More than a quarter of a million homeowners will reach the end of their interest-only mortgages in the next five years but could struggle to remortgage, according to new research.
Around 15% of the 1.7m homeowners who currently have an interest-only mortgage will reach their repayment date by January 2024, and could find it hard to get a new deal, specialist lender Kensington Mortgages found.
Mark Arnold, chief executive at Kensington Mortgages said: “The people who will be facing these bills will have a very different customer profile at the expiry of their mortgage than they did 25 years earlier when they took out these products.
“Many will have retired. Of those who are still working, many are likely now to be self-employed. Some may have moved from full-time work into the gig economy. They could still be fantastic borrowers, but these are families that won’t necessarily be able to tick all the boxes when they come to ask one of the big banks for a new loan.”
The situation is expected to intensify over the next decade, with 860,000 interest-only mortgages due to reach the end of their term by January 2029. Around half of these borrowers are forecast to get to the end of their mortgage term without having found a new deal.
What to do if you’re facing a shortfall
If you have an interest-only mortgage and are worried about not being able to pay off the capital when your mortgage term finishes, it’s vital not to bury your head in the sand.
The good news is that there are plenty of options available if you don’t already have a repayment plan in place.
• Talk to your lender and see how they can help. They won’t want you to default on your mortgage, so will discuss what you can do to try and ensure your mortgage is paid off in full at the end of its term.
• Consider switching all or some of your mortgage from an interest-only to a repayment basis, where you pay back both interest and some of the capital each month. The sooner you can do this the better, although if it’s too expensive to switch your full mortgage to repayment you may want to consider doing it gradually.
• If you’re not tied into your current mortgage deal, see if you can switch to a cheaper deal. This could help mitigate the impact of switching to a repayment mortgage.
• Find out whether your mortgage offers you the option to overpay. Most lenders allow you to repay up to 10% of the capital you owe each year without penalty. If you are able to do this, it will help reduce your debt, so you’re left with a smaller shortfall at the end of your mortgage term.
• If you’ll be retired by the time your interest-only mortgage finishes, there’s a growing range of options for older borrowers. You can read more about these in our blog More mortgage options available for older borrowers.
Interest-only borrowers urged to take action