CML counsels first-time buyers to consider interest-only mortgages

An interest-only mortgage could give a first-time buyer a financial margin which helps them afford other outgoings after purchasing their property, the Council of Mortgage Lenders (CML) has observed.

Initial mortgage repayments are lower than for customers with standard mortgages, since customers pay only the interest on the loan in the first instance.

"For a first-time buyer, that might be quite an attractive option because … [it] means they've got more money in their pockets to…buy new furniture, decorate their new house," the CML's Christopher Dean explained.

An interest-only mortgage gives customers "financial breathing space", he said.

But deferring making capital repayments until a later date means the spread of repayments may be less even over time.

That said, lenders ordinarily instruct borrowers to establish a repayment vehicle such as a pension plan, endowment policy, or ISA which enables them to pay off the outstanding debt when the savings vehicle matures.

Meanwhile, CML figures show many first-time buyers opting for fixed-rate mortgages which cushion their finances from any further interest rate rise, Mr Dean noted, with a record 90 per cent of first-time buyers choosing a mortgage which is not fixed to Bank of England interest rates in June.

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