Mortgage blog: Do you know how you’re going to pay back your mortgage?
If you have an interest only mortgage but no specific repayment vehicle in place for the loan, you're not alone. New research has revealed that a fifth of all homeowners with an interest-only mortgage don't know how they are going to pay back their home loan, with fewer than half those questioned admitting to having a financial vehicle in place to repay their borrowing.
With millions of mortgages being arranged on an interest-only basis in the run up to the global financial crisis, experts are concerned that a large proportion of homeowners simply don't have the means of paying back their mortgage at the end of the term.
Fewer than half of homeowners have a financial vehicle in place to repay their mortgage
The survey from Ascent Performance Group found that when UK homeowners with interest-only loans were asked how they intended to pay back the capital portion on their mortgage, only 43% said that they had a suitable financial vehicle to repay the loan. Of the remainder, one fifth said they had no vehicle in place and did not know how they would pay back their mortgage.
The survey also revealed that over a third (37%) intended to repay their mortgage by selling their current home and downsizing, selling a second property, asking their family for support or switching to a repayment mortgage.
Niall Gilhooley, chief executive at Ascent, said: "Our findings highlight a potentially huge issue not only for homeowners, but also for lenders if they do not address the issues. We are aware of a number of responsible financial institutions taking proactive steps to deal with the problem, but it is certainly not as widespread an approach as might be expected."
Mortgage Introducer reports that the Ascent survey follows a recent Financial Conduct Authority (FCA) paper which estimates that six million interest only mortgages will be due for repayment by 2020.
Mr Gilhooley added: "We certainly support the FCA's call for more action to deal with the issue - indeed we had been working with a number of lenders in relation to interest-only mortgage repayments long before the FCA issued its paper.
"The Building Societies Association has also commented recently on the FCA's findings and stated their concern that homeowners who don't have a plan in place are most likely to be the people most reluctant to speak with their lender.
"Lenders simply cannot leave the current situation to develop further and we believe our role in helping to re-open the dialogue between lenders and their borrowers will be crucial in dealing with the issue."
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