Lenders exposed to £116bn interest-only headache, warns xit2

Lenders are exposed to £116bn worth of interest-only mortgages that are due to mature over the next eight years where the borrower has no specified repayment plan in place, according to new research from data firm xit2.

The research shows that of the 11.24 million outstanding mortgages in the UK, 9.3 per cent are interest-only loans with no repayment vehicle due to mature by 2020, totalling around £116bn worth of loans.

Since 2002, there have been 1.28 million interest-only loans granted for house purchase which have no stated repayment plan, according to xit2.

In 2002, interest-only loans with no stated repayment vehicle accounted for 12 per cent of new house purchase loans a year. By the start of 2008, that figure had risen to 30 per cent.

Xit2 managing director Mark Blackwell says: “The big block of outstanding balances which are due to mature over the next eight years is a legacy of unsustainably high interest-only lending prior to the financial crisis.

“If lenders fail to help these borrowers find a repayment vehicle, it will come back and give them a nasty bite around 2020 when the big batch of high-LTV interest-only loans granted in the mid-2000s mature. 80 per cent of these borrowers have no repayment plan.”

But trade bodies say xit2 has overstated the problem.

Association of Mortgage Intermediaries chief executive Robert Sinclair says: “It ill-serves a commercial company like xit2 to scaremonger in order to drum up business. There is an issue here but lenders and brokers are addressing it, we are not looking at a major tidal wave.

“Nobody knows exactly how many people do not have a repayment plan. Many people have a way of paying back the loan at the end of the term but did not disclose this when taking out their loan. I genuinely think lender and borrowers have a range of options to solve this and, in most cases, there is time to solve this. Lenders are not going to throw thousands of people out of their homes for this, there will be forbearance.”

A CML spokesman says: “Where a lender does not know the specific details of a borrower’s repayment plans, it may log the mortgage on its records as not having a repayment vehicle in place. But that does not necessarily mean the borrower does not have a credible plan for repaying the loan.

“Lenders do take this issue seriously, but believe that the proportion of interest-only borrowers unable to repay their mortgage at term is likely to be small. Where this does occur, the lender will work with the borrower to help devise a solution suited to the borrower’s individual circumstances.”