Home » Mortgage ‘Time Bomb’ Endangers Interest-Only Mortgage Borrowers
The watchdog Financial Services Authority (FSA) has said that there is still a mortgage ticking time bomb potentially endangering 1.5 million borrowers with interest-only mortgages. The FSA said that this time bomb was unlikely to be completely defused, despite the recent comprehensive tightening up of mortgage lending regulations, and many mortgage-holders with interest-only loans may find themselves unable to undertake remortgaging. With interest-only mortgages, the principal sum which is borrowed only becomes payable in full at the end of the term, thus making them very popular during the property boom that came to a halt in 2008 In the watchdog’s Mortgage Market Review report, it estimated that some £120 billion worth of interest-only mortgages are due to be repaid over the next decade, posing lenders and borrowers alike with a significant challenge. but the recent FSA crackdown on irresponsible lending also directs that interest-only mortgages should only be offered in the event of a credible plan to repay the sum, instead of just the hope that their property’s value will increase. Speaking to the Treasury Select Committee in the Houses of Parliament, the FSA conduct business unit manager Martin Wheatley said: “There is a ticking time bomb that’s been created over the last 20 years and what we’re trying to do is to make sure that that ticking time bomb does not get any worse from here on in.” He added: “I’m not sure our regulation can solve all ills. We can ensure that new mortgages taken on are done to sensible, reasonable measures. “I don’t know that we can solve the problems of the last 20 years where people may have mortgage strategies that won’t pay off their home. Individuals will have to take their own advice as to how they do that if they’ve got a strategy that will not pay the capital at maturity.”
Published on 22 July 2020
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