Nearly 300,000 interest-only mortgage holders fear losing their home

The tightening of regulations on interest-only mortgages, introduced by the Financial Services Authority, will push many homeowners to the edge of what they can afford to keep their home. The YouGov survey, commissioned by the HomeOwners Alliance, reveals for the first time the scale of the impact of the new rules on lending, which could see the end of most interest-only mortgages

To read the full report click On the Edge
To read the press release click here

The key findings are:

  • 12% of homeowners –  equivalent to 2 million – have an interest-only mortgage on their main home
  • Most interest-only mortgage holders (60%) are worried about how planned changes will affect them (25% very concerned)
  • Over a third of those worried (35%) – equivalent to over 400,000 homeowners – report they will no longer be able to afford their mortgage payments
  • A quarter of those worried (24%) – equivalent to nearly 300,000 homeowners – fear they will have to sell their home to repay their mortgage
  • The changes raise fears with those nearing retirement age. Respondents commented that “age restriction to extend terms prevents us reverting to repayment now’ and  ‘As an OAP with a small interest only mortgage I am unlikely to be able to find an alternative’

The Financial Services Authority is introducing stricter regulations on interest-only mortgages from April 2014. Already the market has responded and tightened the criteria for interest-only mortgages, while many lenders have simply stopped offering them.  As borrower’s interest-only mortgage deals come to an end, they will find similarly affordable options very limited and will need to show proof of an acceptable repayment vehicle (equity ISAs, pensions, endowments), if they wish to switch providers.

Our report, On the Edge, found that nearly 300,000 people fear they will have to sell their home to repay their mortgage, and over 400,000 believe they will not be able to afford the increased repayments. In particular older people felt that options were limited. One respondent said:

 “Our mortgage term ends in 2 years, we have been told we could have an extension of 5 years with up to £1,000 in extra payments a month. My husband is over 60 and this is impossible, we are worried sick and at our wits end. We are also in negative equity… we planned to stay in our current property 2 years…now, we will be homeless

Paula Higgins, Chief Executive of the HomeOwners Alliance said:

‘’Although designed to protect homeowners, the new rules could be a disaster in the making. Many homeowners on interest-only mortgages seem unable to afford the higher repayments they will face and could lose their homes. The mortgage lenders must think creatively about how to cushion the impact of these changes and offer imaginative solutions. They tempted homebuyers with the cut price deals, and they must not abandon them now. Our research shows older people are worried as their options are reduced as remortgage options are severely limited.” 

David Hollingworth, of London and & Country Mortgages said:

“ Changes in the mortgage market have made life difficult for those with interest-only mortgages and they cannot simply rely on rising house prices to repay their debt. Borrowers should not bury their head in the sand and it makes sense to act sooner rather than later. A switch to repayment or overpaying the mortgage now will help to eat into the mortgage over time and avoid panic at the end of the mortgage term.”

Jon, before you wrote your cruel comments you should be aware than most people who took out an interest only mortgage had full insurance cover in place with which to clear any outstanding debt upon their death. The deal was that they would continue to pay their interest only mortgage which would then convert to a retirement mortgage to the end of their life whereupon their life insurance would clear off the capitol in full.
The changes implemented by the FSA are nothing short of disgraceful. They supported interest only mortgages and now are pulling the plug leaving borrowers in deep trouble. Lenders should have stuck with the interest only mortgages they had originally approved of but not allowed any more. They have rescinded on an agreement with their customers, it is as simple as that, I do not know of any other legal agreement which can be changed mid stream willy nilly such as this. It is disgusting!

  • I’m going to be one of the people either being a prisoner to my interest only SVR, selling my house, or joining a foodbank because I can’t eat because my mortgage payments are being jacked up. These are all unacceptable outcomes. Did the powers-that-be put in ANY safeguards against being at the mercy of mortgage companies and unsustainable rises in mortgage payments ?

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