Latest news

£60 billion of mortgage debt `shifted to interest-only deals`

Around 300,000 households owing a combined £60 billion have switched to an interest-only mortgage deal in the last three years, statistics from the FSA (Financial Services Authority) show.

Many of these homeowners may have done so to relieve some of the pressure on their finances, with costs of living on the rise and personal debt becoming a growing problem in the UK.

Interest-only deals normally involve arranging a separate `repayment vehicle` for the capital portion of the mortgage (i.e. the borrowed amount). But it is thought that many people may not be saving enough. In its Mortgage Market Review last July, the FSA said: "Evidence suggests that interest-only mortgages have often been taken to extend affordability, with no firm plan in place to repay the capital. [...] Our current view is that interest-only should be used only where there is a genuine repayment method in place."

An expert at the IVA Advisory Centre said: "An interest-only mortgage shouldn`t be considered as a long-term method of making your finances more manageable. Not having a plan for repaying the capital is likely to cause future financial difficulties, because the capital will not be reducing and will still have to be repaid at a later date.

"Instead, anyone struggling with their financial commitments should seek expert advice on ways to improve their longer-term situation."