Potential ruin for interest-only mortgage holders
The papers have been full of the following story: the credit crunch could ruin over 1.3 million people who have ‘interest-only’ mortgages due to the drop in house prices. Interest-only mortgages were increasing popular in recent years, with people planning to use the projected rise in value to pay off a lump sum in the future, but with the recent financial problems many have not been able to save as expected.
For people who bought at the top of the market this means negative equity.
While property prices have dropped, prices will start to rise eventually-the industry is making a guess of 2-3 years before prices start to rise.
This will affect anyone having to sell in the next few years before the market recovers and anyone who bought property at above market prices. The papers have concentrated on people who dont have equity in their property or have trouble paying their mortgage.
Many people are questioning the government for allowing lenders to sell interest only mortgages which facilitated buyers to buy over their capacity to pay. This is just one of the controversial products that appears to have caused this whole crisis in the first place, the government will need to legislate clearly what can be leant to whom and under what circumstances. Borrowers will have to have a minimum deposit and be paying of a certain amount each month etc.