1.3 million interest-only mortgages are without repayment plans

21 November 2008 / by Rebecca Sargent
New research has revealed that more than a million interest-only mortgages have no specific investment vehicle in place to pay off the actual loan.

The worrying statistics from Liverpool Victoria (LV=) show that as much as £74billion in interest-only mortgage lending is outstanding without any means of repayment.

And, according to LV=, the majority of these interest-only mortgages without a capital repayment plan have been taken out in the last five years. Since the early 1990s it has not been compulsory to set up an investment plan to pay off the mortgage amount.

The study found that four in ten of the borrowers are relying on the sale of their property to repay the mortgage. However, the recent fall in value of property and house sales, could make this a risky strategy.

Mike Rogers, LV= Group chief executive comments: "A previously booming property market led many people to bank on being able to sell their home, use the proceeds to pay off the mortgage, and still have enough left to buy another home.

"However, this strategy may have been overturned by current and predicted future falls in property prices. These people should therefore seriously consider investing as much as they can now, and regularly, to help pay off the mortgage capital at the end of the term."

In addition to the number of Brits putting their homes at risk with interest-only mortgages, 13 per cent of respondents to the LV= survey believe they are now in negative equity, and a further 10 per cent say they are unsure whether their property is worth more or less than the mortgage value.

Mr Rogers added: "Providing for those things that matter most in life has undoubtedly got a lot harder in recent months and the current economic outlook will be making many families anxious. However, a little financial planning now could make a real difference down the line.

"We urge interest only borrowers with no firm capital payment plans to review their options, save as they can regularly, and seek professional advice early if needed."

© Fair Investment Company Ltd