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Almost half of interest-only borrowers have no plan to pay off capital

Forty-five percent of the UK’s 2.9 million interest-only mortgages have no specified investment vehicle in place to pay off the capital on the loan, according to research from LV=.

Four in ten of the interest-only borrowers who have no capital payment plans are relying on the value of their property increasing.

But with house prices falling more than 15 per cent in the past 18 months and further dropsexpected this may not be possible in the short to medium term.

Only 21 per cent of people plan to use other investments, not linked to their mortgage, to pay off the capital at the end of the term.

The insurer found 89 per cent of borrowers without a specified capital payment plan were issued mortgages in the last five years.

LV= group chief executive Mike Rogers says: “A previously booming property market led many people to bank on being able sell their home, use the proceeds to pay off the mortgage, and still have enough left to buy another home. However, this strategy may have been overturned by current and predicted future falls in property prices. These people should therefore seriously consider investing as much as they can now, and regularly, to help pay off the mortgage capital at the end of the term.”

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