FTBs warned over interest-only mortgages

First-time buyers (FTBs) have been warned that an interest-only mortgage could be a dangerous option to take when moving into their first home.

According to recent figures from the Council of Mortgage Lenders, 90 per cent of first-time buyer mortgages were taken out on a fixed-rate, meaning that the majority of new buyers are wisely shielding themselves from further rate rises.

However it was also revealed that 29 per cent of FTBs in June chose an interest-only mortgage – on which monthly payments only cover the interest on a loan, rather than the loan itself.

Writing on thisismoney.co.uk, Charlotte Beugge, deputy personal finance editor with the Daily Mail, states: "Interest-only mortgages have their place – they can work if you are disciplined enough to make lump-sum repayments to reduce the debt – a repayment loan works better for most.

"But while first-time buyers have sensibly protected themselves from further interest rate rises by going for fixed rates, they are storing up problems for the future with interest-only loans."

Ms Beugge admitted that interest-only offers may seem like the only way for many people to get on the property ladder but stressed that interest-only borrowers should switch to a repayment loan as soon as they can afford to.

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