Shortfalls on interest-only mortgages

Background 

Interest-only mortgage borrowers typically rely on endowments, individual savings accounts, pensions and other repayment arrangements to repay the capital of the loan. While repayment arrangements may have appeared adequate at the time the borrower took out the product, they should continue to monitor how investments are performing to ensure they will cover the mortgage debt at the end of the term. For example, endowment policies are linked to the performance of the stock market, which can vary. Poor performance of the stock market has resulted in a shortfall against expectations for many policyholders.

In May 2006 the FSA published its consumer fact sheet Will your investment or savings plan pay off your mortgage? The fact sheet explains what consumers can do if their investment or savings plan is not on target to pay off the mortgage. It provides useful information on how to make up a shortfall and examples of the likely costs.