… but this is the concerning part .. 9,058 of those Stoke on
Trent mortgages are interest only. My research also shows that, each year
between 2017 and 2022, 109 of those households with interest only mortgages will
mature, and of those, 27 households a year will either have a shortfall or no
way of paying the mortgage off. Now that might not sound a lot – but it is
still someone’s home that is potentially at risk.
Theoretically this is an enormous problem for anyone in this
situation as their home is at risk of repossession if they don’t have some
means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building
Societies are under no obligation to lengthen the term of the mortgage and,
when deciding whether they are prepared to do so or not, will look at it in the
same way as someone coming to them for a new mortgage.
Back in the 1970’s and 1980’s, when endowment mortgages were
all the rage, having an endowment meant you were taking out an interest only
mortgage and then paying into an endowment policy which would pay the mortgage
off (plus hopefully leave some profit) at the end of the 25/35-year term. There
were advantages to that type of mortgage as the monthly repayments were lower
than with a traditional capital repayment and interest mortgage. Only the
interest, rather than any capital, is paid to the mortgage company - but the
full debt must be cleared at the end of the 25/35-year term.
Historically plenty of Stoke on Trent homeowners bought an
endowment policy to run alongside their interest only mortgage. However,
because the endowment policy was a stock market linked investment plan and the
stock market poorly performed between 1999 and 2003 (when the FTSE dropped
49.72%), the endowments of many of these homeowners didn’t cover the shortfall.
Indeed, it left them significantly in debt!
Nonetheless, in the mid 2000’s, when the word endowment had
become a dirty word, the banks still sold ‘interest only’ mortgages, but this
time with no savings plan, endowment or investment product to pay the mortgage
off at the end of the term. It was a case of ‘we’ll sort that nearer the time’
as property prices were on the rampage in an upwards direction!
Thankfully, the proportion of interest only mortgages sold
started to decline after the Credit Crunch, as you can see looking at the graph
below, from a peak of 43.81% of all mortgages to the current 8.71%.
Increasing the length of the mortgage to obtain more time to
raise the money has gradually become more difficult since the introduction of
stricter lending criteria in 2014, with many mature borrowers considered too
old for a mortgage extension.
Stoke on Trent people who took out interest only mortgages
years ago and don’t have a strategy to pay back the mortgage face a ticking
time bomb. It would either be a choice of hastily scraping the money together to
pay off their mortgage, selling their property or the possibility of
repossession (which to be frank is a disturbing prospect).
I want to stress to all existing and future homeowners who
use mortgages to go in to them with your eyes open. You must understand, whilst
the banks and building societies could do more to help, you too have personal
responsibility in understanding what you are signing yourself up to. It’s not
just the monthly repayments, but the whole picture in the short and long term.
Many of you reading my blog ask why I say these things. I want to share my
thoughts and opinions on the real issues affecting the Stoke on Trent property
market, warts and all. If you want fluffy clouds and rose tinted glasses
articles – then my articles are not for you. However, if you want someone to
tell you the real story about the Stoke on Trent property market, be it good,
bad or indifferent, then maybe you should start reading my blog regularly.
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