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'Ticking Time Bomb' of Interest Only Loans

on 12 February 2013.

A high number of borrowers on interest only mortgages are in danger of being unable to pay off their remaining debt when their mortgage term ends. Recent findings by the market research consultancy company, BDRC Continental, reported that 39% of borrowers on interest only loans do not have concrete plans for repaying their debt. This equates to 700,000 homeowners, or £75billion worth of property loans.

Of this 700,000, 23% intend to switch to a repayment mortgage in order to repay the remaining loan; 12% hope to use the profits from the resale of their homes, and 4% plan to use cash savings. Moreover, upwards of 175,000 borrowers do not know how they will repay their debt.

In addition, a further 400,000 do not believe their repayment plans will completely eradicate their mortgage debt.

While 560,000 borrowers do have solid investment plans to repay their mortgage, Tony Wornell, Director of BDRC, commented that there is a significant number of borrowers who ‘are not engaged with the end game’ of repaying their loan.

Martin Wheatley, the incoming head of the Financial Conduct Authority has described the market for interest only mortgages as a ‘ticking time bomb.’

While the FCA has not completely banned interest only loans, these new statistics may result in further curbing of products offered by lenders.

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