Concern over endowment mortgage and interest only loan shortfalls in the UK
A million over 50s’ endowment mortgage policies in the UK aren’t enough to pay off their mortgage and a quarter say they will have to sell their home to make up for the shortfall. Research from the Saga Equity Release Advice Service has found that the average shortfall is £49,000 and as one in 10 have no way of paying their mortgage off, Saga estimates that they have to find £5 million from somewhere to keep the lenders from knocking at their door.
Moving home could be the worst case scenario for those facing a shortfall, as many over 50s couldn’t bear selling their home because it’s filled with family memories. This could be why half of over 50s haven’t moved home for more than 20 year. However, a quarter of people say that they will have to sell their home to make up for the shortfall from their endowment policy.
One in 13 of those facing a shortfall have bought themselves some extra time by extending their mortgage, while a third plan to dip into their savings to pay off their mortgage. While some people have some sort of plan in place, one in ten don’t know what they will do to pay the outstanding balance on their home. ‘Finding your endowment policy has failed to payout the way you expected can be a great shock, but facing an endowment shortfall need not mean that you lose your home as there are other options open to people to plug the gap,’ said Paul Green, Saga director of communications.
The research is published at the same time as a study from the Financial Conduct Authority (FCA) shows that many people should be in a good position to repay their mortgage when it is due for repayment but many borrowers, particularly those whose mortgage is due to be repaid before 2020, will need to take control of their mortgage repayment planning now. The FCA, the Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) said they are working together to ensure lenders contact their borrowers in order to prompt them into checking their plan for repayment is on track and considering the options available to them.
Quote from PropertyCommunity.com : “The Financial Conduct Authority (the successor of the Financial Services
Authority) has today issued a stark warning to interest only mortgage borrowers in the UK. A recent survey shows that around 2.6 homes in the UK have been financed using interest only mortgage arrangements and are due for repayment over the next 30 years.”
The research found that around 600,000 borrowers will see their mortgage mature before 2020 and about 90% of all interest only borrowers have a repayment strategy, mostly linked to an endowment policy. However, just under half of all interest only borrowers are likely to have a shortfall and a third of the shortfalls are expected to be over £50,000. There is also concern that some borrowers are underestimating the problem as around a third, 37%, believe they may not have enough money to pay off the loan, yet estimates produced for the FCA suggest that the figure is closer to 48%.
The Council of Mortgage Lenders said its members will be stepping up their communications to borrowers with interest only mortgages and want to ensure that all borrowers have sufficient plans to meet their contractual obligation to repay their mortgage when it reaches maturity. It said that lenders are taking a targeted approach and anyone with an interest only mortgage maturing before the end of 2020 should expect to be contacted over the course of the next 12 months by their lender if they are not already in communication with their lender on this issue about their repayment plans.