One million homeowners can't pay off their mortgages, research says
Almost a million homeowners cannot afford to pay their mortgages as they have chosen interest-only loans, research has found.
According to Citizens Advice, 934,000 owners did not know how they would pay the money back at the end of the mortgage term and might have to sell their homes or have the property repossessed if they did not find other funds.
The figure is considerably higher than the previous estimate from the Financial Conduct Authority (FCA), which indicated that around 260,000 owners did not have a strategy in place to pay off their mortgages.
However, that could be explained by the gap in estimates of interest-only loans, which stand at 2.6m for the FCA, at 2.4m for the Council of Mortgage Lenders and at 3.3m for Citizens Advice.
Up until three years ago, buyers could buy interest-only mortgages, which allowed them to borrow more as they did not have the need to pay back some of the loan each month on top of the interest.
Citizens Advice said that some buyers were running out of time to organise their finances, indicating that over 432,000 buyers had not even thought about the issue.
"People buy a home for stability, but interest-only mortgages have forced many into a financial black hole," said the charity's chief executive, Gillian Guy.
According to Citizens Advice, the first tranche of repayment problems is expected to surface in 2017-18, when endowment mortgages sold in the 1990s will reach their peak period of maturing, while the surge in mortgages taken out from the early 2000s will reach its peak a decade later.
"We expect firms dealing with interest-only borrowers to discuss repayment strategies and propose solutions where there are no plans in place,” said a spokesman for the FCA.
"While we have seen many firms progress with this, borrowers must also engage with their lenders now to resolve it, we will also continue to monitor lenders as part of our normal supervisory work."