Homeowners warned about long-term mortgage risk

Homeowners have been warned about the ‘true cost’ of their mortgage debt as figures suggest increasing numbers are at risk of overstretching themselves financially.

Jinesh Vohra, Chief Executive of mortgage payments app Sprive (pictured), is calling on the mortgage industry to do more to help borrowers – particularly those taking out longer-term mortgages.

Borrowers may take a deal across 30 or 40 years to make monthly repayments more manageable.

However, Vohra says borrowers need to understand the implications of extending their mortgage term, particularly as changes in employment, health and personal circumstances could affect their ability to maintain repayments later in life.

Lifetime cost

He warns that borrowers need to look at the lifetime cost of their mortgage, rather than focusing on monthly affordability.

He says: “I think it’s very important that people understand the cost of debt, because it’s not just about meeting the monthly payments. You have to be able to do that over the entire lifetime of the mortgage.”

It’s very important that people understand the cost of debt, because it’s not just about meeting the monthly payments.”

Following the credit crisis that began in 2007, restrictions were introduced on the amount that could be borrowed to prevent homeowners overstretching themselves financially and being unable to meet their monthly repayments.

However, these restrictions have been relaxed in recent years, with the number of borrowers with high loan-to-income ratios beginning to climb again.

The latest FCA (Financial Conduct Authority) and Bank of England mortgage lending statistics revealed that 46% of gross mortgage advances in the three months between April and June this year were to borrowers with high loan-to-income ratios. It is up from 41.4% a year earlier.