Of the 11.2million mortgages in Britain, about four in ten are interest-only, meaning the homeowners pay only the interest but not a penny of the actual loan. Between 2011 and 2020, the FSA expects about 1.5million such mortgages – worth a staggering £120billion – ‘will be due for repayment’.
Mr Wheatley told the Treasury select committee: ‘There is a ticking timebomb that has been created over the last 20 years.’ The FSA said its figures mean 150,000 interest-only mortgages will come to the end of their life every year for the next decade.
The vast majority of people with these types of loans – 80 per cent – have ‘no repayment strategy’, the FSA said. Others have been saving, but have been bitterly disappointed by how their investments have performed. The crisis has been triggered by proposed FSA rules, called the Mortgage Market Review, which will clamp down on interest-only lending.
When they come into force, probably next year, it will be impossible to take out such mortgages unless the person can prove they are saving to pay off the loan. But the rules do nothing to address the problem of loans handed out in the past. David Hollingworth, from the independent mortgage advisers, London and Country, warned such mortgage holders ‘will potentially have nowhere to go’.
They also face new age restrictions, which means they will not be given a new loan unless it ends before they reach the age of 75. It means a homeowner in their late 50s would not be able to take out another 25-year loan.
Tory MP and committee member Michael Fallon warned: ‘There are an awful lot of people in their late 50s... who are not going to be able to remortgage.’
Last night, the Council of Mortgage Lenders said: ‘Lenders are attuned to this issue and will treat borrowers sympathetically.’
This post has been edited by Dave Beans: 15 March 2012 - 02:56 AM