According to my research, of the 26,991 homes in Ashford, 11,841 of those properties are mortgaged. Of those mortgaged properties 87.3% are owner-occupied and the rest are buy to let investments owned by landlords… but, this is the concerning part – 2,558 of those mortgages are interest only loans.
My research also shows that, between 2017 and 2022, 31 of those interest only mortgages will mature each year, with 8 having either a shortfall or no way of paying the mortgage off. Now that may not sound a lot, but each one is someone’s home potentially at risk.
Repossession by Lender
Anyone in such a situation faces an enormous problem as their home is at risk of repossession if they do not have some means to repay their mortgage at the end of the term (the typical term being 25 to 35 years). Lenders 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 anyone coming to them for a new loan.
Back in the 1970’s and 1980’s endowment mortgages were all the rage. Having an endowment meant you were taking out an interest only mortgage, also paying into an endowment policy which would pay the mortgage off at the end of the 25 or 35 year term (plus hopefully leave some surplus profit). There were advantages as the monthly repayments were lower than with a traditional capital repayment plus interest mortgage. Only the interest, rather than any capital, was paid to the mortgage company – but the full debt had to be cleared at the end of the 25 to 35 year term.
Historically plenty of Ashford homeowners bought an endowment policy to run alongside their interest only mortgage. However, the endowment policies were stock market linked investment plans and with the stock market’s poor performance 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 attached to pay the capital sum off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as, after all, 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%.
Extending the Term
Increasing the length of the mortgage to obtain more time to raise the money has become more and more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers being considered too old for a mortgage extension.
Ashford people who took out interest only mortgages years ago and have no strategy to pay back the capital face a ticking time bomb. It would either be a choice of hastily scraping the money together to repay their mortgage, selling their property or facing the possibility of repossession (which to be frank is a very disturbing prospect). I would stress to existing and future homeowners needing mortgage finance to go into them with eyes open.
Whilst the banks and building societies could do more to help those in difficulty, buyers also have responsibility to ensure they fully understand what they are committing to. It’s not just the monthly mortgage repayments, but the whole picture in both the short and long term that must be considered.
Many reading my blog may ask why I say these things however I want to share my thoughts and opinions on the real issues affecting the Ashford property market, warts and all. If you want fluffy clouds and rose-tinted glasses – then my articles are perhaps not for you. However, if you want the real story about the local property market – good, bad or indifferent, then you may find reading my blog worthwhile.
For more thoughts on the Ashford Property Market – visit Ashford Property News here.