MSE News: Interest-only mortgage timebomb warning: act now

"Over 1.2 million people with an interest-only mortgage are not saving enough to pay off their loans, says the FCA..."
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Interest-only mortgage timebomb warning: act now

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  • shop-to-drop
    shop-to-drop Posts: 4,340 Forumite
    Just as long as the Government don't decide to bail these people out. If people buy and live in a house they can't really afford to buy then they will need to sell and repay the outstanding amount at the end of the term.
    :j Trytryagain FLYLADY - SAYE £700 each month Premium Bonds £713 Mortgage Was £100,000@20/6/08 now zilch 21/4/15:beer: WTL - 52 (I'll do it 4 MUM)
  • ILW
    ILW Posts: 18,333 Forumite
    I suspect these people will be bailed out one way or another. Seems the way of things these days to reward the !!!!less and punish the prudent.
  • torbrex
    torbrex Posts: 71,340 Forumite
    Combo Breaker First Post Rampant Recycler Hung up my suit!
    I was one of the 1990's endowment mortgage FTB.
    I heeded the warning that my financial advisor gave me about possible endowment shortfall (he saw it coming) and increased the value of the endowment to cover that possibility. However when the first warnings came out from the company that held the policy of just how much of a shortfall there might be, I took further action and approached my lender to see if I could convert to a part repayment mortgage but they at first fobbed me off by saying the estimated shortfall was exaggerated then followed that up by imposing such a huge charge to switch the mortgage that it made it impossible for me to do so without taking out a loan to cover the charges. It almost seemed that the bank wanted me to fail to pay the lump sum in full on the due date.

    I took steps to switch my mortgage to another lender that would allow overpayments and the result was me actually paying my mortgage off 9 years early without the use of the endowment policy (still running).

    It all boils down to responsibility of the borrowers to ensure that they will have the means to make that final payment and of the lenders to present the options available in simple enough language that the average person can understand and be able to take action on.

    I took action as soon as I was made aware of the possible problem and that action saved me thousands of pounds rather than costing me thousands.
  • Gizmo247
    Gizmo247 Posts: 492 Forumite
    Name Dropper First Anniversary First Post Mortgage-free Glee!
    Just as long as the Government don't decide to bail these people out. If people buy and live in a house they can't really afford to buy then they will need to sell and repay the outstanding amount at the end of the term.

    I think this is exactly what the FCA are ensuring does not happen by stepping in now. Lenders will have to provide a written plan to the FCA on how they will manage those finding themselves in a shortfall position. There will be no bailouts offered here.

    This is really a bit of a non-story because the FCA are downgrading the issue to just a warning to mortgage owners as shortfall awareness and the level of shortfall has drastically improved.

    I read this as a softening of the FCA on their position for interest-only mortgages and hopefully we will see a return but in a managed way.
    MFiT-T3 #149: {Q4/14} (£46,447)-->(£0) ~ +£46,447=100%
    Mortgage Free: 1st October 2014 :j
  • Here we go again and this time I'm behind the lenders. I fail to see what people don't understand about the words INTEREST ONLY. I have had four such mortgages, all were clear in that they did not pay off the mortgage, I have been written to numerous times and have had every chance to deal with this.

    Are these people thick?

    People took these out in the full knowledge of what they meant but as is usual were only interested in lower payments today and worry about the future when it happened.

    Now the likes of certain individuals will be appearing on TV and radio at every opportunity slagging off the lenders and defending these chancers!!!!!!
  • elseychelsea
    elseychelsea Posts: 42 Forumite
    I have an interest only mortgage, and they won't let me change my mortgage, so what do i do apart from sell-up? I changed about 4 years ago when I split with my partner as she was no longer helping with the payments. Eventually after my new partner moved into the house with me and we agreed to buy out my ex and have the name changed on mortgage, but I am in very bad debt with the same company I have the mortgage(natwest) with and am on a DMP, so they refused to discuss the situation to rearrange mortgage until i sort my debts out which is about 25k, so that's not going to happen anytime soon. Mortgage has about 20 years left and still owe 83k obviously i can't save to repay it as I have too much debt to pay off 1st. My Ex has been quiet now for about 18 months and i just continue to live in the house with my new partner and we dont really have any solution to solve it. Someday she will come calling for a solution and try to claim some equity from the house even though she hasn't paid a penny for 4 years (i haven't either really only paid the interest). So I imagine the only way out is to sell up and start again but i won't be able to get another mortgage in my situation which makes me sad as want to offer my children security.
  • SandC
    SandC Posts: 3,929 Forumite
    First Post First Anniversary
    I bought in the early 90s and when all this endowment stuff really became big news I cashed mine in, paid the lump sum into my mortgage account and swapped to repayment over the same remaining term. I've been overpaying now for some time also.

    I have friends who are enjoying interest only on really favourable tracker deals that they took out years ago and are now benefitting from really low monthly payments. Are they taking this golden opportunity to overpay massively and get their loans down? No.

    I'm hoping sometime in the not too distant future, what with the tightening up of lending criteria and the fact that house prices are not moving upwards at any rate of knots, that people do start to remember that what they have is a loan to be repaid just like any other loan and they will own the thing they bought once they've paid that loan off.
  • jaybizzl
    jaybizzl Posts: 13 Forumite
    edited 2 May 2013 at 10:51AM
    When I was on interest only for a few years it was made abundantly clear - when taking out the mortgage you were asked how you were going to repay, and at least annually they reminded me in letters saying "the is interest only; you need to have a savings plan to pay the balance off". Halifax FWIW

    There are only two scandals here
    1) Endowments "guaranteed" to pay off you mortgage
    2) Financial dyslexia - people signing up to things they don't understand. Hopefully MSE's campaign here will help!

    If it's interest only, you're a renter, who still has to maintain their house!
  • Wywth
    Wywth Posts: 5,079 Forumite
    The FCA estimates the average shortfall to be around £55,000.

    Are you sure that is correct?

    I think that figure refers to endowment mortgage customers.

    The figure relating to interest only mortgage holders is in excess of £71,000

    The original FCA report (where I got these figures from) is here
    http://www.fca.org.uk/static/documents/research/interest-only-mortgages-gfx-report.pdf
  • penrhyn
    penrhyn Posts: 15,215 Forumite
    First Anniversary Combo Breaker
    Stand by for a long list of people claiming they were miss sold interest only mortgages.
    Martin is correct in one thing people need financial education.
    That gum you like is coming back in style.
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