Do you take an interest in your mortgage?
It’s been reported that regulators have warned of hundreds of thousands of homeowners who could be at risk of losing their homes, by ignoring how they will pay off their mortgage.
The Financial Conduct Authority has released research showing there are 2.6 million interest-only residential mortgages which will mature (and so need to be redeemed), between now and 2041. Of those, 600,000 will mature by 2020.
But alarming findings show 48% will have a shortfall, meaning those borrowers will not be able to afford to repay the entire debt. The FCA estimates the average shortfall to be around £71,000.
The issue has been highlighted since the start of the financial crisis in 2007. In the booming housing market of the early noughties, with people desperate to get on the housing ladder and lenders eager to lend, there seemed no possibility of a correction in the market.
Nearly one in five mortgage-holders has an interest-only home loan, meaning they need savings or other funds to pay a final lump sum.
Lenders adopted a more relaxed attitude to risk, as they believed that burgeoning house prices would protect their loans, giving them on going security.
This meant that many interest only loans where granted with no vehicle to repay – in many instances the applicants simply stated that they would sell the property at the end of the term, or that they expected an inheritance.
Loans were also granted to elderly customers that took them well past their retirement age, meaning they had no means to meet their monthly payment, never mind pay off the mortgage.
After guidance from the regulators lenders are now writing regularly to their customers highlighting the need to have a means of repayment. It’s been reported however, that many borrowers were ignoring the letters and do not fully understand the predicament they are faced with.
Some believe that they do have an adequate repayment plan in place, while others were simply burying their head in the sand. Some had little trust in their lender, so were suspicious of the letters.
The FCA urged these borrowers to talk to their lender as early as possible, otherwise they would restrict their options over time of paying off their mortgage.
The issues and problems will come to head when mortgagees are asked to redeem their loans and have no means to do so. If the lender thinks it is too risky to extend the term of the loan, they will then start looking at ways that they can recoup their funds, which may include legal action.
At this point many borrowers may start thinking about the advice they received when they took out their loan and was there sufficient duty of care with the advice given by the mortgage lender.
We have already advised on issues that have arisen with interest only issues through the courts and whether the Lender has breached its duties, in that it failed to check and ensure that the mortgage was suitable for the borrower and if they advised on other mortgage options such as repayment.
There are many other points that arise that could form the basis of defending a claim for repossession and/or a shortfall.
We have experience in dealing with mis-selling and possession claims, and were successful in pursuing claims against Banks arising from the mis-selling of Hedge products.
If you have concerns about your mortgage and are worried the scenario we have outlined could relate to you then contact me at email@example.com or on 01603 67563.