Interest-only mortgage holders 'under threat'

21/08/2009

People who took advantage of the generous credit conditions prior to the financial crisis are now facing disastrous debts, it has been suggested.

A significant proportion of those on interest-only mortgages have been pushed under water on their loans due to falling house prices, the Times reported.

Quoting figures from the Financial Services Authority (FSA), the newspaper pointed out that over a third of Britain's mortgage borrowers could have made "inadequate provisions" to pay their loans off.

Interest-only mortgages work, as their names suggest, by customers only covering the cost of their interest payments without paying off any of the underlying loan.

These deals therefore expose borrowers to a greater risk of falling into negative equity, where the value of their loan is greater than the value of their home.

A spokesman for the FSA told the newspaper: "At the top of the market it was the case that for a lot of borrowers, interest-only was the only way they could afford to buy.

"For these borrowers it becomes increasingly difficult to pay off the capital as time goes on."

Recent house price data from Halifax and Nationwide agree that the value of the typical UK home has fallen by over ten per cent in the last year.

Tags; Housing Debt and Bills, Young Family Finances, Retirement Money Problems, Credit Card Lifestyle, Recent Graduate Debt,

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