Interest-only mortgages up 33%

Monday, 06 November 2006 12:00

October saw massive rises in the number interest-only mortgages, up a third from September's figure of 25 per cent to 34 per cent last month.

The findings are indicative of Britain's borrowers getting increasingly cash-strapped say Mortgages Direct, who conducted the research.

At the same time last year, the number of homebuyers choosing interest-only mortgages was just over 25 per cent.

"Borrowers are showing signs of heightened sensitivity to any changes in the interest rates," said Peter Gladdy, director of Mortgages Direct.

"The trend for borrowers opting for interest only mortgages is worrying and not advisable unless a comprehensive repayment method is in place. Our survey also reveals that homeowners are continuing to opt to secure a fixed rate mortgage for a longer period of five years or more.

"Consumers seem to have a bleak outlook on the long term stability of the housing market economy," Mr Gladdy added.

Following the findings, Mortgages Direct are urging the Bank of England not to raise interest rates further in November, particularly as the proportion of first-time buyers has also been dropping as interest-only mortgages have increased in popularity.

"Although the market is still performing well, it seems that the August rise in interest rates was particularly bad news for first time buyers, who are still finding it increasingly more difficult to get on the property ladder."

"Any further rise could be a catalyst to a serious downturn in the market. First time buyers form the foundation of a healthy mortgage industry and if they are unable to buy because of high property prices and the fear of rising interest rates, the market will quickly draw to a halt."

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