Nearly one million people could face repossession of their homes because there is no way they can pay off their interest-only mortgages, according to Citizens Advice.
The charity’s research estimates that up to 934,000 people have interest-only mortgages, but once their terms end, they likely don’t have a plan on how to pay it off. It means that those with such policies will have to sell their homes, find the money to pay the debt off, or put their property at the risk of repossession.
Citizens Advice reported that many people who had interest-only mortgages had approached it in recent months and said they were not aware they would have to repay all capital at the end of their policy term; this shortfall was estimated at an average of £71,000 per customer, which is nearly three times the average salary in the UK.
Taking the 3.3 million interest-only mortgage holders in the UK, the charity used a YouGov poll to estimate that 1.7 million of them have no repayment vehicle such as an endowment or ISA, 934,000 have no repayment plan, and 432,727 have not even considered about how they will pay it off.
In 2012, legislation was brought in to ensure interest-only mortgages were not accessible to those without a repayment plan, and this has had an understandable effect on the number of people buying such products. Yet Citizens Advice, while firmly agreeing with the change in financial regulation, believes there is not enough support for those locked into such agreements – and that those who can make real change should step up and protect those in these situations.
Chief executive of Citizens Advice Gillian Guy 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.”
Ms Guy also reiterated Citizens Advice’s mandate to provide people with “independent advice, guidance and support” about planning and managing finances.