More than quarter of a million homeowners expected to struggle to refinance their property in the next five years.
New research by Kensington Mortgages, the specialist mortgage lender, reveals for the first time the extent of the problem in the financial system stemming from interest-only mortgages.
By January 2024, approximately 250,000 Britons will have reached the repayment date for their interest-only mortgage - without being able to find a new deal elsewhere. That number equates to about 15% of the 1.7m British borrowers who currently have an interest-only mortgage.
The figures have been calculated by Vector, Kensington’s predictive mortgage analysis technology – which has a proven track in providing accurate predictions of the UK mortgage market.
Kensington’s predictive model strips out the number of property owners who would be expected to find a new mortgage, or who would have sold the house at a profit and moved home.
Those who do reach the end of their interest-only mortgage will be served with a bill to repay the full sum that was borrowed.
Moving to a conventional repayment mortgage may be difficult for many of these borrowers, even if the property has soared in value. Many will now be nearing retirement, leaving them with fewer years to pay back a loan. Only a handful of specialist mortgage lenders, including Kensington, are willing to lend to people in retirement.
Many borrowers coming to the end of the term of their interest-only mortgage may need to sell their property in order to raise the required funds.
The interest-only mortgage problem is predicted to escalate over the next two decades, according to the modelling by Kensington's Vector technology.
By January 2029, almost 860,000 interest-only mortgages will have reached the end of their term. Roughly half of these borrowers, or 430,000 homeowners, are forecast to get to the end of their mortgages term without having found a new deal, according to the Kensington model.
Commenting on the findings, Kensington Mortgages chief executive Mark Arnold said:
“This is a big problem that is lurking in Britain’s financial system. It’s important that people start thinking about this issue now, before thousands of homeowners find themselves facing a giant repayment bill that they are unable to deal with.
“Society has changed a great deal in recent years. Yet the big banks, driven by risk considerations, now lend to fewer and fewer people. The people who will be facing these bills will have a very different customer profile at the expiry of their mortgage than they did 25 years earlier when they took out these products. Many will have retired. Of those who are still working, many are likely now to be self-employed. Some may have moved from full-time work into the gig economy. They could still be fantastic borrowers, but these are families that won’t necessarily be able to tick all the boxes when they come to ask one of the big banks for a new loan. Yet there are lenders out there with the systems in place to be able to think about more complex situations.
“To those people who think they may be affected by this, my advice would be to go and talk to a mortgage broker sooner rather than later to see if there is a specialist lender that may be willing to offer you a better deal.”