Brits not being driven to interest-only mortgages
High prices are not driving Brits to interest-only mortgages, the CML finds
Thursday, 30, Nov 2006 05:07
There is no evidence housing affordability is driving Britons to take out interest-only mortgages without having a plan for repaying the loan.
As house prices rise, there has been growing speculation that - in an effort to cut costs and afford a bigger mortgage - Britons have been taking out interest-only mortgages without any plans to pay off more than the interest.
But today the Council of Mortgage Lenders (CML) has produced research looking into the comparisons between borrowers who take out repayment (capital-and-interest) and interest-only mortgages.
"The view that interest-only mortgages are being used as a dangerous shortcut around affordability barriers is not borne out by our research," said Michael Coogan, CML director general.
The CML data shows people taking out interest-only mortgages have the same or lower income multiples than those taking out capital-and-interest mortgages.
Additionally, first-time buyers for whom affordability is most stretched are less likely than other borrowers to take out interest-only loans. Just 17 per cent of first-time buyers choose an interest-only mortgage, compared with 25 per cent of home movers.
Overall, interest-only borrowers typically have the same ability to repay their loan as those taking out repayment mortgages.
When the CML looked at who was taking out interest-only mortgages, it found these loans were popular with borrowers who have "uneven streams of income".
"The self-employed, contract workers and those receiving substantial bonuses can choose to minimise their regular monthly payments with an interest-only loan and use 'peaks' of higher income to make ad hoc capital repayments," the CML said in a statement.
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