Lenders are warned to act of mortgage time bomb
The Financial Conduct Authority has told the Treasury that something must be done to prevent the ticking time bomb that is interest only mortgages from going off over the next 20 years. Over 1.2m interest only mortgages are due to mature in the next eight years, and recent research has shown that a high number of people with interest only mortgages do not have the savings in place to pay back their full capital investment once their mortgage matures.
For the time being, banks and lenders have acknowledged the situation by cutting back on their interest only lending, tightening restrictions and even removing some products from the market. However, all this does is stop a new wave of interest only customers from suffering the same problems current customers are due to. For the moment the situation is calm, but lenders are warned that they stand to lose a lot of money over the next few years if they do not do something about the situation.
Although lenders have reacted by sending out reminder letters to their customers, this really does nothing other that remind people of what they owe, when it is highly likely that they are aware of this and if they haven’t saved enough at this point to repay their full capital investment, it is unlikely that they will be able to do so in the next few years.
Back when endowment policies were the norm when it came to interest only lending, many brokers and lenders got a healthy commission from selling an endowment policy, but may have never followed up on the policy they’ve sold, meaning customers have gotten lazy or have just been misguided and thus will not have enough in their endowment to pay off their loan. Legal and General have recently admitted that 86% of its endowments look likely to have a shortfall once they mature, and this means both lenders and customers need to start thinking now about what can be done to prevent a situation where everyone loses out financially. Whether lenders come up with new schemes to help people to keep their homes once their mortgage matures and they start trying to pay off their loan in full, or start making personal contact with customers to discuss their options, something must be done now to protect customers in the future.
Article by: Steve Clements, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager.
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