Property Timebomb

As a tribe, the UK really is emotionally attached to property ownership to the point of irrational behaviour. Which makes the results of recent research by the city regulator all the more intriguing (for once!) for the property obsessed UK.

 

In summary, hundreds of thousands of homeowners could be at risk of losing their homes by ignoring how they will pay off their mortgage. Nearly one in five mortgage holders has an interest-only home loan, meaning they would need savings or other funds to pay a final lump sum.

 

The Financial Conduct Authority (FCA) said the end of these mortgage terms would peak in the next 10 to 14 years. The FCA said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.

 

Frightening stuff. Which leaves me to consider the impact of this in 10 to 14 years.

 

Firstly, there is little prospect of banks allowing mortgages to continue as ‘interest only’ by extending terms. The way in which lenders are scrutinised post banking collapse ensures that the regulator will not permit lenders to continue with interest only mortgages after the end dates of the original terms.

 

Secondly, a high proportion of the interest only mortgage holders have no plan or insufficient savings in place to repay the debt. This will leave the only option being to sell the property to raise the necessary money required to repay the debt. The result will be a property market flooded with properties for sale, bringing house price valuations down as a consequence. Elasticity, demand, supply and all that.  

 

The alternative to all of this is for banks to work with interest only homeowners now to construct plans to repay the debt and avoid the timebomb in 10 to 14 years. But that takes accountability, ownership and humanity in addressing the issue. And that’s not something we associate with the banking sector.

 

My prediction......the issue will be ignored, the can kicked down the road and the issue only addressed when it reaches alarming levels in 10 to 14 years.

 

All very predictable. All very avoidable.