MILLIONS OF HOMEOWNERS CAUGHT IN INTEREST ONLY TRAP.
In recent years as many as 4 out of 10 mortgages have been taken out on an “interest only” basis. Many of these borrowers expected that assumed growth in house prices would help them pay off their loans – but something went wrong. Instead of house prices increasing they went into reverse. Over the last two years many properties have lost as much as 25% of their pre credit crunch value.
The Financial Services Authority (FSA) has estimated that as many as 4.2 million borrowers have to face the possibility that their interest only mortgage could mean that they’ll not be able to move for some years to come as the sales proceeds from their home would not leave them with sufficient to fund the deposit for their next home. Indeed, some would be left still owing money to their lender after selling their home due to negative equity.
To make the situation even worse, as unemployment has risen, it is inevitable that some of these borrowers will have become unemployed or have been forced to take new employment on lower wages.
At the moment many mortgage advisers are advising clients to switch from interest only deals to conventional repayment mortgages. But if they cannot afford to do this they should either over pay on their current mortgage or start up a regular saving plan.
If you are caught in this “interest only” basis then please do not ignore the problem. It’s a ticking time bomb.