Interest-only mortgages, home loans with repayments that only cover the interest on the capital, could emerge as a major mis-selling scandal in the future. According to the CML, a significant proportion of homebuyers who opted for this type of loan have no means of repayment.
Figures from the Council of Mortgage Lenders display that over 200,000 people without a repayment vehicle took on interest-only loans in 2005. Where the problem could become most serious is for first-time buyers. Interest-only mortgage loans are thought to account for between 10 and 20 per cent of all new first-time buyers during the last decade.
With over half of all mortgage deals handled by intermediaries, mortgage brokers could now face claims of mis-selling, in the event that the loan matures without finances to cover it. An expert from the CML, Sue Anderson, reportedly said that "what we are suggesting is that when a mortgage comes up for review, for example, when it reaches the end of a concessionary rate, then it would be prudent to check on how the borrower intends to repay the loan."
If interest rates do increase, as they are widely forecast to, many interest-only clients could face tough times to meet repayments.
Interest-only mortgages could cause scandal
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Interest-only mortgages could cause scandal
Tue, 04 Jul 2006
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