The latest figures estimate that a fifth of homeowners currently have an interest-only mortgage. The offer of a lower monthly repayment may have seemed appealing to borrowers. However, they could now find themselves at the centre of the next mis-selling scandal.
Find out more about the interest-only mortgage and what potential mis-selling could mean for homeowners.
An interest-only mortgage is an agreement with the lender that the borrower pays just the interest over a fixed term. However, when the term ends, the borrower is then expected to repay the original loan in full.
Borrowers are expected to set up their own payment plan during the interest-only term to pay off the original loan. Many of these mortgages are expected to mature before 2020. It is reported that many may not be prepared for the final payment.
One in ten borrowers claim that that has no set plan for the lump sum expected at the end of their term. Getting another mortgage is an option for many. However, some homeowners may have limited options due to their earnings, especially those who have since retired.
Regulators foresaw this struggle at the end of interest-only loan terms. The FCA launched a review of the product in 2013. As a result, lenders were advised to contact customers to offer payment options following their loan terms. This more than halved the number of borrowers with interest-only mortgages to 1.6m people.
Due to the reports that many borrowers are unaware of the exact terms of their interest-only mortgage, it may become the next mis-selling scandal.
It’s not known yet how many people could have been affected. However, if any of the following apply it’s likely you were mis-sold if:
- Your broker or lender didn’t discuss a plan for how you would repay your mortgage when it finished.
- It wasn’t explained to you that you may have to switch your mortgage to a repayment mortgage. This is instead of relying on rising house prices to pay off the original loan amount.
- Your broker or lender didn’t give you examples of the cost of different types of mortgages.
If you were mis-sold a financial product, get in touch with our team of experts. They can advise you on the next steps to take.