Due to falling house prices, many borrowers with flexible mortgages have been sent letters saying they may have to make lump sum payments to reduce their mortgages.
The downturn in the property market has meant that the amount some customers have borrowed now exceeds 90% of the value of their homes. A clause in the contracts could be enforced, requiring borrowers to stump up the difference.
This could mean that homeowners have to make up the deficit by using available unsecured credit, forcing many deeper into debt.
With house prices continually falling this amount could increase, and may mean that some homeowners are forced to seek debt advice or sell their property to avoid bankruptcy. When seeking debt advice, some popular debt solutions recommended include debt management plans (DMP) and individual voluntary agreements (IVA).
Debt management helps to control debts by making them easier to handle. On a debt management plan a customer makes one regular payment and this is distributed to all of their creditors that debts are owed to.
IVAs are for people with larger debt amounts and can be a useful solution to prevent bankruptcy. An IVA is a more formal debt management plan which involves an insolvency practitioner proposing a suitable repayment plan.
Some lenders have since said that they will not impose the clause in the mortgage contracts which means homeowners could avoid using debt to plug the mortgage gap.
