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CML calms interest-only fears

The Council of Mortgage Lenders claims there is no evidence that borrowers are being driven to take out interest-only mortgages without having a plan for repaying the amount borrowed.

Research shows that interest-only borrowers take out loans with similar or slightly lower income multiples than those opting for capital-and-interest mortgages.

The CML says first-time buyers are less likely than other borrowers to take out interest-only loans (17 per cent of first-time buyers choose an interest-only mortgage, compared to 25 per cent of home movers).

The research shows that interest-only loans are particularly attractive to borrowers with uneven streams of income such as the self-employed, contract workers and those receiving substantial bonuses.

Earlier this month, the Financial Services Authority revealed that 19 per cent of all mortgages taken out in 2005 were interest-only where there was no evident repayment vehicle.

CML director general Michael Coogan says: “The view that interest-only mortgages are being used as a dangerous short cut around affordability barriers is not borne out by our research.

“But we do need to understand as much as we can about why borrowers choose them, and what they do after they have taken out their loan. We are therefore pleased that the FSA has been undertaking consumer research, and look forward to reading its findings when they are published next month.”

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