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Most interest-only borrowers count on rising value to repay debt

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05/11/2012
58% of interest-only borrowers believe house prices will rise enough for their debt to no longer be a problem at the end of the mortgage term.

According to research carried out by mortgage processing firm HML, only three out of 10 borrowers with an interest-only mortgage are confident they have a repayment plan in place.

HML chief executive Andrew Jones said: “There is an unrealistic expectation amongst a significant number of interest-only borrowers that annual house price inflation will return to double digits and dig them out of a sticky situation.

“There is a challenge to help consumers understand there isn’t going to be a return to runaway house price rises anytime soon and it is therefore their responsibility, along with lenders, to make appropriate arrangements to address the issue.”

HML’s data showed that three out of 10 homeowners have interest-only debt, 16.5% have an interest-only mortgage, while a further 14.5% have a part interest-only and part repayment mortgage.

Last week, in the regulator’s final Mortgage Market Review paper, the regulator ruled that lenders will only be able to offer interest-only if a borrower has a credible repayment strategy in place.

HML found the most popular repayment vehicle is an endowment policy, followed by a PEP/ISA, savings and inheritance.

More than one in 10 surveyed said they would repay the debt through other means.

 

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