One million interest only mortgage borrowers have no plan to repay capital

New research by Citizens Advice Bureau reveals that almost one million homeowners in the UK currently have an interest only mortgage with no plan to repay the capital element of the loan when the loan term ends.

The research, which was carried out by YouGov, also revealed 1.7 million people have no linked repayment vehicle, such as an endowment or ISA.

In 2012, the rules changed so interest-only mortgages could only be offered alongside a credible capital repayment plan.  An amended pre-action protocol was also implemented, whereby mortgage lenders were legally required to consider alternative options, such as extending the loan term, before commencing enforcement action against borrowers in difficulty.   However, these rules do not apply to interest-only mortgages at the end of the term.

Gillian Guy, Chief Executive of Citizens Advice, said “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."

The full release can be viewed here.