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Estimates rocket for interest-only loans

The true extent of the interest-only mortgage crisis looks to have been grossly underestimated after the FSA revealed that around 410,000 interest-only mortgages were sold last year alone, with no evidence of a repayment vehicle.

FSA retail markets managing director Clive Briault has revealed that 19 per cent of 2.16 million new mortgages sold in 2005 were interest only, with no repayment plan.

Figures for the total number of mortgages without a repayment plan are not available although in July Money Marketing revealed that the Council of Mortgage Lenders suggested that the total was 200,000.

However, given that the 400,000 figure does not include mortgages sold in 2006 and before 2005, the number could be in the millions.

The problem could be worsening. CML figures for first-time buyers and homemovers show 16 per cent of interest-only borrowers did not have a repayment vehicle in 2004 – 3 per cent less than 2005 – while the number of interest-only loans sold rose by 12 per cent between 2004 and 2005.

The FSA will publish findings of its interest-only thematic investigation by the end of this year. Briault also raised concerns about the quality of mortgage advice, lending into retirement, training and competence and affordability at last week’s Mortgage Business Expo in London.

He said: “During 2005, 24 per cent of all new mortgages were on an interest-only basis. In more than three-quarters of cases, it was not clear from our thematic work whether a repayment vehicle was in place. This seems a high proportion.”

Purely Mortgages chief executive Mark Chilton says: “It is worrying in the long term and it is an increasing trend among FTBs. The sooner they get a repayment vehicle in place the better. It is also increasing for those at the top end of the market who are confident of paying off the capital through a bonus or inheritance.”

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