Interest-Only Mortgage Shortfall a Big problem for NI

Thursday, May 2nd, 2013

More than half of people in Northern Ireland with interest-only mortgages will struggle to pay off the lump sum at the end. Forty per cent of mortgages in Northern Ireland are interest-only.

However, because the housing crash was steeper and faster than the rest of the UK, more people in Northern Ireland have found themselves in negative equity.

The average shortfall could be up to £72,000.

The problem for a lot of people was caused by the assumption that they could get a mortgage, just pay off the interest and their house would continue to gain in value. If necessary, they could sell the house to pay off the mortgage.

However, the housing crash has meant a huge percentage of people are now in negative equity.

Many on interest-only mortgages now face the prospect of a sudden, dramatic rise in payments, as they start paying off the capital, when their mortgage term ends.

The figures have been revealed after the city regulator, the Financial Conduct Authority (FCA), issued a warning about interest-only mortgages.

It said hundreds of thousands of people throughout the UK would struggle to clear their loans.

Some 2.6m UK householders have the mortgages but the FCA said “estimates… suggest” nearly half will not have savings or other funds to cover the final bill.

Lenders will now step up warnings to homeowners to prevent payment shocks.

Another issue facing many who took out interest-only mortgages is the shortfall in endowment policies.

Homeowners who took out endowment mortgages in the late 1980s will receive final confirmation this year of the shortfall in the expected payout of the policies.

Source: Colletta Smith, Northern Ireland BBC Business Correspondent (BBC NI Website 2nd May 2013)

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