Fewer than a third of interest-only borrowers have a separate investment policy in place to repay the original sum lent to them, according to research by mortgage business Ocean Finance.

With an interest-only deal you only repay interest on your debt to the lender each month and at the end of the term you still owe the amount you borrowed. Borrowers usually set up an ISA or endowment to repay their original debt, but many have failed to do so, meaning their options could be limited when they reach the end of their mortgage term. In fact the regulator has described the situtaion as a ticking time-bomb.

Just 16% of interest-only borrowers said they intend to switch to a repayment mortgage before their current loan ends in order to repay their debt, and a worrying 31% expect to have to sell their home to settle the outstanding capital.

Even more shocking is the fact that 20% said they don’t have any sort of plan in place to repay the original sum borrowed.

Spokesperson for Ocean Finance, Gareth Shilton, warned: “Borrowers who have an interest-only mortgage with no repayment plan need to take action.

“It’s advisable to seek advice on whether they can overpay on their current interest-only deal, switch to a repayment mortgage, or use an ISA or pension to settle the capital payment.”