First time buyers 'should be wary' of interest-only mortgages

14-Dec-2006

First time buyers struggling to get a foot on the property ladder should be wary of taking an interest-only mortgage, unless a suitable repayment vehicle is in place, experts warn.

According to the Financial Services Authority (FSA), although interest-only mortgages make up 24 per cent of the total mortgage market, 15 per cent of first time buyers and repeat purchasers from this group lack a suitable repayment strategy.

To find out more about this mortgage, contact a good mortgage broker.

Although strategies vary, there is a trend for some borrowers to worry about repayment later or to plan a switch to a repayment vehicle nearer retirement - an interest-only mortgage should never be used purely in order to lower monthly repayments, according to the FSA.

"Consumers repayment plans need to be realistic and robust," said Clive Briault, managing director of retail markets at the FSA.

He added: "Consumers should not, for example, assume that house prices will continue to rise at the rate seen in recent years."

Traditionally, endowments were a popular option to combine with interest-only mortgages, however other options are available, including Isas and pension mortgages.

As the market for first time buyers toughens, new companies are offering new services to help first time buyers buy new properties by working with the house-builders.

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