Shortfall fears for over 1m interest only mortgage holders

Graham_Devon

More than a million people with interest-only mortgages face a financial crunch when they have to pay them off, a watchdog is warning.

Some 2.6 million UK householders have the mortgages but the Financial Conduct Authority says "estimates... suggest" nearly half will not have savings or other funds to cover the final bill.

The average shortfall is £71,000, according to FCA research.
Lenders will now step up warnings to homeowners to prevent payment shocks.

The article follows on after the heading "mortgage timebomb".

http://www.bbc.co.uk/news/business-22366821

Theres a discussion on the radio at the moment with some scorn poured towards the government who keep on trying to "pull the pants of the housing market up" and are leading more people into unaffordable long term deals.

wotsthat

New take on old news (based on a survey of 1000 people).

If the FCA think this is a 'timebomb' or there's going to be a 'crunch' then why not get some decent data to start with? Maybe require lenders to survey each individual IO mortgage holder and collate the results.

Then if there's a real problem something could be done about it.

Mr._Pricklepants

I was watching BBC brekky this morning and some survey said that 1 in 8 didn't understand that capital needed to be repaid at some point?? Unbelievable.

[Deleted User]

I agree with Mr Pricklepants. When we had a mortgage, part of it was interest only but it was covered by savings. We knew exactly what we were doing and the consequences were spelt out to us at the start and in the annual mortgage statements.

If folk took out loans of tens or hundreds of thousands of pounds and really believed that it was a good idea to only pay the interest it is nobody's fault but their own.

The news about badly performing endowments and other savings plans has been "out there" for years, so it surely can't come as a surprise if folk find they are now in bother. I'll be interested to see if, in the years to come, people start looking around for someone else to blame - complaining that they were in some way "miss-sold" not only their endowment but also the actual mortgage and that they didn't know what they were doing. There are bound to be some in the "it's not my fault" camp as there are always those who can't accept that they made a bad choice!

There will then be an outbreak of the "it's not fair/have to sell my house/take my kids out of their school/away from family and friends" etc etc....

They were presumably quite happy to pay a lower mortgage cost each month and either live in a larger property than they could really afford or spend the cash they could/should have spent on their home on other things.

I can't remember the storyline, but there was a joke I heard years ago about a discussion between some sinners and god - it ended up something like "but Lord, we didnae ken!" "Well," said the Lord, "ye ken noo!"

Still, if the effect is as bad as they have been saying, it looks that there will be an increase in the supply of houses as "owners" find they have to sell up and downsize.

I won't revel in others misfortune, but I confess that I'll find it hard to feel sympathy for those who made daft decisions that don't turn out well. It's not hindsight, it's common sense.

WR

Out,_Vile_Jelly

I know a couple who both earn lots, but spend lots (bloke refuses to buy anything but designer clothes, expensive but unused gym memberships etc) and complain about being skint. They're on an interest only mortgage. They're both well educated and in decent jobs and on first meeting them you would not class them as stupid. I wonder how many more there are like them, and whether the taxpayer will end up bailing them out?

ruggedtoast

I don't think I need to tell you what they think about this over on the forum hpc.co.uk.

mystic_trev

I bet a fair few of those complaining have previously got compensation from Endowment policy mis selling. Instead of using that to pay off the Capital amount, they've blown it on cars, holidays etc.

Blackbeard_of_Perranporth

Good. Cheap house coming soon to those that need them.

Blunt I know, but why should those of us who can do mental arithmetic bail those who cannot read out?

Going4TheDream

My ex husband and I recently received the endowment payout from a house that we bought in 1988, he continued to pay it as it was a small amount and we had already paid in a few years by the time we split up, and it was part of the settlement we agreed on

We paid £48.5k for the house and I think the mortgage was £45k.

The total joint payout on the endowment was £33754 a short fall of nearly 30%.

Thankfully the house was long since sold.

I dont know if I pity those who arent so fortunate or class them as naive for hoping it would all turn out ok

egoode

I never quite understood why you would get an interest only mortgage for your own home. I can understand why they can work for buy to let mortgages but they should be restricted to that market. My view was always if I can't afford a repayment mortgage then I can't afford to buy.

I'm in the process of buying my first place at the moment and was only ever looking at repayment mortgages. Even better as my monthly repayments will be less than my current rent I'm looking at overpaying each month by £300-500/month to further reduce my mortgage. I've also checked to ensure I can still afford it should interest rates increase to 10% (and I can). I always thought these were common sense things to do but clearly not!

onlyroz

The problem with endowments is that even if you know that there is going to be a shortfall it's hard to prepare because you don't know exactly how big the shortfall is going to be. We have part of our mortgage as interest only notionally covered by an endowment policy. We are currently working on the assumption that the shortfall will be around £15k, but it could be anything from £5k to £25k. Not an easy thing to plan for.