Interest only mortgages increase

The Council of Mortgage Lenders (CML) has exposed a growing trend in its June data, which shows that a record number of first-time buyers opted to make a start on the property ladder by taking out an interest-only mortgage.

According to the CML’s figures, 29% of first-timers buyers opted for this method of securing a home.

However, only 8% of this group of borrowers advised their lenders of any plans to repay the capital on the loan.

For many first-time buyers who are anxious to reduce costs, the interest-only option could seem very attractive but if they have no means of repaying the capital, they could be storing up trouble for the future.

Borrowers with no repayment plans have only two options when their mortgage terms come to an end: they can take out a further mortgage or sell their home and repay the lender.

In terms of taking out another mortgage, this plan cannot be seen as full proof because events may have occurred that affect a person’s borrowing eligibility.

Those seeking to sell their property to repay the debt could strike luck and acquire equity.

However, the equity will not be sufficient to buy another home and if houses have gone down in price, the interest only borrowers could find themselves with no home and struggling to find the means to repay their capital.

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