Homeowners are at risk of missed payments, defaults, and repossessions
With more than £289 billion of mortgages set to mature over the next 12 months, according to CACI’s Mortgage Market Database for Residential and BTL, many borrowers will be looking to secure new terms.
In order to avoid potential missed payments, defaults, and repossessions this year, one expert believes lenders must allow customers to switch from repayment products to interest-only without incurring any penalties.
Remortgage - switching products
Gary Das (pictured), managing director of Active Financial, believes lenders should be allowing customers to switch from repayment products to interest-only mortgages without an income assessment or Early Repayment Charges (ERCs), in light of difficult conditions this year.
“For example, if a client’s deal is ending and the interest rate is increasing from 1.75% to 4%, their payment may be increasing by £500 per month on repayment,” he said.
Das added that switching to an interest-only product could keep customers’ payments more in line with what they have been used to paying.
“The lender knows this is affordable but a £500 per month increase may not be for the consumer, and yet if they decline a switch to interest-only, the customer could lose their house,” Das said.
Das said he also does not understand why there is an income requirement below a certain loan-to-value (LTV) percentage.
“If the home is at 90%, I can see why a lender would say ‘no’ to a switch due to the risk of property prices dropping 10% to 20%, but if it results in the mortgage being unaffordable, how is it treating customers fairly to not allow this?” he questioned.
Das added that not allowing consumers to switch on to an interest-only product without incurring a fee would lead to missed payments, defaults, and repossessions.
“I believe if a property is below 70% LTV, then interest-only should be acceptable once again, especially for self-employed clients,” he said.
Das said that a logical approach needs to be applied and more control needs to be given to the consumer about how they choose to repay their debt.
Do you believe allowing consumers to switch to interest only mortgages could be solution seen in 2023? Let us know in the comments below.
