Interest-only mortgages up by a third
Nov 08, 2006
The number of house buyers who opted for an interest-only mortgage last month increased by a third, according to new research.
The number of borrowers choosing interest-only home loans rose from 25 per cent in September to 34 per cent in October, according to the latest monthly survey published by Mortgages Direct.
The UK mortgage broker claims that first-time buyers are also finding it increasingly difficult to get a foot on the housing ladder given rising house prices, a situation which the company warns is likely to get worse if the Bank of England opts to raise interest rates as expected, later this week. The percentage of first time buyers in the property market reached an annual low of 32 per cent in October, Mortgages Direct said, although the proportion did mark an improvement from a level of 25 per cent in September.
Commenting on the findings, Paul Gladdy, director of Mortgages Direct, described the increasing trend for home buyers to opt for interest only mortgages as "worrying" and stressed that such policies were "not advisable" unless borrowers had a comprehensive repayment method in place. He also warned that a further rise in the cost of borrowing could act as a catalyst for a serious downturn in the housing market.
Amid concerns that homeowners opting for interest only mortgages could face a shortfall at the end of their mortgage term, such loans are now subject to regulations introduced by the Financial Services Authority (FSA), which require lenders to ask for firm evidence from borrowers that they have a suitable savings vehicle in place to cover the capital needed to buy their home
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