COMMENT: Don't blame the banks for reckless borrowing, says Jim Duffy

Like everything when we look under the bonnet, all is not as it seems, according to Duffy. Picture: Ian Rutherford.

Only this time it’s not PPI. It doesn’t even appear to be current accounts that charge a monthly fee for rubbish travel insurance cover either. No, this time it’s the mortgage market that is being looked at. Specifically, interest-only mortgages.

I honesty thought that interest-only mortgages had been phased out and that lenders were no longer involved in these home-owner – or not, as the cause may be – products. But, like everything when we look under the bonnet, all is not as it seems.

It appears that 1.7 million UK homeowners with interest-only mortgages have failed to advise their lenders that they have nothing of note to pay off the mortgage – a bloody great debt that has to be settled at the end of a fixed time.

I was one of those creatures who applied for and was granted – with some considerable ease, I may add – an interest-only mortgage. It was a significant six-figure mortgage on a property that I could not afford had I indeed opted for a traditional capital and repayment mortgage.

I recall the mortgage advisor at a well-known bank turn around my mortgage offer within 48 hours and offer me a whopping great sum of money. At the time, this equated to at least six times my salary, when banks were publicly stating that they would lend strictly to three times people’s salaries. Hey ho… I took the mortgage and duly stated I would put something in place to “pay it off”.

But, I didn’t really bother with that side of things, hoping with over-optimistic positivity that all would be well. It seems I was not alone in this. The Financial Conduct Authority (FCA) states that 70 per cent of interest-only mortgages are owned by borrowers aged over 45 ,who will end up having to sell their homes as they do not have enough capital to repay.

Well, it didn’t take a Harvard economics professor to work that one out. Of course, we were not going to have enough or anything remotely enough saved to pay off these loans. We are inherently reckless and speculative.

The FCA believes that many of us who have these mortgages avoided talking to our mortgage lenders. Er yes… that sounds about right. That and the less talked-about stratagem that we always thought and believed in the following. Firstly, that we might win the lottery, come into an inheritance or just get lucky.

And, secondly, that the value of our property would grow, so much so that when it came time to pay off the mortgage, we would sell up and sit with a tidy wad that would buy a nice wee downsize pad in cash. With 85,000 of these interest-only mortgages due to be repaid this year alone, this is most definitely what will happen, I believe, as house prices over the last ten to 15 years have been kind to us.

But again, the narrative and scapegoating appears to blame the mortgage lenders for allowing these mortgages to be sold and for not keeping tabs on how borrowers were going to pay them back. Some borrowers smell blood and are gaining support of MPs in creating the argument that the banks are to blame.

Not so, in my humble opinion, and as someone who took on one of these loans, I knew exactly what I was doing. The paperwork was crystal clear. I was directed on several occasions on how I would pay off the loan. So, it’s a bit rich to now blame Johnny Banker.

The next payback peaks for these loans are 2027 to 2028 and 2032. It appears that while lenders are writing to these mortgage-holders, the engagement rate is low. Of course it is… they have a strategy and don’t really want you interfering with it.

But alas, when the first mortgagee is pictured in a red top being slung out, as they were mis-sold an interest-only mortgage, then the whole episode will take on a different lens.

That said, I’m glad I’m now on capital and repayment.

Jim Duffy is co-founder of Moonshot Academy and author of Create Special