Banks 'unwilling to provide interest-only mortgages' despite demand
Published On 22 March 2007
Borrowers could save nearly £3,000 every year if they were allowed to take out interest-only mortgages by lenders.Consumer website MoneyExpert has calculated that consumers could cut their monthly mortgage repayment by £232 by opting for residential interest-only mortgages.
However, the website found that one in five lenders will not let people choose this sort of mortgage, as fears about borrowers being unable to repay their loans increase.
Despite this, the Council of Mortgage Lenders (CML) recently reported that interest-only mortgages were becoming increasingly popular - its figures show that the number of these mortgages taken out in 2006 increased by 33 per cent to 222,400.
"Lenders are cautious about the rise in interest-only mortgages and those who do offer interest-only loans take precautions such as limiting loan to value ratios to 75 per cent," chief executive of MoneyExpert.com Sean Gardner explained.
Mr Gardner added that taking out an interest-only mortgage did entail some risks, saying: "To some extent borrowers are taking a punt on house prices continuing to rise and being able to repay their loan by downsizing or receiving a windfall.
"However as long as borrowers are aware of the risks then it can make financial sense to opt for an interest-only loan as the monthly savings are significant and can make the difference in being able to afford a mortgage."
According to CML figures, the total amount of outstanding mortgage debt in the UK stands at £1.1 trillion and the average new mortgage is £123,300.
