Almost three-quarters of homeowners with interest-only mortgages - many of them buy to let landlords - are worried they may not be able to repay their loan.
Research by mortgage broker Ocean Finance suggests that just 31 per cent of interest- only borrowers questioned said they have a separate investment policy in place, such as an endowment or an ISA, to pay the capital.
While 16 per cent said they plan to switch to a repayment mortgage before their current loan ends, 31 per cent said they expect to have to sell their home to settle the outstanding capital.
Interest-only mortgages became popular in the 1990s as a way for consumers to afford homes at a time when property prices were soaring; interest-free mortgages have historically been the choice of borrowing for buy to let investors in particular.
Lenders often agreed interest-only loans without confirming borrowers could repay the capital owing at the end of the mortgage. By the end of 2012 most lenders stopped offering interest-only deals after tightening their lending rules.
The research shows that just over a fifth of borrowers with interest-only mortgages don’t feel they were given adequate advice about repaying the capital portion of the loan when they took out their mortgage.
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Talk about missing the point.
Buy to Lets are essentially commercial ventures, designed to generate income and hopefully capital growth over the long term. It is not and never has been the aim of most buyers to own the property outright, but to sell it after X years, pay the CGT and bank the rest. This is not a contentious point and would be widely agreed with.
As we all know, tax breaks are only available against the interest portion, so therefore it has mostly made sense to set up the mortgage on an IO basis.
I smell another round of press-fuelled comp-en-say-shun coming on and many people will say they weren't given adequate advice even though they were. It'll be the same people who received whiplash after reversing into a traffic cone at 4 miles an hour in their local Sainsburys car park.
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