Further warnings over interest only mortgages

Thu, 14 Dec 2006

A fresh report by the Financial Services Authority indicates that many borrowers who choose interest-only mortgages have no repayment vehicle, or little idea of how to repay the amount they have borrowed.

The FSA drew attention to the reported 10 per cent of homeowners who they said had only a rough idea of how to repay their loan . A further 5 per cent of mortgage borrowers had questionable repayment strategies. Those who believed they would switch to a repayment mortgage at some point in the future, and others who were waiting for property prices to rise still further and then sell the property, were believed to fall into this group.

The managing director of retail markets at the FSA said: "There is nothing wrong with interest-only mortgages . However, consumers must be very clear about how they are going to repay the loans they take out. Consumers' repayment plans need to be realistic and robust. Consumers should not, for example, assume that house prices will continue to rise at the rate seen in recent years."

The news from the FSA will come as a warning to both borrowers and lenders to consider their actions in detail. Advisers and mortgage companies, the FSA said, need to clearly spell out the entire mortgage loan process, not simply the headline interest rate .
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