Mortgage wake-up call 'working'


%VIRTUAL-SkimlinksPromo%A wake-up call for the 1.3 million home owners who are feared to be at risk of being unable to repay their interest-only mortgage appears to be working, figures from lenders indicate.

The Council of Mortgage Lenders (CML) said people are "clearly taking action" to reduce the risk of being unable to repay their loan when it matures and the number of mortgages which are purely interest-only has fallen by 300,000 in the space of a year.
The lending body said that although it is likely that some people may still struggle to put adequate plans in place to repay their mortgages in full and on time, "the number of such borrowers is likely to be relatively modest".

Banks and building societies have been stepping up moves to offer help for people with interest-only mortgages, through letters, phone calls, face-to-face meetings and by putting extra information up on websites, after the Financial Conduct Authority (FCA) warned last May that people were failing to put enough money aside on up to 1.3 million of the interest-only mortgages that are due for repayment over the next 30 years.

Estimates for the regulator had suggested that around half these shortfalls would be more than £50,000.

The FCA feared that consumers had been underestimating the scale of the problem and lenders agreed to alert their most at-risk customers to help them avoid payment shocks.

Some borrowers could end up having to sell their home to pay the loan back if they do not take stronger control of their repayment planning.

But a CML survey, which represents around 96% of the market, has found that by the end of last year, the number of mortgages outstanding that were purely interest-only had dropped by 12% or 300,000 compared with 2012, to reach around 2.2 million.

The figures are falling both because interest-only borrowers are clearing their outstanding balances and because, where it is seen as appropriate, they are switching from interest-only mortgages to repayment deals.

The CML also said it is seeing evidence that borrowers are taking extra action to chop their outstanding mortgage balances down. In two-thirds of cases with outstanding interest-only mortgages, the borrower now has more than 25% equity in their home, and the vast majority of these loans are not due to mature until after 2020. Home owners' improving equity position cannot just be explained by rising house prices, the CML said.

CML director Paul Smee said: "The regulator, mortgage lenders and the CML are collaborating very effectively so far to help interest-only borrowers manage their loans and avoid surprises when their loans mature. This work will continue, not just over the next year but over the long term.

"For the minority of borrowers who cannot reach full repayment by maturity, lenders are fully committed to helping customers reach the best outcome available for their circumstances.

"Other steps are possible - perhaps releasing equity through a lifetime mortgage, downsizing, or selling and moving into rented accommodation, and our continuing programme of contact should help borrowers identify and implement what works for them."

Interest-only mortgages allow borrowers to pay off the capital only when the mortgage term ends, enabling them to maximise their borrowing capacity.

However, it emerged that many people had insufficient plans for how they were going to pay the money back and around one in 10 had no plan for how they would pay the money back.

The products have become much more thin on the ground since the boom years amid concerns about people not being able to pay back their debt.

Toughened mortgage lending rules which came into force last weekend under the Mortgage Market Review (MMR) mean interest-only deals will now continue to be viewed as a niche product.

Age UK raised concerns that some older home owners may feel under "pressure" to use money they may otherwise have used to buy a lifetime pension income called an annuity to instead pay off their interest-only mortgage debt.

The Government has announced radical plans recently which will give people greater freedom to cash in their pension savings rather than feeling forced to buy an annuity.

Age UK said the average pension fund used to buy an annuity is £36,800. But it said it hoped financial institutions will not see the Government's pension reforms as a "green light" to automatically target pension savings to recoup debt.

Caroline Abrahams, Age UK's charity director, said: "It's important that people are not put under pressure to use these savings to settle outstanding mortgage debt if they have other options, such as extending the mortgage."

The people who affect house prices
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Mortgage wake-up call 'working'

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.

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