THE HORNCASTLE PROPERTY BLOG

BROUGHT TO YOU BY HORNCASTLE'S PROPERTY EXPERTS

Horncastle's 232 Mortgage Time-Bombs?

Article Simon Jory 2017-08-01
0
Horncastle's 232 Mortgage Time-Bombs?

According to my research, of the 3,178 properties in Horncastle, 1,073 of those properties have mortgages on them. 82.1% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

... but this is the concerning part... 232 of those Horncastle mortgages are interest only. My research also shows that, each year between 2017 and 2022, 3 of those households with interest only mortgages will mature, and of those, 1 household a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk.

Horncastle Mortgages and the Proportion of Repayment and Interest only Mortgages

Theoretically, this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970's and 1980's, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company - but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Horncastle homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000's, when the word endowment had become a dirty word, the banks still sold 'interest only' mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of 'we'll sort that nearer the time' as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.

Percentage of interest only mortgages taken in the UK since 2007

Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Horncastle people who took out interest only mortgages years ago and don't have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

Sources:

  1. Number with no means of repayment – taken the UK average of and applied to towns figures
  2. FTSE figures – drop between 1999 and 2013
  3. Proportion of interest only mortgages – Bank of England

Leave a Reply

Your email address will not be published. Required fields are marked *

EMAIL NEWSLETTER

Fill in the form below to receive all the latest Horncastle property news by email.

MEET THE TEAM

Simon Jory

Simon Jory

Simon has been in Estate Agency for over 32 years and is a Fellow of the National Association of Estate Agents. Having working in all kinds of changing market conditions he is well placed to advise on how best to sell your home.

Anne Pearce

Anne Pearce

Anne prides herself on working to the highest standards and believes everyone should receive the best possible customer service. With over 20 years' experience she will not miss and opportunity.

Dawn Bannister-Law

Dawn Bannister-Law

Prior to moving to Lincolnshire, Dawn was a valuer for more than 19 years in Bakewell in the Peak District. Dawn strongly believes buyers, sellers, landlords or tenants are all as important as each other

RECENT POSTS

1 in 11 rental properties in the Horncastle area may be illegal in 2018Horncastle Homeowners Are Only Moving Every 16 Years (part 2)Horncastle Home Owners Are Only Moving Every 16 Years (Part 1)Horncastle Wages Outstrip House Price Growth by 10.04% since 2007The cost of moving up the property ladder in Horncastle

CONTENT BY MONTH

November 2017October 2017September 2017August 2017July 2017June 2017May 2017April 2017March 2017

LOVELLE ESTATE AGENCY

Lovelle Estate Agency provide first class estate agency services within Lincolnshire & East Yorkshire regions. Having seen a change in the company's structure at the beginning of 2006, we have grown to the region's leading agency. Marketing and customer service are the focus of our team of dedicated professional staff.

We are privately owned. We cherish our independence because it motivates us to care about every single thing that happens within our company. It inspires us to constantly improve our service and that keeps us where we want to be - out in front. You can get a flavour of what independent thinking creates when you visit our offices positioned at strategic locations within the area. What do people see when they visit us? A dynamic, result driven technologically advanced company that mixes professionalism with passion.

Lovelle Estate Agency
www.lovelleestateagency.co.uk
Return to the top of the page  |   Return to Home Page