One in three interest-only mortgage holders could see their repayments double when new FSA regulations come into force next summer.
That’s the warning from award-winning debt management company The Debt Advisor who is urging borrowers on interest-only mortgages to pay off their debts now and convert to a repayment scheme to avoid being ‘trapped’ when the regulations come into force in 2013.
Managing director, Bev Budsworth said: “During the housing boom, interest-only mortgages accounted for a third of the entire mortgage market. Nowadays, it’s estimated that there are £120 billion of these mortgages that mature in the next 10 years where many householders have no other way to settle the capital other than to sell their home.”
The new FSA regulations could see an end to interest-only mortgages and eligibility criteria around self-certified loans significantly tightened.
Bev continued: “Since the banking crisis, lending criteria has become increasingly prudent and next summer’s reform is set to tighten this further – possibly sounding the death knell for interest-only mortgages. Borrowers could easily find themselves trapped, unable to remortgage and short of options.
“Negative equity only seeks to compound the problem further as borrowers are reluctant to cash in their properties to defuse this ticking time bomb.
“People need to act now and pay off their debts as repayments for the average £114,000 mortgage could more than double, if moved to a repayment scheme – pushing thousands of people over their tipping point and into debt.
“For those thousands of people already in debt, or worse, for the 160,000 people who ended 2011 in mortgage arrears, any increase in mortgage payments could severely reduce or wipe out the surplus set aside to clear their debts.
“Times are tough for everyone but especially those with interest-only mortgages and a degree of debt. The only option is to pay down your debts as much and as soon as you can and then swap to an affordable repayment mortgage.
“Anyone concerned about debt issues should speak to a regulated financial solutions company who will be able to discuss your options. Look for members of the Debt Managers Standards Association (DEMSA) and the Debt Resolution Forum (DRF) to ensure you get the best possible advice.”