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Interest-only mortgages cause lenders concern

23 March 2007
Potential monthly mortgage repayment affordability problems among UK homeowners are reducing the tendency for lenders to provide interest-only mortgages, new research shows.

A survey carried out by MoneyExpert indicates that a fifth of lenders are reluctant to offer interest-only residential mortgages.

The group has also found that almost a fifth of the 115 mortgage lenders surveyed said they would not lend to customers unless a formal repayment scheme was in place.

Despite this, interest-only mortgages are becoming increasingly attractive to prospective homeowners, with the Council of Mortgage Lenders estimating that the number taken up last year rose by a third to over 222,000.

Many consumers appear to be attracted to the savings that can be made, with MoneyExpert estimating that a consumer on a conventional discounted package could save £248.30 each month on a £150,000 mortgage.

Sean Gardner, chief executive of MoneyExpert, said that lenders were being "cautious" about the rise in popularity of interest-only mortgages.

He added: "As long as borrowers are aware of the risks then it can make financial sense to opt for an interest-only loan as the monthly savings are significant and can make the difference in being able to afford a mortgage."

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