Endowment plan: Need-to-know advice on interest-only mortgage repayment problems

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Homeowners are being affected to sell their houses because of debt from their portion free mortgage

There has been a sharp rise in the number of riches sales by cash-strapped owners in the past two years as they struggle to pay down the means on their loan. 

Interest-only mortgages were heavily sold in the 1980s and 1990s, with salesmen assisting homeowners to take out endowment investment plans to clear the debt and if things go well leave a tidy profit as well. 

How, many endowment plans underperformed, leaving hundreds of thousands with a shortfall on their mortgage responsibility. 

This generation is now approaching retirement and many fear they can simply clear the outstanding debt by selling up.

Forced out

Some 43 per cent of possessions agents have seen a rise in “forced” sales from people with interest-only mortgage repayment problems over the past two years, according to new inquire into from Key Partnerships. 

Three out of four older customers who are downsizing to itty-bitty expensive houses are doing so to release cash to pay off their mortgage. 

Between now and 2020, at infinitesimal 10,000 borrowers every year will come to the end of their interest-only advances with no means of paying off their debt. 

Will Hale, conductor at Key Partnerships, a subsidiary of specialist equity release advisers Key Retirement, ordered that selling up to pay off an interest-only mortgage can make sense but older homeowners be compelled be aware of all options open to them: “One alternative is to take out an equity hand out plan, which allows you to generate cash from your characteristic while continuing to live there.” 

Back on tail find 

David Hollingworth, associate director at L&C Mortgage, said that anyone with an interest-only mortgage be required to ensure they are on track to repay their mortgage at the end of the term: “If there is any striking of a shortfall you must take action sooner rather than later. The longer you wash ones hands of it the harder it will be.” 

One option is to switch some or all of the mortgage to capital repayment, to certain the debt is cleared on time. Another is to make regular overpayments to shy away from the debt. 

“Most mortgages now allow penalty-free overpayments of up to 10 per cent a year,” he continued. 

It may be possible to extend your mortgage term, although many lenders are hesitant to let loans run beyond retirement. 

“Some are more flexible provided you can appear you will have sufficient retirement income to service the mortgage, signally Family Building Society and Nationwide.” 

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Always keep some readies in an emergency reserve

Cashing in 

Specialist lender Hodge has an interest-only mortgage for those ancient 55 and over that can run to age 95, Hollingworth added. 

Mark Harris, chief supervision of mortgage broker SPF Private Clients, said homeowners with scratch that is attracting near-zero interest in the bank might consider practising that to pay down the capital: “But do not use cash you may need later, keep some in as backup for an emergency.” 

Homeowners should speak to their lender and consider alluring independent mortgage advice, he added.

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