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Interest-only mortgage borrowers warned over repayment plans

2 May 2013

Mortgage borrowers on interest-only loans are to get a warning over their repayment plans after research for the new Financial Conduct Authority suggested that over 1,000,000 householders are likely to face a shortfall of funds when their loan period is up.

Research for the FCA, successor to the Financial Services Authority in consumer matters, indicates that over a third, and possibly up to half, of the 2,600,000 UK householders on interest-only mortgages will have insufficient means without selling their house to repay their loan.

It further estimates the average shortfall at £71,000, and that 260,000 borrowers have no strategy in place at all to meet the debt.

Interest-only mortgages were commonly taken out up to the mid-1990s, alongside an endowment policy that was expected to pay off the loan when it matured, and more recently prior to the financial crisis as borrowers counted on rising incomes and property values to cover what they owed.

New rules will restrict the sale of interest-only mortgages from April 2014, and lenders are to contact all borrowers whose loans fall due before the end of 2020 to ensure they have a repayment strategy in place. Advice will be available to those facing a shortfall.

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