According to the Financial Conduct Authority, almost 20% of mortgage holders have an interest-only mortgage. Furthermore, around 85,000 interest-only mortgages will reach maturity this year. It is thought that over 11,000 of those mortgage holders will face problems when that time arrives. If they cannot find the funds to clear the mortgage, they could end up losing their homes.
While this is a worst-case scenario, there are very real signs it could happen in some instances. It can be difficult to extend a mortgage or to find an alternative repayment mortgage for those who are likely to be in their fifties or beyond when the interest-only term ends.
Retired couple hit the headlines as they face eviction and owe £180k
The interest-only mortgage problem is no clearer than when viewed through the story of Len and Val Fitzgerald, whose story hit the headlines last week. Their interest-only mortgage term has ended, and Santander will not extend the mortgage further beyond their age limit of 75.
The couple has never missed a mortgage payment, having switched to an interest-only mortgage in 2007 amid financial problems after a job loss. Now, it looks as though the couple will be evicted from their home after 17 years, owing £180,000 on the mortgage as it stands.
Trouble ahead for others on interest-only mortgages
“This story provides us with a classic example of what can go wrong when someone is on an interest-only mortgage,” said Darren Pescod, CEO of The Mortgage Broker Limited. “These mortgages were popular throughout the Eighties and Nineties, when many people believed – and indeed were told – that property prices would rise enough to cover the capital owed on the mortgage. Others took out endowment policies, but these didn’t always grow enough to meet the amount owed.
“The best advice I could give anyone on an interest-only mortgage that is due to mature in the next few years is to take a long look at their finances now. Don’t put it off or ignore the problem. There is a chance steps can be taken to remedy the problem if they act quickly. The younger you are, the better the odds of switching to a repayment mortgage, potentially with a longer term. The later someone leaves it to act, the more problematic the situation is likely to be.”
With thousands of others facing a very similar scenario this year to the one faced by the Fitzgeralds, it seems clear the issue of interest-only mortgages is set to run and run. While it is a shocking news story for some to read, it is a very real prospect for those who hold these mortgages. While some started on interest-only mortgages to get onto the housing ladder, later switching to repayment mortgages, those who have stayed on interest-only mortgages are now facing an uncertain future. And with many of those in this predicament being of pensionable age, the future is more uncertain than ever.