Interest-only mortgages are a ‘ticking time bomb’ for hundreds of thousands of families who have no idea how they will repay the money they owe, experts have warned.
As many as 1.9million borrowers are paying off the interest on their home loans without making a dent in the capital, figures from the Council of Mortgage Lenders (CML) show.
It is estimated that one in ten of these households have no plan in place to pay off the loan when their mortgage deal expires.
And many who do have a plan may find they do not have enough money to repay the loan in full.
They could be forced to sell their home to raise the funds needed.
Adrian Anderson, a mortgage broker with Anderson Harris, said: ‘We have definitely got an interest-only mortgage ticking time bomb scenario.’
The Financial Conduct Authority, the City regulator, is braced for a crunch this year and the next as a host of endowment mortgage deals agreed in the 1990s come to an end.
These deals typically saw interest-only loans sold with investments linked to the stock market that were designed to repay the capital at the end of the mortgage term.
But many policies are worth less than expected, leaving borrowers short.
It is thought a large number of these borrowers are now approaching retirement – making it difficult for them to obtain another loan to cover the repayment cost.
The CML also warned of ‘a small but material number of higher risk loans’ where borrowers have little equity in their homes – making them more vulnerable.
The group said there are 11,000 mortgage deals with two years or less left to run where the loans are worth over 75 per cent of the value of the home.
Rising house prices ‘can do little to improve the equity position for these loans’, it added.Back to Blog