 4th September 2015 at 10:46 am

    The other issue compounding this, is the borrowers existing lenders are limiting the affordable rates (for these borrowers) to extremely low LTVs. Even with the recent increases in property values, these lower tiers are out of reach of many Interest Only borrowers.

  • Corby Macdonald 4th September 2015 at 10:25 am

    I still believe interest only mortgages have their place and in my case, every one I have ever done, they have been fully discussed and the pitfalls pointed out, but, for some people, they are a perfect mortgage vehicle, especially second home owners. I myself have my mortgage on Interest Only, it was forced on me several years ago due to a major change of circumstances and was done out of necessity, Would I return to repayment? No! It suits me to keep my monthly payments low and let me enjoy my life. When the mortgage is due repayment in 12 years time, I have options, which probably a lot of people have never contemplated. I will consider selling, using the profit to buy an equity share over 50s accommodation and pay rent for the remaining part of the property, or I will use an equity release vehicle and repay the mortgage. Both in my mind work for me. I can hear people going, what about leaving something for your children when you die? If I need looking after and go into care, there won’t be anything left for the children anyway as my property will be used to pay for this care! So its a gamble either way. The main thing is I have options and as long as advisers, we give our clients the options, document it and ensure that the client fully understands the risk, then why should it be a problem. I think most of the historical products sold, there could be problems, but, maybe the lenders need to be a bit more creative in helping their clients, other than adopting a “computer says” you can only do this attitude?

  • Stuart Gregory 4th September 2015 at 10:22 am

    Nice of the CAB to catch up…

    Some of us were warning of this back in 2012….shame no-one listened then eh?

    http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9185397/Interest-only-loans-how-to-defuse-your-mortgage-time-bomb.html

  • David Wiltsher 4th September 2015 at 10:02 am

    Sending a letter wont help. People would rather bury their heads in the sand than pick up the phone to their lender. The majority of clients I have seen that are in this mess, cant pass affordability on a repayment mortgage and are stuck. Poor advice in the past has really damaged a lot of peoples lives and homes. Sad really, but I do think lenders could be doing more, OR the FCA could let us brokers advertise more to wake people up!