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39% of interest-only borrowers have no plans to clear debt


Some 39 per cent of interest-only mortgage holders have no plan in place to clear the debt, according to market research consultancy BDRC Continental.

The Mortgage Achilles report estimates there are 1.8m homes in the UK on an interest-only mortgage, accounting for around 19 per cent of all outstanding home purchase mortgages.

It says there are 700,000 borrowers with an interest-only mortgage but no method of repaying the capital.

Among those with no repayment plan, 23 per cent expect to switch to a repayment mortgage while 16 per cent are relying on either selling the property or using cash savings. A further 26 per cent say they do not know how they will repay the capital.

Of the 1.8m interest-only mortgages, 22 per cent have a plan but not one which is expected to clear the debt.

Only 560,000 out of the 1.8m have an investment plan in place which is on course to clear the debt.

Around 12 per cent of all interest-only borrowers say they intend to repay the capital by selling their home at the end of their mortgage term.

BDRC Continental director Tony Wornell says: “Our research suggests that some interest-only borrowers are not engaged with the end game – what will happen when their mortgage term finishes and they have to repay the capital. Everyone with an interest-only mortgage needs a credible repayment plan. Changing to a repayment mortgage is the most certain solution but if that is not possible, borrowers could consider overpaying the mortgage or building up cash savings if they do not like the idea of an investment plan.

“Some borrowers are using a mix of methods to ensure they can clear the capital. Whatever the plan, regular review is important in staying on course. It could help if lenders got involved in this review and feedback process rather than leaving it entirely to the borrower.”

The FSA is aiming to publish a thematic review later this year on the issues faced by existing interest-only borrowers unable to repay the remaining capital at the end of the mortgage term.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Look on the bright side. When these clots finally come to the end of their road it will probably bring down house prices. Presumably therefore there will be some bargains to be had.

  2. Perhaps these ‘clots’ are precisely the sort of people need reasonably priced financial advice?

  3. Presumably some of these ‘clots’ received advice by financial advisers? – and majority of those with an endowment which is now proving to fall short of the mark.

  4. Do what everybody else does, if you cannot afford it then sell it. Get a smaller house. Move further from London. Buy a croft in Scotland.


  5. Over 39% of people who rent property have no plans to buy that property.

    Interest only is renting money. At the end of the term, sell the property (hope like mad it has increased in value), pay off the loan and keep any surplus (or pay any deficit).

    Even if the property has fallen in value, the difference between the interest payments and the rent you would otherwise have paid is likely to be significant.

    The clots are those that rent property. Renting money is much more sensible. It’s a shame that some of my colleagues above are beginning to believe the rhetoric from the regulator that all people are utterly stupid and cannot be trusted to make informed choices.

  6. Soren

    I, like you, am pretty sure who the ‘clots’ are !

    Meddling in markets always fails – RDR and MMR is going ever so well – !!!!!

  7. Most interest only mortgages without repayment method were sold post 1998 by mortgage brokers, as were self certified plans. Most banks at least sold capital and interest once they could not sell a profitable endowment to go with it, unless the clients minds had been filled with the ‘lower cost’ option of interest only.
    The difference in applications at the time was staggering for the lender I worked for. 92% of all applications from brokers were interest only, whilst only 45% from in-house advisers wanted i/o.
    Mind you, they accepted the business, and are not blameless.
    I do not know of an ethical, honest financial adviser who would recommend an i/o mortgage without a repayment strategy, but there were a lot of them. Maybe I pick my friends well!

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