New research has revealed the horrifying extent of the interest-only mortgage time-bomb. Unbiased.co.uk has discovered that 1.6 million people (one in seven of those with a mortgage) have an interest-only mortgage, and no idea how they will pay off the debt.
And that's not the most worrying finding.
It was always understood that a percentage of mortgage holders in the UK were storing up trouble, by having an interest-only mortgage and no plans as to how they were going to repay it. However, the size of that percentage is shocking.
"With incomes squeezed, it's not surprising that many people are trying to save money by sticking to interest only mortgages, but this is a potential ticking time bomb" said Karen Barrett, chief executive at unbiased.co.uk.
Older homeownersEven more worrying is the profile of the individuals leaving their mortgage repayment to chance. Barrett explains: "What is really worrying is that almost a third of this group are either in or coming up to retirement age (over 55), while more than half are between the ages of 35 and 55. Many will be forced to downsize or continue to pay large mortgages well into retirement, when income is tighter than ever. The goal of becoming 'mortgage free' is becoming ever more elusive for some."
In addition, with lenders now clamping down on interest-only mortgages, and slashing Loan-to-Value requirements to around 50% - 60%, many people currently on interest only deals could easily find that no similar options will be available to them when they come to remortgage in the future.
It is vital, therefore, that anyone in this position takes stock and finds a solution that will work for them sooner rather than later.
SolutionsIf you are about to have to renew your interest-only mortgage, tightening of rules by lenders may mean you have no choice but to switch to a repayment deal. This will mean finding a larger sum each month, which could stretch many households to breaking point.
In the first instance it is worth talking to your lender, who may be able to switch you to a more affordable deal - possibly by lengthening your repayment period.
If that fails, you need to look at the income part of the equation and whether you can earn any extra income - possibly by renting out part of your property.
Eventually, it may come down to reducing your outgoings - by downsizing to a property where the mortgage is within your grasp.
It isn't an easy or pleasant prospect, but consider the alternative. Would you rather get into retirement and discover that once you have sold up, repaid the mortgage and moved, you cannot afford to buy anywhere and have to fall back on the generosity of an increasingly stretched state system?