I understand that many mortgage lenders are in the process of writing to borrowers who are only paying interest on their mortgages and not currently chipping away at the capital.
The letters are asking clients to review their plans on how they intend to repay their capital. Many clients have old endowment policies which may or may not be on target to repay the outstanding mortgage, some will be selling the properties and downsizing, thus using the equity to repay the loan and about 10% of the 2.6 million in question who need to repay their loans before 2043…..well they don’t seem to have a plan at all!
To my knowledge no lender has as yet come out and said what they are actually going to do with clients who have no means to repay the loan at the end of the term, or even published a list of possible options – most have said they will deal with each case on an individual basis.
As I see it, lenders have a number of roads down which to go:
- The most aggressive approach would be for lenders to “call in their loans” and force borrowers to sell their homes. I think this is fairly unlikely as it won’t really fit with the Financial Conduct Authority’s “Treating Customers Fairly” guidelines.
- They could force interest only customers to convert their loans to a capital and interest mortgage. This would in some cases push up the monthly repayments significantly and may not be affordable.
- Perhaps borrowers could pay “part and part” where they pay what they can towards the capital.
- Finally, lenders could of course simply extend the term and keep collecting the interest each month – on the “never never” as we used to call it!
One thing clients must not do is nothing!
I would urge any borrower who is only paying interest to contact their lender and have the conversation about a repayment strategy. Different lenders have very different rules, so I would urge anyone whose existing lender can’t help them not to panic, but to contact an Independent Mortgage Adviser who can look at switching their mortgage to another lender who may be able to make the figures work.
If you have a questions, please email team@mortgagerequired.com or telephone 01628 50747.
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