Banks may visit interest-only mortgage holders at home

Should you be worried about a visit?

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If you are one of the 2.2 million Brits with an interest-only mortgage, then there's a chance that your bank could be planning to make a visit to your home. They are keen to check that your finances are in order and that you're going to be able to pay off the debt when the loan matures.

But why are they taking this step, and should you be worried?

The concern

Currently more than 2 million people have this sort of mortgage - which are cheaper than capital and repayment loans because all you ever pay is the interest on the loan. You continue to owe every penny that you originally borrowed - and have to pay it off as a lump sum when your mortgage matures.

Typically, borrowers were advised to take out an investment product alongside their mortgage which would pay it off at the end of the loan period. The trouble is that some investments have underperformed, some have been cashed in and used for something else, and some people never had an investment at all. The risk is that these people could get to the end of their mortgage period, and be forced to sell their home because they have no way of paying off their mortgage.

Contact

A year ago, lenders promised the Council of Mortgage Lenders that they would get in touch with everyone who had an interest-only mortgage with them that's due to mature by 2020, and talk to them about how they intend to pay the mortgage off when their loan period comes to an end.

It announced this week that by far the majority of people had now been contacted - excluding people they had already spoken to on the subject, and those who had borrowed such small amounts that it didn't pose much risk.

In most cases they sent letters and reminders - along with questionnaires asking how people intended to repay. If these weren't successful in generating a response, they also used telephone calls or invited people in for a face-to-face meeting. And in some instances, they resorted to arranging to pop round to the house itself to check up on the homeowner's finances.

Will you be visited?

Even after all these efforts, only 30% of customers have so far responded. CML director general Paul Smee commented that the fact fewer than a third of people had responded:" highlights the challenges of achieving effective two-way communication."

It means that increasingly banks are likely to explore more face-to-face meetings and home visits in order to get people to face up to their options when their mortgage matures.

So if you haven't answered the letters or returned phone calls, your lender may be planning to arrange a visit in a last-ditch attempt to get you to face up to the potential problems you could have when your mortgage matures.

Should you be worried?

The Council of Mortgage lenders makes it clear that these visits are arranged by mutual agreement, and are designed to meet people at their own convenience in order to explore the options that suit them best - rather than enter their home and use it as a bargaining tool to put people under pressure to pay up.

The visits themselves, therefore, as far less of a concern than the very real risk that people have not made a plan to pay off their mortgage. Out of the 30% who have responded, four in five already had a plan for paying off the mortgage.

It means that an estimated 440,000 people could find themselves facing the prospect that when their mortgage term comes to an end, they will be left with a huge debt, and no idea how to pay it off. Once it gets to this stage, they may even be forced to sell their property in order to repay the loan.

The CML points out that by getting in touch with their lender, they'll have the time to find an alternative solution. So far, for those who have responded to their lender and admitted that they have no plan for how they will pay the debt off, the lenders typically offered term extensions, permanent conversions to capital and interest, and overpayments.

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