RSS FeedsHomeowners with Interest only Mortgages are at risk
23/03/2008
Many homeowners’ especially first time buyers have fully stretched their mortgages by taking out interest only mortgages. In the last five years the number of first time buyers taking out this type of mortgages has more than doubled according to the Council of Mortgage Lenders.
The reason many first time buyers have done this is to take advantage of paying a lower amount each month, in most cases this is down to affordability. This could lead to a lot of problems as this means that homeowners are not paying off the capital on the loan and homeowners could be left in trouble with assets they don’t own and massive debts.
A mortgage specialist at the Brokers London and Country, David Hollingworth said earlier today that "Switching from repayment to interest-only should be treated as an absolute last resort and even then as a short-term solution to ease monthly payments. If there is no repayment vehicle in place and the borrower has no plan of action they could ultimately find that the only way to repay the mortgage is by selling the property."
In 2007 the number of first time buyers opting for an interest only mortgage rose from 72,600 out of 357,500, which was much higher than compared to in 2002 where the figures were a total of 32,000 first time buyers out of 531,800.
According to Sarah Robson a spokesman from the council said that interest only mortgages are "a way of managing to cope" for those under financial pressure and if the financial crisis continues we will probably see more of them.