Endowments / Interest Only

FaTB

There has been alot of fuss in recent years about shortfalls on endowment mortgages, but what about Interest only mortgages ?

Surely this is an even bigger timebomb, because it is an Endowment mortgage without the endowment. I believe most people take out I.O. mortgages cos thats all they can afford, and I suspect very few of them have any other savings vehicle to pay off the lump sum at the end.

This will be an even bigger problem in future as well if inflation stays as low as it is now.

Am I right or am I missing something ?

EdInvestor

They can always do equity release to cover the mortgage, which means they would never have to pay it off - the loan rolls up until they die. Equity release would also mean their interest payments would stop.

dunstonh

You are potentially right. In the US the number of interest only mortgages without savings vehicles is massive. I dont know what the UK figures are. However, in the UK, regulation is much higher and advisors would be putting all sorts of warnings in their documentation on interest only mortgages where there is no repayment vehicle. Providers also put warnings about that too.

So, although an increasing number of people are arranging interest only mortgages without a repayment vehicle, I dont see it a complaints timebomb as they will all have sufficient warnings in a range of documentation.

If house prices continue long term like they have, equity release may end up being the only way to afford a house in the future Or maybe if there is enough of these interest only people who get in to trouble, it could be the catalyst for a drop in house values. Far too early for that though.

Rikki

I changed my mortgage to part repayment and part interest only based on what I could afford to pay each month.