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's 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's 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's mind on the need to repay
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