There is an unrealistic expectation amongst a majority of interest-only borrowers that annual house price inflation will save them from their debt, according to research carried out for financial outsourcer HML.
The data revealed that as many as 57.6 per cent of interest-only mortgage holders think prices will rise enough for their debt not to be a problem at the end of their payment term.
HML chief executive Andrew Jones said: “There is a challenge to help consumers understand there isn’t going to be a return to runaway house price rises anytime soon and it is therefore their responsibility, along with lenders, to make appropriate arrangements to address the issue.
“The financial services industry needs to get a grip on this issue quickly and proactively contact borrowers to find a solution that is workable. Providers also need to think about innovative ways of helping people stay in their homes. What is clear is that doing nothing is not an option.”
HML’s research, among more than 1,000 people, also revealed that only three out of ten of borrowers with an interest-only mortgage are confident they have a plan that will repay the whole debt. This means seven out of ten people with an interest-only mortgage need help, most don’t know how they are going to repay it, or have the income to switch to a repayment mortgage.
Three out of ten homeowners have an interest-only debt – 16.5 per cent of borrowers have an interest-only mortgage with a further 14.5 per cent having a part interest-only and part repayment mortgage.
Awareness of interest-only among borrowers is not an issue. Of the people who know they have an interest-only mortgage the majority (91.6 per cent) know they need to repay the capital at the end of the mortgage term.
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