The debt fall-out of interest-only mortgages

Research from the new Financial Conduct Agency (FCA) suggests that more than a million people who have interest-only mortgages have no plans in place to pay off the principle. 

The first wave of these are likely to be people who took out endowment mortgages which failed to make enough money to cover the cost of their loan; they are now facing retirement with much of the cost of their home still outstanding.

More than two and half million people have interest-only mortgages, according to the FCA.  Almost half will face a shortfall of on average £71,000.

Interest-only mortgages were taken by people who believed they would have extra funds at the end of the mortgage period to pay off the cost of their home.  Typically this would be from savings (such as an endowment policy), an inheritance or from the sale of a business.

The FCA research suggests that many people’s plans will not produce as much money as they had expected – for example, because of falling property prices – or because their savings had not grown at the rates they expected.

Other people, who had taken out an interest-only mortgage without a clear re-payment plan, face having no means to repay their final mortgage bill.

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