Older Home Owners Raid Savings to pay Their Mortgage.

by Mark Johnston

Older Home Owners Raid Savings to pay Their Mortgage.

Interest only mortgages previously helped millions of people on to the housing ladder but they have more recently become the subject of a regulatory clampdown.

With an interest only mortgage, the borrower agrees to pay off the interest each month but none of the capital, and is expected to make sure he or she has an investment plan in place to pay off the debt at the end of the term.

The problem is that not every borrower has an investment plan in place.

The Financial Services Authority (FSA) has been worried for some time that many homebuyers who took out these mortgages could be storing up problems for the future, because they have little or no idea of how they will pay back the loan

A recent report by market research firm BDRC Continental estimated there were 1.8 million mortgages on an interest only basis in the UK, of which about 1.1 million appeared to be ‘ticking time bombs’.

Recent data reveals that some 1.4 million borrowers are over 60 with mortgage debts of £100 billion. Some 260,000 are on interest only deals worth £28.3 billion.

In 2004 just 2 per cent of people over the age of 65 had a mortgage, with a mean outstanding balance of £17,000. By 2012, this proportion had risen to 11 per cent, with a mean outstanding balance of £62,000.

Industry insiders have highlighted that there are a staggering 52,000 borrowers aged over 60 in the UK, on interest only mortgages, which are due to end before 2016, and who have less than 20 per cent equity in their homes.

Some experts have warned that in extreme cases borrowers aged over 60 may have to make repayments until they die.

Some experts have warned that in extreme cases borrowers aged over 60 may have to make repayments until they die.

Research by Fathom Consulting suggests that older borrowers may be carrying large debts because an increasing number of them released equity in their own homes in order to help their children buy their own home.

Therefore some experts are pointing to the so-called “Bank of Mum and Dad” as being the villain of the piece.

Thus meaning that borrowers may have to raid their savings or sell their homes within four years to pay back nearly £6 billion of mortgage debt.

Older borrowers are particularly at risk because most mortgages in the UK are 20 or 25-year loans, and at the end of the loan period the debt must be repaid. Younger borrowers will have much longer left on their loan.

Therefore it appears that older borrowers with interest only loans are face refinancing risk.

Although all is not lost as older homeowners are being offered a mortgage by National Countries building society in the form of an eight year fixed rate deal available to new customers up to the age of 80.

A spokesperson for the society said this was one of the few mortgage products that actively sought to help older borrowers.

 



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