Has the Mortgage Market Review failed?
With just shy of 1 million people left with ‘no plan’ in terms of how they are going to pay off their interest-only mortgage, the fear of financial turmoil and the risk of repossession looms ever closer
Citizens Advice, the national charity, have conducted industrious research in which they have concluded an estimated 934,000 people have been left in a state of confusion and financial turmoil regarding paying off their interest-only mortgage. With the pressure that is surely set to erupt from the lenders, the option of selling, finding immense capital gain, or repossession are seemingly the only options available to those with no plan of payment.
It is thought that many people who ventured out to seek financial advice were simply unaware of the process of payment after the terms’ expiry. Out of those who went to seek financial advice, the average shortcomings were around the £71,000 mark.
According to the research that was carried out, it is reported that in the UK there are over 3.3 million mortgage holders who have interest-only products. Out of the 3.3 million, 934,000 are said to have insufficient financial prowess for repayment; and 1.7 million simply cannot pay this due to a lack of savings or general financial instability. Given how unfortunate the situation is, predicting such happenings wasn’t an easy task – especially when taking into consideration that the Mortgage Market Review (MMR) was set up to help irradiate this issue.
Why has this happened considering the introduction of the MMR? Has the housing crisis had a negative impact on this particular situation?
From 2012, a crackdown on the rules of granting a mortgage was implemented to ensure interest-only mortgages were to be made unavailable without a clear repayment plan. Citizens Advice seem to be keen to co-operate with this change, but are eager to implement an array of support for those who already possess one.
The charity’s concerns lie with the alleged truth, that interest-only mortgage holders do not have the same protections when their term ends, in comparison to a fixed rate mortgage, leaving those who opted to go with the interest-only mortgage more vulnerable to financial shortcomings. The protocol that was launched three years ago was implemented to give lenders a legal obligation to consider contrasting options before beginning possession action, including an extension of the length of a mortgage, changing the type of mortgage and giving consumers a considerate amount of time to sell their property if needs must.
With many people being forced into the sale of their homes, in terms of conveyancing, this can only mean more business. As sad and sympathetic the subject is, such occurrences could potentially drive more people to rent. In terms of the MMR’s reported failure to deliver protection – with a shortage of homes and a struggle for some firms to recruit conveyancers – could this be troublesome for conveyancing?