WHY SHOULD we worry? The Financial Conduct Authority (FCA) has announced that a percentage of people who bought their homes on interest only mortgages are likely to have problems paying off their mortgages. Why does this matter to everyone – including tenants?
People who took out interest only mortgages found a reasonably affordable way of housing themselves – but when the mortgage ends, the mortgage itself has to be paid off. House owners are encouraged to take out endowment policies to meet this cost, and some may have paid regularly into some other savings scheme.
They have the lumps sums ready to pay off the mortgage – but other people have not made any provision to pay off the mortgage. The FCA is warning that if they can’t pay off their mortgages, they are likely to lose their homes – and the problem is likely to be at its most acute over the next few years, when the number of interest-only mortgages coming to an end will reach a peak.
A mass default will cause a number of problems.
•The number of homeless families will increase, adding to Council waiting lists and increasing demand for private rented accommodation, forcing up private rents.
•More homes will come on to the market, but in the current shaky state of the economy – and not least because of high levels of student debt – there will be fewer buyers, forcing down house prices. That may leave some home owners still owing on their mortgage, even when their home has been sold. This extra debt will appear on lenders’ balance sheets – making them look less financially secure.
•As lenders lose money – or, at least, cash flow – and has house prices fall, confidence in the economy will drop. This was the cycle that prompted the 2008 global economic crash – from which most of the world is still suffering, a decade later.
With just under 20% of homeowners currently repaying an interest-only mortgage, this could be a very big problem indeed – the worst effects of which will be experienced while Brexit uncertainties and adjustments are still being experienced.
•The FCA advises anyone who is experiencing difficulty in paying their mortgage or who is not certain that they will have the funds to repay the capital of the mortgage to contact their mortgage provider.
•Read more about it: Corbyn pledges to house the homeless House priee drop bad sign for economy
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