Most weeks, I try to bring a bit of humour, sarcasm and light heartiness to a relatively uninteresting, but extremely important part of most of our lives. How else could I entice you to read a column about mortgages!? However, I need to be serious this week and discuss the huge issues surrounding mortgages on an ‘Interest Only’ basis.
Many have taken out mortgages on an Interest Only basis. To clarify Interest Only – if you take out a £100k mortgage loan over 25 years on Interest Only, at the end of the 25 years you will still owe the lender £100k! As the term says, you are only paying the interest on the loan borrowed. Historically, many also contributed to an endowment policy that acted as a savings plan which would hopefully match the outstanding loan at the end of the term. Enough said! Today, ISA’s are normally the preferred savings vehicle but many have not carried on with the savings plan as other distractions have, for whatever reason, taken priority.
Where the big problem lies is that many consumers suggested that their repayment vehicle would be ‘sale of property’, i.e. they would downsize at the end of their mortgage, normally coincided with a retirement date. The issues, more recently, may well include house price decline and there may no longer be enough equity in the property to downsize and still purchase a suitable property to live in.