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1.6m homes on interest-only deals with no repayment vehicle

One in seven UK households are sitting on an interest-only mortgage with no repayment vehicle, new research shows.

Unbiased.com data shows 1.6m properties are simply paying off the interest each month and not repaying capital or saving anything towards paying off their mortgage debt in the future.

Karen Barrett, chief executive at unbiased.co.uk, says: “With incomes squeezed, it’s not surprising that many people are trying to save money by sticking to interest only mortgages, but this is a potential ticking time bomb”

Nearly all major lenders have clamped down on interest-only lending in the last month by reducing LTVs and tightening criteria.

The Financial Services Authority is also turning the screw on interest-only deals without repayment vehicles in its Mortgage Market Review although it has come under fire from the Treasury Select Committed for failing to tackle the interest-only time bomb.

There are signs that claims firms are also ready to pounce on any misselling scandal surrounding interest-only mortgages.

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  • Graham 1st May 2012 at 12:15 pm

    IO is bad if the client thinks his mortgage will be repaid at the end of the term period. Lets get that straight. However for a lot of clients it is a personal decision and one that makes good sense as long as they are aware that they will have to sell their home at the end of the term to pay off the loan if they havent bothered or have not been able to reduce the capital. If the broker can demonstrate that this was made clear at the time of application (recommendation letter) then the nanny state needs to impart the resonsability to the individual. I fear this wont be the case as its a lot easier for someone in trouble to instruct an ambulance chaser than admit THEY made a bad decision. The downside of a litigious s society

  • ian 3rd April 2012 at 10:47 am

    I guess if you bought before the peak of 2007 and have built up a couple of hundred thousand in equity then you may be ok to sell up in a few years while you currently reap the benefits of schools/location. The problem is with people who haven’t got the equity as a barrier.

  • RJ 2nd April 2012 at 7:10 am

    I have an interest only mortgage without a repayment vehicle. Alas, I had to stop the ISA in 2008 when my income dropped by 40%.
    With things getting a little better, I am now focusing on repaying all my unsecured credit. After this is complete, I intend to re-start it when the market picks up, whenever that might be.
    However, I would say that I am aware that at present I am not repaying what I owe.
    Whilst I am therefore effectively renting, the repayments equate to paying around 65% of market rent and can therefore allow my family to livin a great area with a great school provision.
    In the worst case, I will sell in a few years and take my couple of hundred thousand equity and buy somewhere cheaper, once the kifds have moved on.
    Can someone explain where this falls down?

  • Phil Shelford 29th March 2012 at 11:47 am

    I recently reviewed every client i had done an interest only mortgage for and all bar 3 had actually either paid their loan off in full or were significantly overpaying. Of the three one has two luxuy cars rather than overpaying, one is overpaying but not as much as she should and one is planning to sell and clear his mortgage with the £500k plus equity he has. Does this mean i cicked up because one client thought having luxury today was more important?

  • big bill 29th March 2012 at 10:41 am

    I might be looking at this far too simplistically but is this really going to be claims company fodder?

    Im interested as to how a company would be told to put matters right where it is adjudged by FOS that a client should not have been put onto IO.
    The basic principle would surely be to put the client back into the position they would’ve been had they not received bad advice…. But no ones going to pay the capital for the client are they?

    And hich Mortgage doesn’t have at least a 10% overpayment facility anyway so that the clients can put the money back onto the mortgage that they’re claiming they should have done in the first place?

    But whos fault is it if that money has been spent on holidays or luxuries?

  • leslie 29th March 2012 at 10:33 am

    I was advised to take out an interest only 100% loan in 2007 and looking back at the correspondence my adviser has written that we hoped ‘house prices would increase’ and that id be earning more money in 5 years so that i coudl increase my equity stake.
    Was this poor advice? just asking, genuinely intrigued.

  • peter stimson 29th March 2012 at 8:45 am

    Bobby,

    reading the comments from yourself, do you wonder why lenders are taking matters into their own hands and cutting back on IO?

    No one is expecting you to check each month, what lenders are expecting you to do is make a reasonable assessment of the customers willingness, ability and responsibility to an IO loan. Simply advsing them what an IO loan is and then saying it is their responsibility is missing the point

    Bottom line is IO is not suitable for most people as most people are not capable of managing their own repayment strategy over a 25 year period.

    What i fear most brokers have been doing is going along with the customers request for IO to keep the payments down and advising them to have a reapyment plan in place at the end. That’s not advice, its order taking

  • Luke Atkinson 28th March 2012 at 6:34 pm

    Bobby’s point is valid, albeit it gets lost in his inability to present a solid argument because his passion takes over.

    His point is that once the mortgage is completed, the broker has very little contact with the client. Most good brokers will service and review their clients but how are they to police whether the client keeps their repayment vehicle in force? You can’t force them, merely recommend.

    Claims firms are already circling though, they are actively marketing in the Sun on a daily basis encouraging people who have an interest only mortgage to make a claim, this will be the next PPI!

  • bobby 28th March 2012 at 4:46 pm

    And I DO NOT buy this rubbish about people not knowing they had to pay the mortgage off, not for a second. It’s a principle a 5 year old schoolboy could grasp.

  • Bobby 28th March 2012 at 4:44 pm

    Smash READ Post 3 AGAIN ! I did and have but are you saying I call the client up every month and ask for a copy of their bank statement to see if they are still paying into a savings plan ?, Are you seriously saying this ? I did not say what you said I did so I will accept your retraction of your comment and an apology.

  • john 28th March 2012 at 4:38 pm

    Bobby – Plonker

  • Smash 28th March 2012 at 4:28 pm

    What is Bobby talking about!!!!!!! Of course its up to the broker to check a suitable repayment vehicle is in place. That is a scandalous comment. God help his clients. Yes mr client ill get you a loan, but I dont care how or if you can pay it back, thats not my job.

  • Bobby 28th March 2012 at 4:11 pm

    Hey I’ve had an idea. I advised myself to do an interest only mortgage when I arranged my mortgage a few years back. Shall I sue myself ?

  • anthony clegg 28th March 2012 at 3:19 pm

    totally agree with Bobby. At best we can enquire into what repayment vehicle there is and emphasise the fact they need one. post completion we have no control and the borrower has to take responsibility.

    what a riduculous state of affairs where a lender agrees to lend based on the information it received from the broker but then the broker is the one blamed if it goes wrong. if the lender was not happy with the information it had ask for more or dont lend. why should the broker be responsible for doing over and above the lender wants. if the lender wants that they should pay us more.

  • Bobby 28th March 2012 at 2:31 pm

    A very simplistic viewpoint. No I am sorry you are not going to lay this one at broker’s feet. Taking your point on, a client may decide their cable package at £ 100 pm was more important than their savings plan. Is this the brokers fault , as well ? Well probably !

  • peter stimson 28th March 2012 at 2:08 pm

    Does ‘personal responsibility’ also apply to the ‘advice’ you give?

    Bottom line is that if customers won’t/aren’t capable of taking personal responsibility, IO was clearly unsuitable and should not have been recommended

    walking away with your hands in the air saying ‘i did tell them, honest’, is hardly a great defence

  • bobby 28th March 2012 at 12:20 pm

    Where did I say I did not advise. I have advised every single one of my interest only clients they need a repayment vehicle. They know it full well as do you so it’s just a cheap and lazy shot at the broker community but I guess we should be used to that now. Where in this country does the phrase ” personal responsiblity ” come into play.

  • peter stimson 28th March 2012 at 11:36 am

    Bobby,

    err aren’t you supposed to be advising on the suitability of IO to customers – suitablity that means you taking some form of responsibility if the customer isn’t capable or willing to manage an IO plan?

    With advice like this you wonder why lenders are cutting IO back and reverting to direct business – brokers are suppposed to advise not order take

  • Bobby 28th March 2012 at 11:01 am

    There is no ” scandal ” here. It is up to the CLIENT to make sure they have a suitable means of paying the mortgage off NOT the broker and NOT the lender. Move on. nothing to see here.