250,000 have not planned how to pay their mortgage

Over 250,000 people have not put a strategy in place for how they will pay their mortgage.

This is according to Debt Management Today, which has released details of the Financial Conduct Authority's (FCA), latest investigation. It also found that 13 per cent of those surveyed claimed they did not fully understand the full terms and conditions of their loan at point of sale.

Analysts predict this will cause significant problems, especially when the UK finally recovers from the recession. This is predominantly as a result of the belief the vast majority of borrowers either have no means to repay the loan, or have chosen to take on policies that will leave them still owing large amounts of money at their conclusion.

Meanwhile, the study also found 37 per cent of those questioned believed they would not have the money to pay off their mortgage when it comes to maturity. This is despite the regulator warning that in the future, a payment plan will be needed to access interest-only forms of the loan. 

These allow the borrower to pay off the additional monthly charges throughout the duration of the policy, leaving them with just the initial amount of money they received to clear at the end. Although it has allowed customers to keep household expenditure low, with so many people not appearing to have a plan to pay back the loan after the term finishes, experts are worried there will be a large number of defaults.

However the FCA has acknowledged businesses are doing their part to combat this problem. Chief executive Martin Wheatley commented: "Mortgage lenders have volunteered to contact their most at-risk customers with a wake-up call to highlight the report's findings and what they need to do without delay. We welcome this move and also the sector's commitment to helping its customers try and find a solution."

In addition, the FCA is launching a raft of new measures to change the way mortgages are offered, in the hope of preventing more customers falling into this trap. The policies are expected to come into force in April.

By Joe White