More than 200,000 borrowers have taken out interest-only mortgages without any way of paying back the capital, and 60,900 of these are first-time buyers. Figures from the Council of Mortgage Lenders have been released at the same time as the Financial Services Authority revealed details of the investigation it will be carrying out into the sector. It will first conduct consumer research to find out the scale of the problem, as it has been alleged that many borrowers are not being advised to set up a repayment vehicle to pay off the capital on their mortgage. Then they will decide whether to conduct more extensive investigations into the advice process.
Our view
Taking interest only mortgages can be good for cashflow and help people who are trying to get on the ladder. However, we cannot stress the importance of having a means to repay the loan e.g. on a repayment mortgage basis or having investment vehicles to repay the loan.