7 June 2013

Interest-only mortgage problem yet to bite

Research from Experian shows that there are still plenty of interest-only mortgages around which will cause problems if people haven't organised a way of paying it off.
 
Most people claim they do have a plan for paying it off but around 260,000 don't.
 
There are three peak periods when interest-only mortgages will reach the end of their term:
  • 2017/2018 This peak is a result of endowment mortgages sold in the 1990's and early 2000's and typically consists of those approaching retirement with high incomes, high assets and high levels of equity in the property.
  • 2027/2028 This peak stems from mortgages typically sold from 2003 to 2009, i.e. the years running up to the financial crisis, when lenders were much less cautious than now, but this tranche starts in 2022. It "is characterised by less affluent individuals currently in early to mid-life stages."
  • 2032  This final peak stems from mortgages opened between 2005 and 2008, with higher loan to values and, again, higher income multiples. These are loans that have been converted to interest -only at some point. This tranche has concentrations of "highly indebted individuals with low or negative equity in the property at the point of maturity".
Anyone with an interest-only mortgage needs to take another look to make sure they have the capacity to pay it off.

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