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Warning Over Interest-Only Mortgage "Timebomb"

Tuesday, 21st May, 2013

In excess of a million people with interest-only mortgages will face financial difficulties when they have to pay them off at the end of the tenure, according to the Financial Conduct Authority (FCA).
 
The FCA estimates that around half of the 2.6 million or so UK householders that have mortgages, which represents about a third of all UK mortgage holders, would not have savings or other funds to cover the final bill.
 
With these mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is 71,000 per person, according to FCA research.
 
The FCA, the successor of the Financial Services Authority as the sector's watchdog, commissioned research to give a clear indication of what borrowers face when mortgages mature between now and 2041.
 
Market Research firm GfK NOP questioned 1,103 interest-only borrowers to consider how prepared they were to repay their loans. The study found that 37% of interest-only mortgage holders faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.
 
But the FCA believes that many people underestimated the financial problem and it believes that actually 48% of holders of such mortgages face a shortfall.
 
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