UK Banks Double Down on High-Risk Mortgage Products to Prop Up Housing Market

Like the mortgage crisis never happened.

As the UK housing market is facing serious challenges, a high-risk relic of the last housing bubble is staging a big comeback: the interest-only mortgage. This financial product, often held up as the epitome of irresponsible lending, is hitting the market at a faster rate than at any time since the 2008 financial crisis.There are now 193 of these mortgage products available — almost double the 102 that existed six years ago.

With these mortgages, the borrower pays only the interest on the loan but makes no principal payments, and therefore doesn’t built up equity in the property. At the end of the loan’s term, the full balance becomes due all at once. Borrowers are supposed to have an investment plan in place, such as an endowment policy, to pay off the debt. But many of these policies have under-performed, meaning that borrowers now face a shortfall.

If borrowers cannot refinance the mortgage or make other arrangements with the lender, they will end up losing their homes. Given that an estimated one in five UK mortgage holders has an interest-only loan, working out at a grand total of around 1.7 million mortgages with an aggregate value of £250 billion, this could be a serious problem

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