The issue is that around half of people who have an interest only mortgage may not be able to pay it off in full, and may also not be able to switch to a standard repayment mortgage if they don’t meet the strict affordability criteria that lenders now have in place in the wake of the financial crisis.
The city regulator the Financial Conduct Authority (FCA) has stated that more than 40,000 interest-only mortgages are expected to mature every single year until 2032. They have highlighted three peak periods of interest-only mortgage maturity. The first peak was 2017/2018, the second will be in 2027/2028, and the last will be in 2032 (driven by interest-only mortgages opened between 2005 and 2008).
Last year, the FCA announced new measures for those who were set to repay their loan before 2020. The measures were introduced on 23 October 2020 in response to the impact of coronavirus and included guidance that firms should allow borrowers to delay repayment on mature interest-only mortgages until 31 October 2021 (provided borrowers are up-to-date with their payments). If you’d like to find out more about these measures, you can visit the Financial Conduct Authority website here.
Even though this extension for borrowers who are due to repay their interest-only mortgage debt will soon come to an end, it’s still worth contacting your lender to see if they can offer further help if you’re struggling. Eric Leenders, managing director of personal finance at UK Finance, said: “Like many homeowners at this time, interest-only customers are managing through the hugely uncertain impact of Covid-19 and the industry has a plan to help, so we would recommend that customers contact their lender if they are worried about their finances to discuss the support available to them.”
If you find yourself with an interest-only mortgage that you don’t think you’re going to be able to pay off, it’s important to be aware of the options that could help.