According leading asset valuer xit2, lenders are facing a huge amount of unpaid interest mortgages that will mature before 2020. The amount currently stands at £116bn. Interest only mortgages are now rarely available, with lenders learning lessons from the past.
At the peak of the credit boom, approximately 1.3million interest only mortgages were written.
Interest only mortgages were appealing for first time buyers and those with poor credit history to get on the property ladder – but when the mortgages were written the lenders didn’t ask to see any repayment plans or proof of savings plans. Therefore, when these mortgages come to the end of the term, there will be no way of paying the full capital sum back.
In addition many of these borrowers face negative equity.
This is clearly a looming problem and in the present slump in property prices it could be a ticking time bomb.
My guess is that lenders will take a practical approach and allow interest only payments after the due date as the alternative will be potentially 1 million repossessions.
Contact me to find out what you can do if you have an interest only mortgage and are worried about what to do when the interest only mortgage term ends.
Watch this space!
October 26, 2012
Interest Only Mortgage