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Borrowers warned they could fall into flexible loan trap

IFAs are warning investors with flexible mortgages that they could be in

danger of never paying off their debt and losing their homes.

Troy French & Partners partner Peter French says flexible mortgages can be

a trap and those living an extravagant lifestyle could find themselves out

of their home after 25 years.

The warning comes as more lenders say the products are taking an

increasing proportion of sales.

French says the perils arise because there is a temptation to avoid the

capital repayment issue and in some cases borrowers are rolling up interest

with a further advance to the maximum originally agreed.

There are other factors such as the possibility of fall ing property

prices, higher interest rates and changes in a borrower&#39s personal

circumstances such as illness or employment problems which could make

borrowers more likely to lose their home.

Flexible mortgages will work for those who have plenty of equity in their

property and then trade down to a cheaper property.

Those who are able to repay the capital through an inheritance or sale of

a business are likely to be the success stories, says French.

Writing in this week&#39s Money Marketing, French says: “I think it is fair

to say that the flexible mortgage potentially encourages excess consumption

and reduces savings. I feel that lenders should carry out a five-year

property valuat ion to concentrate the borrower&#39s mind on the need to repay

that mortgage.”

Debtor&#39s prison p38-40

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