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Over 250,000 homeowners expected to struggle to refinance their property

New research by Kensington Mortgages has revealed that interest-only mortgages are a significant problem in the financial system.

The specialist mortgage lender predicted that by January 2024, approximately 250,000 Britons will have reached the repayment date for their interest-only mortgage without being able to find a new deal elsewhere.

The number equates to around 15% of the 1.7 million British borrowers who currently have an interest-only mortgage.

The figures have been calculated by Kensington’s predictive mortgage analysis technology, Vector, which has proven to provide accurate predictions of the UK mortgage market in the past.

Its predictive model excludes the number of property owners who would be expected to find a new mortgage, or who would have sold the house at a profit and moved home. Those who do reach the end of their interest-only mortgage will be served with a bill to repay the full sum that was borrowed.

Kensington says moving to a conventional repayment mortgage may be difficult for the majority of these borrowers, even if their property has risen in value. Many will now be nearing retirement and will have fewer years to pay back a loan. Only a handful of specialist mortgage lenders are willing to lend to people in retirement.

Borrowers who are coming to the end of the term of their interest-only mortgage may need to sell their property in order to raise the required funds.

The lender predicts the interest-only mortgage problem will escalate over the next two decades.

By January 2029, almost 860,000 interest-only mortgages will have reached the end of their term. Roughly half of these borrowers (430,000) are forecast to get to the end of their mortgage term without having found a new deal, according to Kensington.

Commenting on the findings, Mark Arnold, chief executive of Kensington Mortgages, said: “It’s important that people start thinking about this issue now, before thousands of homeowners find themselves facing a giant repayment bill that they are unable to deal with.”

“The big banks, driven by risk considerations, now lend to fewer and fewer people. The people who will be facing these bills will have a very different customer profile at the expiry of their mortgage than they did 25 years earlier when they took out these products. Many will have retired.”

He said that, of those who are still working, many are now likely to be self-employed, while some may have moved from full-time work into the gig economy.

And, while they could still be ‘fantastic’ borrowers, they won’t necessarily be able to ‘tick all the boxes’ when they come to ask for a new loan. However, there are lenders out there with the systems in place to be able to think about more complex situations.

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