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| Three-quarters of older homeowners have interest-only mortgages | Three-quarters of older homeowners have interest-only mortgages |
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| Three-quarters of all mortgage borrowers aged over 60 have risky interest-only loans, according to a report that raises the prospect that some who struggle to repay their debt could end up having to keep making payments until they die. | Three-quarters of all mortgage borrowers aged over 60 have risky interest-only loans, according to a report that raises the prospect that some who struggle to repay their debt could end up having to keep making payments until they die. |
| The analysis carried out by ratings agency Moody's is the latest in a line of warnings about interest-only mortgages, which helped millions of people on to the housing ladder but have more recently become the subject of a regulatory clampdown. | The analysis carried out by ratings agency Moody's is the latest in a line of warnings about interest-only mortgages, which helped millions of people on to the housing ladder but have more recently become the subject of a regulatory clampdown. |
| With an interest-only mortgage, the borrower agrees to pay off the interest each month but none of the capital, and is expected to make sure he or she has an investment plan in place to pay off the debt at the end of the term. However, not everyone does. | With an interest-only mortgage, the borrower agrees to pay off the interest each month but none of the capital, and is expected to make sure he or she has an investment plan in place to pay off the debt at the end of the term. However, not everyone does. |
| Moody's estimated that 75% of mortgage borrowers aged 60-plus have an interest-only loan, compared to 42% of younger borrowers, and said this "increases their vulnerability to constrained lending conditions". | Moody's estimated that 75% of mortgage borrowers aged 60-plus have an interest-only loan, compared to 42% of younger borrowers, and said this "increases their vulnerability to constrained lending conditions". |
| The ratings agency also claimed that 38% of all interest-only loans to older customers will have to be fully repaid within the next four years. It said the average outstanding mortgage balance for older borrowers was £70,000, compared to £45,000 for their younger counterparts. Some older borrowers may find it difficult to trade down to a smaller property, it added. | The ratings agency also claimed that 38% of all interest-only loans to older customers will have to be fully repaid within the next four years. It said the average outstanding mortgage balance for older borrowers was £70,000, compared to £45,000 for their younger counterparts. Some older borrowers may find it difficult to trade down to a smaller property, it added. |
| The Financial Services Authority has been worried for some time that many homebuyers who took out these mortgages could be storing up problems for the future, because they have little or no idea of how they will pay back the loan. Some could be left with a huge bill when the loan matures, and if they can't pay it off, they could end up being repossessed. | The Financial Services Authority has been worried for some time that many homebuyers who took out these mortgages could be storing up problems for the future, because they have little or no idea of how they will pay back the loan. Some could be left with a huge bill when the loan matures, and if they can't pay it off, they could end up being repossessed. |
| Many lenders appear to be offering help to struggling older customers in an attempt to prevent people losing their homes: current repossession rates are lower for older borrowers than for younger ones, but arrears rates are 1.2 times higher, said the Moody's report. | Many lenders appear to be offering help to struggling older customers in an attempt to prevent people losing their homes: current repossession rates are lower for older borrowers than for younger ones, but arrears rates are 1.2 times higher, said the Moody's report. |
| It added that in cases where people were unable to repay their debt at the end of the term, banks and building societies were often extending the mortgage term at the same time as switching the loan over to a repayment basis. "However, should the borrower not be able to switch to a repayment loan, standard servicing practice is for the lender to require principal payments or for the loan to remain fully interest-only. Our lender survey indicated that in some extreme cases, the borrower could service the loan on an interest-only basis until their death," stated the report. | It added that in cases where people were unable to repay their debt at the end of the term, banks and building societies were often extending the mortgage term at the same time as switching the loan over to a repayment basis. "However, should the borrower not be able to switch to a repayment loan, standard servicing practice is for the lender to require principal payments or for the loan to remain fully interest-only. Our lender survey indicated that in some extreme cases, the borrower could service the loan on an interest-only basis until their death," stated the report. |
| In 2009 the FSA officially branded interest-only home loans as "high-risk", lumping them in with mortgages for people with poor credit records. Ahead of tighter regulations being introduced, some mortgage lenders have stopped offering this type of mortgage altogether, while others have tightened their rules on who is eligible for them. | In 2009 the FSA officially branded interest-only home loans as "high-risk", lumping them in with mortgages for people with poor credit records. Ahead of tighter regulations being introduced, some mortgage lenders have stopped offering this type of mortgage altogether, while others have tightened their rules on who is eligible for them. |
| In February, a report by market research firm BDRC Continental estimated there were 1.8m mortgages on an interest-only basis in the UK, of which about 1.1m appeared to be "ticking time bombs", with holders either having no investment plan for paying off the capital, or one that was not on track to clear their debt. | In February, a report by market research firm BDRC Continental estimated there were 1.8m mortgages on an interest-only basis in the UK, of which about 1.1m appeared to be "ticking time bombs", with holders either having no investment plan for paying off the capital, or one that was not on track to clear their debt. |
| The Moody's report's key conclusion was relatively positive – it predicted that a combination of "lender forbearance and manageable affordability" would help older borrowers manage to avoid repossession. | The Moody's report's key conclusion was relatively positive – it predicted that a combination of "lender forbearance and manageable affordability" would help older borrowers manage to avoid repossession. |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| Yorkshire BS | |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |