Almost 20% of mortgage holders possess interest-only home loans, which means they would need savings or other funds to repay the capital element of the loan once the interest only term comes to an end.
Interest only deals enable borrowers to pay off accruing interest only, thereby keeping the monthly commitment to a minimum. However this is not chipping away at the actual (original) balance advanced / borrowed.
The FCA state that approximately 1.67 million full interest-only and part-capital repayment mortgages were still outstanding. This equates to around 17.6% of all mortgages in the United Kingdom.
The FCA has urged these borrowers to talk to their lender as early as possible, particularly if they have no specific savings plan in place to be able to manage the total mortgage sum, otherwise they would restrict their options once the interest only terms concludes. In extreme cases borrowers could find themselves unable to maintain increased demands which in turn could lead to repossession of their homes.
Source: BBC Business News