Interest Only Mortgage Time Bomb – are you one of the 1.9 million households in the UK that have an interest only mortgage?
Those that are in the position of having interest only mortgages are risking having to sell their homes when their mortgage deal comes to an end.
This is because they are not in the position to pay off the mortgage balance at this stage.
In fact, one in ten in this position have no plan on what they will do when their mortgage deal expires and they have a shortfall.
Interest-only mortgages are when the borrower only pays their mortgage company back the interest on their loan and not chipping away at the value of the loan itself.
Due to this scenario and the fact that borrowers do not have the money to pay off the value of their mortgage they are then forced to sell their home to cover the cost of the mortgage.
Along with this and the rise in consumer borrowing the Financial Conduct Authority are bracing themselves for another credit crunch.
Were you sold an interest only mortgage?
Back in the 1990’s, it was typical to be sold interest only loans and were aimed to enable the borrower to repay the capital at the end of the mortgage deal.
The problem with this however is that their homes are worth less than what the mortgage initially bought.
These deals are now coming to the end and their borrowers are typically near retirement, with no way of funding the difference.
The problem is very evident with those homes that have little or no equity in their home and making their options limited.
The Council of Mortgage Lenders estimate that there are around 11,000 mortgages deals due to run out within the next two years.
These loans however are worth more than 75% of the value of their homes, resulting in a short fall.
In most recent years the Financial Conduct Authority have made sure people are not able to easily obtain such deals.
The change has been that in recent years there is less than 2% of new mortgages that are on an interest only basis.
In comparison in 2007 this figure was 40% of mortgages that were on an interest only basis.
Citizens Advice have voiced their concerns for those that are the position that are on interest only mortgages.
They worry about the stress and insecurity some families will face when their mortgage deals come to an end and they are unable to pay the balance, or worse.
They advise that if you are one of the thousands of households in this position to seek out professional advice and guidance on dealing with what might happen.
Many companies are advising people either to go bankrupt or go into a 5 year IVA to deal with the negative equity shortfall.
However, we deal with a company that will negotiate with your mortgage company or lender and actually reduce the shortfall drastically.
We have seen cases where the property value is £150,000 and the mortgage amount is £250,000, giving a negative equity or shortfall of £100,000 and after specialist negotiations with the Lender involved, having this figure of £100,000 reduced to only £5,000 and once paid, no adverse credit recorded on your credit file!
It sounds too good to be true, but this company specialises only in UK negative equity cases and they are very successful.
They operate a free consultation service, so as you can explain your individual circumstances to them and they will then give you a plan to work to.
See also mortgage solutions for negative equity.