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.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Barclays's new life insurance heralds a revolution on the high street
How to protect your assets if the stock markets begin to head south again
Head across the Irish Sea for bargain houses
Bargain Hunter: Timing is everything in making big savings on beer, wine and whisky
Mark Dampier: Don't listen to stock market doom-mongers - sit back and enjoy the sun
- 1 Israel-Gaza conflict: 'When Genocide is Permissible' article removed from The Times of Israel website
- 2 Pope Francis issues top 10 tips for happiness
- 3 Disney heiress Abigail disowns her share of family profits in West Bank company
- 4 The secret report that helps Israel hide facts
- 5 Israel's propaganda machine is finally starting to misfire
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
- < Previous
- Next >
iJobs Money & Business
£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...
£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...
£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
Day In a Page
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000