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March 26, 2013
Nearly four million people are in danger of not being able to pay the capital on their interest-only mortgages. 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”
Sue Anderson, a spokeswoman for the CML, said: ‘Interest only mortgages are still available in some places but not as a mainstream offering. It’s far less likely you will get an interest only mortgage,’ she said.
‘You would have to convince the lender that you have a repayment plan in place other than simply the sale of the property so in that respect the mortgage lenders are already anticipating what they see as the most likely form of regulation coming out of the mortgage market review.’
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