‘Risk element’ to interest only mortgages
October 1, 2007 by admin
Filed under News, News-Mortgages
Customers choosing to invest in an interest-only mortgage risk falling into negative equity if housing prices drop after they have secured the loan, a finance expert has warned.
Re – Financial Planning explained that clients taking out insurance-only mortgages, which allow them to just pay back the interest on the sum borrowed and repay the original capital debt upon the sale of a property, would lose less money each month through mortgage repayments but face extra risk.
Not only would they still have the original loan repayment hanging over their heads, but they could be left owing their mortgage provider money after the sale of their property if house prices had fallen instead of climbed, explained David Higgins, director of Re – Financial Plannign.
“Any client taking on an interest only mortgage is adding an extra dimension of risk over and above what they would normally have with a capital repayment mortgage,” he said.
“I think mortgage lenders are more lax than they’ve ever been. The high property prices have lulled them into a false sense of security. They know that even if the person doesn’t have the means to pay off the mortgage that they have adequate security.”
According to MoneyFacts.co.uk, the recent credit crunch is starting to effect the buy-to-let sector, as providers begin to tighten credit criteria, raise fees and a withdraw products from the market.
