Investing in buying a property is a significant financial commitment for anyone, so you need to be sure you are getting the mortgage that is right for you and that you can afford all of the repayments.
Last week, the BBC reported that almost a million homeowners have no way of paying off their mortgages because at the time they were applying, they opted for an interest-only mortgage. This means that homeowners aren’t actually making a dint in the mortgage loan every month because they are only paying off interest on the amount originally borrowed and not the capital sum.
Citizens Advice found that over 900,000 homeowners didn’t have a plan for how they were going to pay back their mortgage at the end of its term. Some homeowners have taken out insurance policies but, frequently, the cover is insufficient whilst others have no additional means to pay the loan off at the end of the mortgage term.
Some people have had to sell their homes or have unfortunately had their property repossessed as they were unable to pay the debt.
Interest-only mortgages, backed up by an insurance policy, were introduced to allow people to borrow more on their mortgages to afford a more desirable home. So instead of paying back the loan itself and the interest on top each month, people could simply just pay the interest. But without paying off any of the loan, the interest is only going to increase as the years go on, making it much harder to pay off later down the line. This, coupled with investments not performing as well as originally predicted, is causing problems for many homeowners.
The Chief Executive of Citizens Advice said of interest-only mortgages that they have forced many people into a financial black hole.
If you find yourself in a mortgage dilemma about what type of mortgage you should obtain, you should seek independent financial advice from an expert before making any rash decisions.
In the case of first time buyers, there are various schemes available from the government which allow you to get on the property ladder such as Help to Buy and Shared Ownership. At Slater and Gordon Lawyers we have residential conveyancing experts who can advise on such schemes so you shouldn’t lose faith in being able to buy your own home. Make sure you explore all options before you leap.
Call the property team at Slater and Gordon for property help and advice on freephone 0800 916 9083 or contact us online and we will call you. We will be able to assist with your legal property queries.
Have a burning question about buying a property? Feel free to ask us in the comments below.