Moneynet.co.uk believes that this would help defuse the ticking time bomb which awaits borrowers who lack any repayment provision in retirement.
Non-repayment mortgages now make up around a quarter of all new mortgages and with lenders continuing to do whatever it takes to reel in growing numbers of customers, it’s clear that many borrowers willing to take on more debt could be heading towards financial meltdown.
“Borrowers’ attraction to interest only mortgages isn’t hard to work out – a repayment mortgage of £150,000 at six per cent over 25 years will cost around £978 a month. On interest only, however, they won’t have to dig so deep as monthly cost falls to just £750, leaving enough to afford the extras that everybody wants,” said Moneynet.co.uk’s chief executive, Richard Brown.
Funding for new cars, expensive holidays and the latest gadgets has to come from somewhere and worrying about repaying a mortgage due in 25 years is simply not on the radar for many spenders.
Brown continued: “Although interest only mortgages play a vital part in the mortgage industry, often providing the only means for first time buyers to hold the key to their own front door, misusing this type of loan is counter-productive. In the longer term, it is crucial that borrowers ensure they clear their mortgage debt prior to retirement to avert financial disaster in old age.
“Lenders should review their interest only clients’ situation at least every three years to work out if they are at risk and, if so, look for a more secure strategy. A sharp prod from their lender could be the wake-up call needed for those who are simply using interest-only mortgages as a cheap form of income supplement and will hopefully open their eyes to the fact that relying on the prospect of an inheritance or the continuing rise in house prices might not be the best answer to paying off a mortgage in 25 years.”
