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Borrowers warned they could fall into flexible loan trap

IFAs are warning investors with flexible mortgages that they could be in


danger of never paying off their debt and losing their homes.


Troy French & Partners partner Peter French says flexible mortgages can be


a trap and those living an extravagant lifestyle could find themselves out


of their home after 25 years.


The warning comes as more lenders say the products are taking an


increasing proportion of sales.


French says the perils arise because there is a temptation to avoid the


capital repayment issue and in some cases borrowers are rolling up interest


with a further advance to the maximum originally agreed.


There are other factors such as the possibility of fall ing property


prices, higher interest rates and changes in a borrower&#39s personal


circumstances such as illness or employment problems which could make


borrowers more likely to lose their home.


Flexible mortgages will work for those who have plenty of equity in their


property and then trade down to a cheaper property.


Those who are able to repay the capital through an inheritance or sale of


a business are likely to be the success stories, says French.


Writing in this week&#39s Money Marketing, French says: “I think it is fair


to say that the flexible mortgage potentially encourages excess consumption


and reduces savings. I feel that lenders should carry out a five-year


property valuat ion to concentrate the borrower&#39s mind on the need to repay


that mortgage.”

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