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Citizens Advice reignites interest-only ‘ticking timebomb’ warning


Citizens Advice warns almost one million homeowners face repossession as they have no way of paying off their interest-only mortgage when their loan terms ends.

Research carried out by YouGov for Citizens Advice suggests that out of the 3.3 million borrowers who have interest-only mortgages, 1.7 million have no linked repayment vehicle such as an endowment or Isa.

Citizens Advice estimates that 934,000 borrowers have no repayment plan, while 432,727 have not thought about how they will repay the capital.

The FCA clamped down on interest-only mortgages as part of the Mortgage Market Review, and lenders have adopted forbearance strategies for those in arrears such as extending the mortgage term and giving homeowners reasonable time to sell.

But Citizens Advice warns interest-only borrowers at the end of their term are not being offered the same protection.

Chief executive Gillian Guy says: “People buy a home for stability – but interest-only mortgages have forced many into a financial black hole.

“It is good rules around these mortgages have changed, but there are many people who previously took out these products and face losing their home.

“Lenders have to exhaust all other options when borrowers get into arrears – it’s time to level the playing field so that interest-only customers get the same protections when their mortgages mature.”

Following an FCA thematic review, lenders pledged to contact 800,000 interest-only borrowers due to reach the end of their mortgage term by 2020. Last June, it emerged that just 30 per cent of those borrowers, or 240,000, responded to the contact exercise.


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Surge in borrowers using equity release to clear interest-only loans

The number of borrowers using equity release as a means of paying off an interest-only mortgage has trebled since the Mortgage Market Review was introduced, says Age Partnership. Over the past couple of years – even before the MMR – lenders have tightened up on their lending into retirement criteria, possibly in anticipation of the […]


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


    “We were silly. We’d just had our first baby,” she said. “But they shouldn’t have given the loan. We didn’t understand what we were taking on and didn’t think about having to pay it back.”

    In no other industry could someone admit they were silly in one sentence then blame someone else for their mistake in another.

  2. It seems that Chief executive Gillian Guy is looking for a job with Martin Lewis at moneysaving Her headline grabbing, ill informed comments would fit in well with that organisation’s ethos.

    “Lenders have to exhaust all other options when borrowers get into arrears – it’s time to level the playing field so that interest-only customers get the same protections when their mortgages mature.”

    Or they could take responsibility Gillian, just throwing that one out there.

  3. When I was advising I refused point blank to arrange interest only – and I didn’t care what excuse. If they didn’t want repayment they could just go elsewhere.

    I guess this is why we are seeing some trashing their pension cash in a last ditch attempt to secure the roof over their heads.

    I see little difference between interest only and renting.

    • Personally I think interest only serves a useful purpose. Say you arrange for Mr Jones a £120,000 mortgage over 25 years at EITHER £600 per month repayment OR £350 per month interest only plus £250 per month repayment vehicle. £600 total cost per month in either case. But when Mr Jones loses his job in 5 years he only has to find £350 per month to stay out of arrears plus he has built up £15,000 in savings.

      • And what does Mr Jones do then? Unless he somehow finds extra money for the repayment vehicle later he will end up short at the end of the term. What Mr Jones should be doing is exactly what he’d be doing if he had a repayment mortgage – continue the £600pm, out of the rainy-day savings he has put by for periods of unemployment. After all, you are most likely to lose your job during a downturn, which is the worst possible time to stop saving into the repayment vehicle.

        Obviously all this involves financial discipline and risk on the part of the consumer, which is why most people should be on repayment mortgages.

  4. Firstly, stats wise, how on earth does the CAB know that 50% of people on interest only have no repayment vehicle?? What possible database or survey would give them those numbers? Perhaps they have simply spoken to the poeple coming to them in dire straits and extrapolated the numbers from there.

    Secondly..”interest-only mortgages have forced many into a financial black hole.” No, not having a vehicle to repay the mortgage at the end of the mortgage term has forced many people into a black hole. This was caused by 1) Lenders stopping the requirement to assign policies in the 90’s (C&G being the first) 2) The “Expert” journalists telling people to cash in their endowments and make a claim against the seller/insurer because they were “useless”and then 3) People taking the cash in value and compensation and spending it on holidays, cars and hot tubs because the Daily Mail didnt have to put caveats about the fact that you needed to do something else with the money in it’s columns.

    It’s not accidental that people have no vehicle to repay, its greed and ignorance, and dealing with those two human traits is always going to be tough.

  5. I was a Building Society manager for many years so have some ingrained veiws on this.

    Paying interest only didn’t to me (in the overall scheme of things) reduce monthly costs to that great an extent. I always used to quote both 20 and 25 year terms so that borrowers were aware that if they could pay the extra, the loan could be finished well before retirement. Reducing to 15 years does really ramp up the monthly cost, and extending to 30 years didn’t save much over a 25 year term. Best approach in general was for folk to aim to finish in their mid fifties (that was 15 odd years ago…realistcally now perhaps very early 60’s given increased life expectancy and later buying).

    Agree with Harry’s point about IO and renting. However, that said, for those who are paying interest only, would they have been best advised to not buy at all but simply rent? Therein lies another conundrum – while the interest rate may go up, at least the capital it’s based on (assuming no further borrowing or missed payments) remains the same. After 25 years, what will the rent be…..?

    Finally, I never understand or agreed that at the end of the term a lender must have it’s money back in all circumstances. Given that lenders are continually seeking new buisiness, why is it essential that a good existing borrower having reached the end of the term, must give the money back….only in order that the lender can then pass it to another new and unkown borrower, who may or may not be so reliable. I do appreciate all the cashflow implications for any lender on this, but if the lender isn’t faced with this issue, why not consider re-wrting the loan on a lfetime basis where feasible – even if at a higher rate by way of some compensation…

    Than again I suppose I worked for one of the old fashioned Societies…..whose chairman always stressed we had members who we helped buy homes, not cutomers…and roundly told one young whippersnapper that if you didn’t understand the difference between a member and a customer, then you were in the wrong job. Days sadly gone I guess.

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