HML chief executive Andrew Jones said:
“There is an unrealistic expectation amongst a significant number of interest-only borrowers that annual house price inflation will return to double digits and dig them out of a sticky situation.
“There is a challenge to help consumers understand there isn’t going to be a return to runaway house price rises anytime soon and it is therefore their responsibility, along with lenders, to make appropriate arrangements to address the issue.
“The financial services industry needs to get a grip on this issue quickly and proactively contact borrowers to find a solution that is workable. Providers also need to think about innovative ways of helping people stay in their homes. What is clear is that doing nothing is not an option.”
HML’s research, among more than 1,000 people, also revealed that only three out of ten of borrowers with an interest-only mortgage are confident they have a plan that will repay the whole debt. This means seven out of ten people with an interest-only mortgage need help, most don’t know how they are going to repay it, or have the income to switch to a repayment mortgage.
Three out of ten homeowners have an interest-only debt - 16.5 per cent of borrowers have an interest-only mortgage with a further 14.5 per cent having a part interest-only and part repayment mortgage.
Awareness of interest-only among borrowers is not an issue. Of the people who know they have an interest-only mortgage the majority (91.6 per cent) know they need to repay the capital at the end of the mortgage term.
Having a viable plan to repay the debt is a problem. A majority (59.7 per cent) have a plan, 39.3 per cent do not. Of those people who do have a plan only 47.2 per cent are
confident the whole debt will be repaid.
This means seven out of ten people with an interest-only mortgage need help to repay the capital at the end of the mortgage term.
The most popular repayment vehicle is an endowment policy (40.9 per cent) followed by a PEP/ISA (19.4 per cent), savings (10.3 per cent) and inheritance (1.3 per cent). More than one in ten (13.6 per cent) say they will repay the debt through other means.
When asked if they could afford an increase in monthly mortgage payments, 42.9 per cent of interest-only borrowers said they could not afford to pay any more towards their mortgage, 11.1 per cent said they could afford an increase of less than £100 a month.
12.5 per cent said they could afford to pay more than £100 extra a month and 29.6 per cent said they could afford to pay significantly more towards their mortgage than they currently do.
House Price inflation to the rescue
More than half (57.6 per cent) of the respondents feel house prices will rise enough for the debt not to be a problem at the end of the mortgage term, 26.6 per cent said they didn’t think house prices would rise enough for it not to be a problem at the end of the mortgage term and 15.8 per cent said they didn’t know.
