Consumer Rights: Act if you are worried about interest-only home loan
The time is looming for many to find money to pay off their mortgages. Do they have enough?
Saturday 18 May 2013
If you've been reading about interest-only mortgages with a growing sense of unease, it's time to act. Interest-only mortgages have helped many people afford to buy their homes but they don't suit every borrower and not everyone who took one out realised exactly what the risks were. Banks have become much less keen on interest-only loans and some have stopped offering them, and there's growing concern that some may have been mis-sold.
Paying interest only is cheaper than taking out a repayment mortgage so it has been an attractive option. But paying interest only means what it says – you're paying only the interest on the capital you borrowed but you aren't paying anything towards reducing that capital. If you borrow £100,000 you pay monthly interest payments but at the end of 25 years you still owe £100,000. The idea was that you saved into a separate fund each month so that you would have enough savings at the end of the 25 years to clear the £100,000 loan. Endowments and pensions were popular ways of saving. However, some endowment plans didn't do well in the early 1990s, leaving those people with too little to pay off their loans in full now. Paying into a savings fund to repay the loan hasn't been a condition of an interest-only loan since the 1990s so there are people who haven't been saving enough or not saving at all. The latest figures show that people who took out interest-only loans have saved about £72,000 less than they will need on average. many have saved nothing.
If you don't have a savings plan you may have money coming to you which you can use – a lump sum from your pension or an inheritance maybe. If you have no plan in place for paying off the capital you borrowed you need to act now. If you are thinking that none of this was explained to you at the time you took out your mortgage, or that if you'd understood the risks you wouldn't have signed up, you may have been mis-sold your loan. A mortgage adviser should have explained the risk and discussed with you whether you were prepared to take that risk. If you feel you didn't get the most suitable advice you should get advice.
If you don't have enough money to repay the loan when it becomes due your only option may be to sell your home. Some people will have planned all along to sell, pay off the loan and buy something smaller. But others won't want to move and still others will find they don't have enough left to buy a smaller home or that selling quickly is impossible.
If you knew what you were getting into and don't want to sell you need to act now. You are responsible for making sure you have enough money when the time comes. Even if you've got years before the capital has to be repaid any delay will mean you have to save more each month.
Talk to a financial adviser about how much you will need to put aside from now on to clear the loan on time and about whether it might be worth using any savings you do have to reduce the loan immediately. Even if you have a plan in place it might not be building up quickly enough and could leave you with a shortfall, so check regularly to see whether you need to be saving more into it. It might be possible to change to a repayment mortgage where you're paying part of the capital as well as the interest. Many people find this is too expensive but some lucky ones have managed to change to a repayment mortgage, extend the period of the mortgage and pay less each month. Ask whether there are arrangement and exit fees for changing.
Lenders know that some borrowers are having problems and are trying to make sure their customers are on course. Lenders have the option to take legal action to repossess and sell your home if you don't repay your loan on time but most will do their best to work with you to find a better solution. If you have a buy-to-let mortgage you may have less reason to worry. Most buy-to-let loans are arranged on an interest-only basis. Before they lend most lenders want to know that the rent you can charge for the property will be substantially more than the interest on the loan. If you've been saving that surplus you can use that to repay the capital borrowed. But if you don't have enough to repay your capital when the time comes it's not likely to be such an emotional wrench to sell a property you don't live in, provided it has increased in value and you can find a buyer quickly.
If you need help on any aspect of your interest-only mortgage contact the Money Advice Service at www.moneyadviceservice.org.uk
Q: I have just had a letter from the HR department at work to say that I was overpaid for several months last year. I think they are probably right but at the time I was doing extra work on a bid for a new contract and getting paid extra for additional hours and for acting at a higher grade. I didn't realise I was being overpaid – it never crossed my mind to check because frankly I had expected a bit more than I got. The firm wants the money repaid but I don't have it. Do I need to get legal advice?
FA New Forest
A: I think you should get legal advice. You may be able to have a half-hour appointment with an employment lawyer at an advice centre for free. Law centres also give free advice on employment issues. An employer can legally make a deduction from an employee's pay if there has been a genuine overpayment. As you accept you owe the money there are no grounds to argue that the overpayment isn't genuine or for refusing to pay it back. However you may be able to negotiate to pay the money back over time. If that doesn't work ask for an interest-free loan from them to help you through the following few weeks. Try to keep the issue separate from the job you're paid to do and the people you work with.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 19-23 January
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Bargain Hunter: From The Outsider to 1984, catch a cut-price classic, read it in the rye
Bank-beating exchange rates on your international payments
- 1 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 4 Tennis fan suing Australian Open organisers for 'failing to shade spectators' during Murray match
- 5 This crazy skiing video will leave you feeling queasy
British Muslim leaders outraged after Eric Pickles says followers of Islam should 'prove their identity'
UK terror fears: My jihadist son returned from Syria mentally scarred – now he is being ignored
Nigel Farage: NHS might have to be replaced by private health insurance
Billy Crystal: 'Stop shoving gay sex scenes in my face'
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
David Cameron says anyone criticising Eric Pickles' letter to Muslims 'really has a problem'
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village