Interest-only mortgages only delay dealing with debt

A record number of first-time buyers chose an interest-only mortgage in June, as almost one in three opted for this product type, figures from the Council of Mortgage Lenders (CML) have shown.

Interest-only mortgages allow borrowers to delay repaying their gross mortgage debt, paying only the interest rate for an initial period set by their lender.

But while this option attracts borrowers desperate to afford a home in increasingly pressurised property market conditions, experts are warning that they could imperil their future finances by delaying dealing with a heavy debt hangover.

Just eight per cent of borrowers taking out an interest-only mortgage submitted details to lenders of how they planned to repay the loan, the CML revealed.

The regularity of repayments required by a regular mortgage product can help borrowers martial their finances so that they are forced to make the repayments on time, without defaulting.

A more open-ended agreement, by contrast, can encourage borrowers to put off making hard financial sacrifices.

Financial commentators have advised anyone borrowing on an interest-only product to switch to a standard repayment mortgage and begin repaying debt in instalments as soon as possible.

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