Belfast Telegraph

Wednesday 16 April 2014

Homeowners may face big mortgage shortfall

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Homeowners in Northern Ireland will be hardest hit by mammoth repayment demands on interest-only mortgages which may force many from their homes.

Around half of people on interest-only mortgages will struggle to pay tens of thousands of pounds owed in future, said new research.

Some 40% of all mortgages taken out here are interest-only – with a lump sum paid off at the end.

Now it has emerged that many are expected to have an average shortfall of £72,000.

It is the second major blow to homeowners here in recent days following the announcement by Bank of Ireland that it will be raising its interest rate.

Some borrowers – including those who took out 'lifetime' deals – will see their monthly repayments double.

Figures from the Financial Conduct Authority (FCA) showed 2.6m UK households have interest-only mortgages.

The FCA said estimates suggest many people underestimated the problem and it believes 48% of holders of such mortgages face shortfalls.

At the height of the housing boom many signed into such agreements on the assumption their homes would increase in value sufficiently to give the option of selling it to pay the hefty bill if necessary.

But with Northern Ireland the worst hit region in the UK after the housing crash, more people are in negative equity.

Among those affected is 33-year-old civil servant Collette McCartney from Co Antrim.

"We are on interest only," said the mother-of-two. "Today's news is really worrying, combined with the cost of living constantly rising while wages remain the same.

"We, like many, don't know what we will do."

Poor performing endowment policies which many relied on to pay mortgages are also said to have caused problems for many homeowners.

FCA suggests that nearly half of all interest-only loans are unlikely to be paid back in full.

Age UK said it was concerned older people who had set money aside for their retirement could be hit hard.

It urged lenders to work with older mortgage borrowers to find affordable solutions.

Michelle Mitchell of Age UK said: "With one in 10 borrowers having no plan as to how they are going to pay off their loan – there is simply no room for complacency."

Martin Wheatley, FCA chief executive, said: "My advice to borrowers is to not bury your head in the sand. Take action now."

Factfile

Interest-only mortgages are popular as monthly repayments are substantially less. The payment simply covers interest, so at the end of the mortgage term the borrower faces paying off the lump sum. Those who wish to make the switch to full repayments from interest-only deals face dramatic rises in their payments.

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