Interest Only Mortgages – The Ticking Time Bomb | Gill Alton

From the time Interest Only Mortgages were introduced in great gusto between 1984 and 1994, to their second coming between 2000 to 2007, they have for many represented a poisoned chalice.  As the advantage of paying lower monthly mortgage payments has been taken at the expense of the guaranteed knowledge that at the end of the mortgage term the house will be owned outright.

Firstly, those who took out endowments to support the repayment of capital loaned have found themselves at the mercy of the Stock Market.  Even the Traffic Light Warning letters which began in earnest in 2001 have failed to ensure every homeowner has taken enough proactive action to address their full shortfall.   With many being left with gaps of up to £40,000 and no means by which to pay the money.  In fact even with all the notice given 400,000 elderly homeowners are still at risk of losing their homes every year, as lending criteria has changed so they are unable to just continue remortgaging indefinitely into the future.

And if these families, like the subsequent families, who jumped on the Interest Only bandwagon between 2000 and 2007 thought their lump sum from their pension would bridge the gap they are sadly deluded.  After all, their pension has suffered the same fate as the endowment policies, underperforming at a level that no one had predicted.

David Severn was commissioned by the Financial Ombudsman in 2008 to report his findings on the mortgage endowment issue which still makes very interesting reading today.

Read his Report

This under performance has been made even worse by the fact that unlike the endowment policy there have been no Traffic Light Warning letters and the pensions industry are still misleading its clients as they continue to use performance projection percentages that are long since out dated.  In fact, they are only amending their projections to 2%, 5% and 8% in 2014.

The fate of these homeowners seems destine to be placed on their ability to sell their homes and repay the debt.

This mess has been created for homeowners, however from an investment viewpoint I also fear that many individuals who are taking responsibility for their own futures are also falling into the same trap.  The investment world is heavily focussed on purchasing via the Interest Only Mortgages route, citing inflation will erode the debt and tax efficiencies.   This may indeed be true, but the fact still remains the debt needs to be repaid and lenders, although are more lenient on age, can change their mind on a whim and prevent investors holding encumbered properties indefinitely into their retirement.

I personally would not want the strength of my Retirement Planning to be at the mercy of a group of individuals sitting round a table making policy decisions. Because if they make a decisions which is detrimental  then I fear for many the attraction of Interest Only will once again have a sting in its tail.

If you have an Interest Only Mortgage and would like some advice to ensure that the capital sum can be repaid, please call me at Alton Property Partners on 01628 560 821 or arrange a call back

 

Gill Alton

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Gill Alton is the founder of Alton Property Partners, which provides a comprehensive and personal Property Portfolio Building Service for investors in the UK.

Alton Property Partners manage the entire investment process, from sourcing property at a discounted value, co-ordinating the Mortgage, arranging the refurbishment, right through to ensuring it is ready for the rental market.

The service is specifically aimed to support those who recognise the value of a UK investment portfolio, but lack the time, or knowledge to be able to invest for themselves because they are full time employees or Business Owners. With full consultation and comprehensive financial analysis, clients can be assured that their portfolio of strong yielding properties will be built to exacting standards and they will be kept up to date every step of the way.

Having been involved in property for 16 years Gill has built a personal portfolio for her family, and in addition to Alton Property Partners, runs a Property Mentoring Business, Venus Property Mentoring which focuses on supporting new investors onto the investing ladder. Having originally left the Corporate world to be a Qualified Mortgage Broker, Gill’s husband now focuses on their family Mortgage Brokerage in Maidenhead – Alton Mortgages.

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Alton Property Partners
6 Bramble Drive, Maidenhead BerkshireUKSL6 3NX United Kindom 
Gill@altonpropertypartners.co.uk •0845-095-5060

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