The Office of the Deputy Prime Minister has recently completed a survey into interest only homeowners. The Council of Mortgage Lenders believes that around 250,000 people have their mortgage on this basis.
The survey questioned people with interest only mortgages about how they intended to repay the capital they had borrowed at the end of the mortgage term. Shockingly, 14,000 people had no means to repay their mortgage loan. They had taken on a mortgage, repaying only interest on the capital they borrowed, but had not taken on additional savings plans to generate the amount needed to repay the loan.
Our View
The really worrying thing is that only 20,000 homeowners were questioned about their interest only mortgages. This would mean the majority have no way of repaying the capital.
Whilst many people will use other savings and investments and even inheritances over the years, there will still be people unable to repay the capital. If interest rates keep rising, this will mean less opportunity for people to save and a greater burden on having to repay their mortgage loan.