Troubles ahead for those with interest-only mortgages

The Financial Conduct Authority, which is the regulator of borrowing, has reported that 50% of the 2.6million interest-only borrowers will have difficulty in clearing their loans following a shortfall of about £71,000. Many people believe it is just a matter of time before this “ticking time bomb” explodes.

The changes are becoming urgent and mortgage lenders are reiterating their position to their borrowers to take some action. Several millions of people were approved for interest-only mortgages, which was part of an endowment fund that was meant to be settled at maturity. However, the endowments failed to perform, leaving a shortfall for millions.

Several other homeowners did not even bother to have a repayment vehicle and took out an interest-only mortgage. The FCA set out their options by writing to individual customers and ordering building societies and banks to face up to the issue and treat customers fairly. FCA however made it clear that borrowers were obliged to settle their mortgage loans at maturity.

People facing a shortfall in mortgage; can choose any of the available options based on their current financial situations. Mortgage broker director of Anderson Harris, Adrian Anderson has told those who receive any communication from their lender not to panic. According to Anderson, people should be given some breathing space to figure out how they are going to settle the capital, even if they already have a plan on how to repay the entire amount.

One cannot avoid the issue and hope to get away though the lender cannot force one to sell the home or repay the loan at once. Anderson advises the best solution lays in converting the mortgage to capital repayment mortgage, which involves paying some part of the capital and interest every month.

By the end of term, one will clear off the debt, provided that they keep up with the monthly payments. One can choose to make the switch with the current lender or by adopting for a newer and cheaper lender.

 

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