Interest-Only may lead to Time Bomb
In what could emerge as the next big mis-selling time bomb to rock the mortgage industry, the FSA has put interest-only mortgages at the top of their table of "emerging retail risks". And now several mortgage experts have begun echoing their anxieties.
In 2005, 200,000 homebuyers took the interest-only option without putting a repayment vehicle for the lump sum in place - 60,900 of those were first-time buyers, a rising trend says the Council of Mortgage Lenders, accounting for 25% of first-time buyer mortgages in 2005, compared with 15% in 2004. The dangers of such a strategy are obvious. If borrowers do not plan to repay the capital on their loan they are in danger of losing their property.
But on the plus side, the attractions are plain to see. They can get many people on the property ladder, or allow them time to put their finances in order. On a £150,000 mortgage at current interest rates, a borrower would pay thousands of pounds less each year on its interest-only equivalent. But there are worries that some lenders are not properly informing people of the risks involved in taking interest-only.
Glen Morris of mortgage broker Berkeley Consultants tells The Guardian: "Some of the big lenders are prepared to offer interest-only mortgages to people we would not consider suitable, based on nothing more than the completion of an application form." And that could lead to a growing number of defaulting borrowers and a corresponding increase in repossessions.
However, "if you are stretching so much that you have no option but interest-only, you should probably consider waiting until your finances are a little stronger before buying or moving," says Moneysupermarket.com's mortgage expert, Louise Cuming, in The Mail on Sunday
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
