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Concerns rise at leap in interest-only loans

The interest-only mortgage crisis is deepening, with a 33 per cent leap in the number of borrowers with an interest-only loan but no specified repayment vehicle.

The big rise is well above the increase in the number taking out a mortgage last year and adds to growing fears that many borrowers are not being properly advised of the repercussions of failing to ensure the capital is repaid.

The Council of Mortgage Lenders this week revealed a rise from 167,200 in 2005 to 222,400 last year in the number of interest-only loans for property purchase without an evident payment plan. In 2006, there was a 12 per cent increase in the overall number of loans for purchase.

Bradford & Bingley is so concerned that it will not lend on an interest-only basis on residential mortgages.

The FSA is conducting investigations into firms’ responsible lending policies on interest-only homeloans this year after consumer research last year found there are dangers to a “significant minority” without a plan.

The CML’s figures do not include buy-to-let mortgages, which are largely interest-only, and do not cover remortgages. But the CML points out that the proportion of first-time buyers borrowing on an interest-only basis with no repayment vehicle specified rose only slightly from 15 to 16 per cent. The CML has also revealed that FTBs’ income multiples reached a record high of 3.31 last year.

The Mortgage Broker managing director Darren Pescod says: “There is no problem with interest-only as long as the public are aware of what it means.”

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