Interest-only mortgages are a risky business

In order to get by, 300,000 families have, over the past three years, switched their mortgages to interest-only.

and the reality is that it’s a risky business. The average mortgage is valued at £109,000 and borrowing costs are 3.5%. Switching from capital repayment to interest-only is helping households save £230 a month. But when it comes to remortgaging these properties, the family could be in hot water.

In a Mortgage Market Review paper last July, the Financial Services Authority said: ‘Evidence suggests that interest-only mortgages have often been taken to extend affordability, with no firm plan in place to repay the capital... Our current view is that interest-only should be used only where there is a genuine repayment method in place.

It added: ‘We do not intend to restrict interest-only from being used as a forbearance method for customers in arrears.’

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