11,000 homeowners at risk from interest-only mortgages timebomb

MORE than 11,000 homeowners are at risk of losing their properties after being trapped by interest- only mortgages they cannot afford to repay.

Figures show that more than 80,000 interest- only mortgages will come to the end of their terms in the next 12 months.

But the holders of around 11,200 mortgages are thought to be unable to pay back the initial capital they borrowed – leaving them at the mercy of their banks.

With a traditional capital and repayment mortgage, a homeowner will make monthly instalments to pay off the loan. At the end of their mortgage term – typically 25 years – they owe nothing to the bank and the house is their own. With an interest-only deal borrowers only pay off the interest on their mortgage, but never make payments to cover the actual loan from the bank. It means that when the deal ends they must find money to pay back the capital they originally borrowed.

Millions of these deals were sold in the 1980s and 1990s, with salesmen telling buyers that rising house prices would more than cover any debts they owed. At one point, as many as four in five mortgages were interest-only.

However, those who have come to the end of their term and are unable to pay – because they didn’t save enough, their investments failed or their circumstances changed – must now beg banks to hold off demanding the capital and allow them to continue repayments.

Wes Streeting, a Labour MP who sits on the Treasury Select Committee

By Ruth Lythe Money Mail Chief Reporter ‘Banks have profited enormously’

said: ‘Banks have been able to profit enormously from these loans ... By contrast elderly pensioners who signed up to these deals now face being turfed out of their homes because the banks show scant regard to them when they need it most.’ Stephen Lloyd, the Lib Dem Eastbourne MP who has campaigned on the issue, said: ‘Tens of thousands of families face losing their homes after being snared by this desperate situation.’ Around 1.8 million borrowers have an interest-only deal – around one in five of all mortgages. Last week it emerged that banks are taking homeowners to court if they cannot pay and repossessing their properties.

Around half the borrowers who face being evicted this year are pensioners, according to research by City watchdog, the Financial Conduct Authority.

They face a desperate situation as banks are less likely to offer them credit because of their age and the tighter regulations now in place. Experts warned that borrowers who face a shortfall should contact their banks.

Andrew Montlake of broker Coreco said: ‘It’s vital they act sooner rather than later.’

A spokesman for trade body UK Finance said: ‘Lenders will always try to work with customers who have maturing interest-only mortgages to ensure they have plans in place to repay their loan or discuss alternative solutions ... Repossession is always a last resort.’