Crisis looming in years ahead
1m homebuyers struggling with interest-only mortgages
It means they will be face a huge bill to pay off the capital sum they borrowed. They may have their homes repossessed or be forced to sell.
Citizens Advice said 934,000 owners did not have a plan in place for how to pay back the money at the end of the mortgage term.
The crisis has been exacerbated by the failure of endowments – a form of insurance built up over the term of the mortgage – to achieve the targets set for paying it off. As more and more fell short, homebuyers lost faith in buying them and did not find a suitable replacement.
A peak period for the issue to come to the fore is in two to three years time when endowment mortgages sold in the 1990s begin maturing.
More problems are in store in the years ahead for those who bought at the top of the house price boom before the 2007-09 financial crisis and took out large loan-to-value mortgages.
Banks and building societies were ordered by regulators to inform customers if their endowment policies were likely to fall short.
In some cases home owners have converted interest-only mortgages into repayment mortgages which mean more expensive monthly payments but pay off part of the capital as well as the interest.
Citizens Advice wants mortgage providers to do more, including face-to-face meetings to engage homebuyers directly and ensure they are fully aware of the financial implications of buying a home.
It also wants greater protection for interest-only borrowers, to force the lenders to consider a range of alternatives before trying to repossess a home.