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‘Eight in 10’ homeowners with interest-only mortgage not repaying debt
Homeowners are facing a mortgage time bomb as they have no plans to pay off their homes, research has suggested.
There are almost four million UK households with an interest-only mortgage. Yet a survey of more than 7,000 MSN Money users who have such deals found that just two in 10 are actually setting money aside to repay their debt.
A further 22% said they are relying on house prices to rise in order to pay off their mortgage, while the majority – 58% - said they simply do not have enough money to do so.
While a poll of 7,300 interest-only mortgage holders is by no means definitive, the findings are deeply worrying nonetheless. It means many could face the prospect of losing their home when their current rate expires or changes.
Many are getting deeper into debt
Some people might wonder why having no plan to pay off your mortgage is such a terrible thing. After all, given the extortionate cost of renting, aren’t interest-only mortgages a cheaper alternative?
While it’s true that the availability of low rate mortgages has made owning cheaper than renting on a month-by-month basis at present, there are many other factors to keep in mind.
For starters, let’s consider the fact that house prices have fallen notably in many areas across the UK. For someone on an interest-only mortgage, this would mean they are getting deeper into debt.
The bulk of interest-only deals were taken out at a time when it looked like prices could only rise, so some homeowners gambled on the fact that they could buy now and let their property earn the capital required to pay it off. For many, that simply hasn’t happened.
An end to ‘reckless’ lending
Secondly, and most importantly, is what happens when their current mortgage deal expires.
You see, a number of banks and building societies have already pulled out of the interest-only mortgage market. What’s more, the financial regulator is clamping down on irresponsible lending and has stated that interest-only deals must only be offered to borrowers who can provide a credible plan to repay the capital.
So when it comes time to remortgage, borrowers could find themselves stuck on their lenders standard variable rate (SVR); facing a dramatic and unaffordable hike in their monthly repayments.
As Jonathan Harris, director of mortgage broker Anderson Harris, points out: "Interest-only should be for people with a genuine strategy for repaying the capital at the end of the term. Historically, these mortgages were often given away to people who were not in this position so for lots of borrowers it will be a ticking time bomb.”
Take action now
If you are an interest-only borrower it’s essential you don’t simply try ignore the problem. Take steps to shore up your finances and free up cash to start tackling your mortgage debt.
Start thinking about how you can cut your monthly outlays while also looking at ways you can boost your income. To get you started, here are some money saving / money making articles that might spark an idea or two.
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Everything in this country has gone totally t-ts up we are living in a society where only the rich can keep afloat. Because if you are not born into money and not lucky enough to inherit some or win some the likelyhood of you being able to buy your own home is pretty slim. Because lenders arent lending unless you have a brilliant income and at least a 25% deposit which means people have to save but were do they live in the mean time to save money a tent? Rents are so high how the hell can people save its virtuallly impossible.
In 1985 I lived in the north west and worked my **** off so that on my 18th birthday I could by a house. I managed to saved £2,500 for a deposit on a 3 bedroom semi detached house with front and back garden and driveway in a sought after area near shools and shops and 10 mins from the beach which cost me the grand sum of £18,500. My wages at the time were around between £150 and £200 a week net.
Compare that to now the very same house is on the market for £189,000 a 25% deposit would be £47,250. Now how many people can afford to save enough to put down a deposit of that size? and how long would it take?on an average wage of £200 £250 a week net ?
This just goes to show how much the cost of living has gone totally out of sync.
The government says tighten your belts, if I tighten mine anymore I am going to strangle my intestines. How can people save money when everything is so expensive and prices of utilities keep going up, petrol, car tax, council tax is outragous, buisness council tax even worse you dont even get your bins emptied these days you got to pay extra.
I had the unfortunate luck of buying a second house in the nasty 90's when interest rates hit their peak an I stupidly and nievly handed in the keys and walked away. there fore ended up with an interest only mortgage with lenders who are basically ruthless, who are supposedly regulated by the FSA who are totally useless and the FSO who do not use their powers to stop them ripping people off. Believe it or not (and I have proof ) from 2006 onwards certain sub prime mortgage lenders connected to the Lehman brothers unlawfully repossessed more than 48,000 homes. The courts had the power to intervene but judges just sat back and let them make innocent people homeless and they are still doing it today. The government knows about this, they have debated it in parliament promising to act but it was all talk they still sit back too and do nothing. If you dont believe me read the articles on the SHELTER SITE it will be an eye opener. The mail online has done articles on sub prime repossessions read those! there is even a dedicated website to help victims of one sub prime lender and its servicer acendenactiongroup. That site has so much information you wouldnt believe. but the government keeps all this information under wraps and the media are scared to bring it to the public. I wonder why??? Because the lenders and the government are in it together they are all liars and they are all corrupt.
And if your wondering why there is not affordable housing google (how to avoid section 103 agreement ) that should enlighten you.
and at the end of the day.. if people are on low wages, how else can they afford the capital investment. So they cant win. Rents are to high and the government have sold of social housing ie thatcher.. so where do they go.. in a caravan where they are moved off all the time.. its a dog eat dog world of financial institutions trying to control people making you work to the bone.. hide in a cave and learn to hunt.... fish are actually free.
The recession has killed off most peaples other plans for repayment that is by payback those elephant killers who harp on about people buying things they cant afford have obviously not been affected by the financial crisis, still have their job and so do their partners. You have only benefited.
Most people set off with clear intention but a salary is lost and an income is cut (take a 20% pay drop or leave scenario) soon find things difficult.
Now add to this a lender who sees they can exploit the borrower in this situation knowing they cant move their mortgage and raises the SVR to 4.75with a fixed rate at even higher than SVR in the case of Santander and 6% in the case of some with bank of ireland you soon find thing difficult. So the people with the most problems and difficulties brought about mainly by circumstance outside their controlnow end up paying the most thus creating the problem. The reason for this is to force the borrower off the books or repossess.
So the borrower is now reluctant to put sums into the payback as the intention from the lender is clear. Remember as an extreme example if you owe say as little as 5K on a 200k house and could not pay it you can lose the property and have no share in the equity. its a pact with the devil mostly.
Lets face it with a bank base rate at 0.5% mortgages should be no higher than 2.9% across the board let alone as a tracker or fixed. But to start charging one category of borrower 3% over the odds (normally self employed or small business), blocking access to lower rates and refusing access to equity on a 50% LTV property as in the case of santander is quite frankly sickening. But all in accordance with FSA guidance apparently.
Remember we are all in this together although some are more IN than others!!
A lot of people are naive with money, don't plan, and spend too much on rubbish in their lives.
People don't have a right to 1 holiday a year, they don't have a right to what the Jones's have.
There is a lot to be said for being competitive, playing competitive sports when you are younger, and playing strategy games. These teach the fundamentals of living ilfe in a competitive world. One of the worst things Labour and the left wing brigade did, was ban the concept of competitive sports.
Most people think the world is a soft easy place, and never had to graft for anything, or plan, or learn how to make it on their own.
To the guy who said if you are not born with it, or not been lucky or whatever, he is wrong, he just does not know any better. Thatcher taught us all if we graft hard enough, and plan well enough, we can become whatever we want, and she was right.
My dad left us when I was 7, leaving myself, my mum and younger sister, I was the man of the house from 7. (Though tbh my mum and sister were bloody amazing as well). We got by with casual farm labouring work which we did as a family, £2 for filling a sack of potatoes, 2p per daffodil etc etc sometimes in harsh conditions. It gave us enough to eat, my mum did not buy any new clothes for 10 years. We worked extremely hard at school, I was in the top 3 for grades, I knew I had to compete for everything and was going to have to work my way out of the mess we were in.
Anyways, got a decent job, continued to be a workaholic. My first job in the 90's, was £11k per year. I rented for £450 a month. It was a few years later, I managed to get myself up to £18k per annum, at which point I was able to get my first leasehold flat. 3x£18=£54k, I was able to get a 100% mortgage for a nice 2 bed £50k flat and get myself on the property ladder. Took a 25 year mortgate, and did capital and interest, I would never do interest only, you are only conning yourself. Over the course of the next 12 years, my property tripled in value to £150k, though the recession came, and it took a dive to £130k when I sold it. But that gave me equity, added to some savings I had made in that time, was able to get a £250k freehold house. (was able to put down 30% deposit in the middle of the recession). Recessions are a good thing if you have played your cards right, and saved during a boom (90% of people are short termist and spend everything), because cash is king, and you have it when no-one else does. Leaving home at 18, at 25 I took out my first 25 year mortgage, and am still on track for full payment at age 50.
My point is, starting from nothing, it is completely possible to strategically make something of yourself, and end up with a nice home etc in this country, if you are prepared to work and commit yourself to your long term goals.
Our house is on the market now with a hope that we get it sold before 2015, when our mortgage is due. The mortgage consultant was very confident at the time that we would be able to pay off the £70.000(approx). We will be retiring soon, so we will be downsizing , so I suppose we're not as badly off as some others. But it's definitly too late to think of plans for saving towards the final payment
Most people who were fortunate to get a mortgage are not financial Guru`s. There are so many products available now that you take it in good faith from the lender that the one offered is best for you. There is no way an interest only mortgage should be offered without a means of paying it off at the end of the term, if you have been sold interest only with no additional product to enable it to be paid off then in my eyes you have been missold that product and should be entitled to compensation.
The problem is that banks have become building societies and building societies have become banks all fighting for the same customer.
Surely repayment mortgages only are the way forward at least you know the debt is reducing year on year.