This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.guardian.co.uk/money/2013/feb/13/interest-only-mortgages-ticking-time-bombs
The article has changed 7 times. There is an RSS feed of changes available.
| Version 0 | Version 1 |
|---|---|
| 1.1m interest-only mortgages are 'ticking time bombs' | 1.1m interest-only mortgages are 'ticking time bombs' |
| (about 2 months later) | |
| Up to 300,000 homeowners fear they will have to sell their home to repay their mortgage following the introduction of tough rules on interest-only mortgages by lenders, a survey has found. | Up to 300,000 homeowners fear they will have to sell their home to repay their mortgage following the introduction of tough rules on interest-only mortgages by lenders, a survey has found. |
| Interest-only loans are mortgages where the borrower agrees to pay off the interest each month but none of the capital. Borrowers are expected to make sure they have a repayment vehicle in place to pay off the capital at the end of the deal, usually after 25 years – however, not everyone does. | Interest-only loans are mortgages where the borrower agrees to pay off the interest each month but none of the capital. Borrowers are expected to make sure they have a repayment vehicle in place to pay off the capital at the end of the deal, usually after 25 years – however, not everyone does. |
| Ahead of tighter regulations being introduced by the Financial Services Authority in April 2014, many mortgage lenders have withdrawn from interest-only lending and others have tightened the criteria on which they will offer the loans. | Ahead of tighter regulations being introduced by the Financial Services Authority in April 2014, many mortgage lenders have withdrawn from interest-only lending and others have tightened the criteria on which they will offer the loans. |
| It means many homeowners nearing the end of their current deal will be unable to shop around and switch providers unless they can show proof of an acceptable repayment vehicle, such as an equity Isa, pension or endowment. In many cases they will face an increase in monthly costs. | It means many homeowners nearing the end of their current deal will be unable to shop around and switch providers unless they can show proof of an acceptable repayment vehicle, such as an equity Isa, pension or endowment. In many cases they will face an increase in monthly costs. |
| A survey by the Homeowners Alliance (HOA), a lobby group for homeowners, indicates that more than 400,000 homeowners believe they will no longer be able to afford their mortgage payments when their current interest-only deals come to an end. | A survey by the Homeowners Alliance (HOA), a lobby group for homeowners, indicates that more than 400,000 homeowners believe they will no longer be able to afford their mortgage payments when their current interest-only deals come to an end. |
| It questioned 2,056 adults, 12% of whom had interest-only mortgages, and found that 60% of homeowners with these mortgages were worried about how the changes would affect them. | It questioned 2,056 adults, 12% of whom had interest-only mortgages, and found that 60% of homeowners with these mortgages were worried about how the changes would affect them. |
| More than a third (equivalent to 432,432 homeowners nationally) worried they will not be able to repay their mortgage, while a quarter (296,525) fear they will have to sell their home. | More than a third (equivalent to 432,432 homeowners nationally) worried they will not be able to repay their mortgage, while a quarter (296,525) fear they will have to sell their home. |
| One woman told the HOA: "Our mortgage term comes to an end in two years. We have been told we could have an extension of five years with up to £1,000 in extra payments a month. My husband is over 60 and this is impossible; we are worried sick and at our wits' end. | One woman told the HOA: "Our mortgage term comes to an end in two years. We have been told we could have an extension of five years with up to £1,000 in extra payments a month. My husband is over 60 and this is impossible; we are worried sick and at our wits' end. |
| "We are also in negative equity – we had bought at the height of the market, then came the crash. We had planned to stay in our current property two years, and with the equity and price rises we could then downsize and reduce our mortgage. Now, we are going to be homeless." | "We are also in negative equity – we had bought at the height of the market, then came the crash. We had planned to stay in our current property two years, and with the equity and price rises we could then downsize and reduce our mortgage. Now, we are going to be homeless." |
| Paula Higgins, chief executive of the HOA, said: "Although designed to protect homeowners, the new rules could be a disaster in the making. Many homeowners on interest-only mortgages seem unable to afford the higher repayments they will face and could lose their homes." | Paula Higgins, chief executive of the HOA, said: "Although designed to protect homeowners, the new rules could be a disaster in the making. Many homeowners on interest-only mortgages seem unable to afford the higher repayments they will face and could lose their homes." |
| Higgins said lenders needed to think creatively about how to cushion the impact of the rule changes. | Higgins said lenders needed to think creatively about how to cushion the impact of the rule changes. |
| "They tempted homebuyers with the cut-price deals, and they must not abandon them now. Our research shows older people are worried as their options are reduced as remortgage options are severely limited," she said. | "They tempted homebuyers with the cut-price deals, and they must not abandon them now. Our research shows older people are worried as their options are reduced as remortgage options are severely limited," she said. |
| A separate report by market research firm BDRC Continental revealed that only one in three homeowners with an interest-only mortgage has an investment plan that is on course to clear the remaining debt, leaving 1.1m interest-only mortgages as "ticking time bombs", with holders either having no investment plan for capital repayment or one that is not on track to clear their debt. | A separate report by market research firm BDRC Continental revealed that only one in three homeowners with an interest-only mortgage has an investment plan that is on course to clear the remaining debt, leaving 1.1m interest-only mortgages as "ticking time bombs", with holders either having no investment plan for capital repayment or one that is not on track to clear their debt. |
| This amounts to a total of £75bn of interest-only mortgage debt that has no repayment plan of any sort. | This amounts to a total of £75bn of interest-only mortgage debt that has no repayment plan of any sort. |
| Top mortgages | |
| Chelsea Building Society | |
| HSBC | |
| L&C Exclusive |